T.C. Memo. 2003-183
UNITED STATES TAX COURT
DOROTHY MOORHOUS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10761-00L. Filed June 24, 2003.
John Franklin Rodgers, for petitioner.
Jeffery E. Gold, for respondent.
MEMORANDUM OPINION
COLVIN, Judge: On October 6, 2000, respondent sent
petitioner a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (the lien or levy
determination), in which respondent determined that collection
from petitioner of her unpaid tax, additions to tax, and interest
for 1989-92 would proceed.
The sole issue for decision is whether respondent’s refusal
to consider petitioner’s offer in compromise because petitioner
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did not provide current financial information was an abuse of
discretion. We hold that it was not.
Section references are to the Internal Revenue Code in
effect for the applicable years. Rule references are to the Tax
Court Rules of Practice and Procedure.
Background
The parties submitted this case fully stipulated under Rule
122.
A. Petitioner
Petitioner resided in Springfield, Virginia, when she filed
the petition in this case. In 1997, she was a budget analyst for
the U.S. Department of Commerce, and her husband, Mr. Moorhous,
was a retired U.S. Department of Defense employee. Petitioner
and Mr. Moorhous filed joint income tax returns for 1989-92.1
Petitioner and Mr. Moorhous filed separate bankruptcy
petitions on dates not stated in the record. Petitioner’s income
tax liability for 1987 and 1988 was discharged in bankruptcy, but
Mr. Moorhous’s liability for those years was not discharged.
1
Mr. Moorhous is not a party to this case. He received a
Notice of Determination Concerning Collection Action(s) Under
Sec. 6320 and/or 6330, but he filed his request for a hearing
late. Thus, he is not entitled to judicial review under sec.
6320 or sec. 6330. Moorhous v. Commissioner, 116 T.C. 263, 270
(2001); Kennedy v. Commissioner, 116 T.C. 255, 262-263 (2001).
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B. Petitioner’s Offer in Compromise
In January 1997, petitioner and Mr. Moorhous submitted Form
656, Offer in Compromise, in which they offered $3,618 to
compromise his 1987-92 and 1997 tax liability and her 1989-92 tax
liability. At least $86,000 was due from petitioner and Mr.
Moorhous at that time for those years.
On or about March 3, 1997, respondent’s examiner, Ms. Vines
(Vines), asked petitioner and Mr. Moorhous to provide additional
financial information by March 28, 1997. Vines had received no
response from petitioner and Mr. Moorhous by April 8, 1997, and
she closed the case on that date. Respondent issued a written
rejection letter which stated that petitioner and Mr. Moorhous
have no administrative appeal rights. Petitioner and Mr.
Moorhous then submitted additional financial information, and
Vines agreed to reconsider their offer in compromise. Vines
again recommended that the offer in compromise be rejected based
on her estimate that the net realizable equity2 in petitioner and
Mr. Moorhous’s assets was at least $125,000 greater than the
amount they offered in compromise and considerably greater than
the $86,388 then due from petitioner and Mr. Moorhous. She told
2
Internal Revenue Manual sec. 5.8.5.3.1 (Feb. 4, 2000)
defines net realizable equity for purposes of an offer in
compromise as an estimate (usually about 80 percent of fair
market value) of the price a seller could get for the asset where
financial pressures motivate the seller to sell in a short period
of time (usually 90 days or less) less amounts owed to secured
lien holders with priority over the Federal tax lien.
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petitioner and Mr. Moorhous that their offer in compromise would
be rejected with the right to seek reconsideration by
respondent’s Appeals office. Respondent did not send a written
rejection letter or notice of right to appeal to petitioner. At
that time, respondent had a policy of generally not accepting
offers in compromise from Federal employees. However, respondent
did not apply that policy to petitioner.3 Respondent
discontinued the policy effective July 18, 1997. IRS Litig.
Bull. 445 (October 1997).
On April 27, 1999, respondent sent to petitioner a Notice of
Intent To Levy and Notice of Your Right to a Hearing concerning
petitioner’s tax liability for 1989-92. The notice of intent to
levy stated that petitioner owed tax, penalty, and interest of
$17,909.98 for 1989, $10,266.83 for 1990, $9,980.32 for 1991, and
$19,400.89 for 1992, for a total of $57,558.02. On May 10, 1999,
petitioner requested a section 6330(b) hearing for tax years
1987-92. At the hearing, petitioner submitted her 1997 offer in
compromise and accompanying 1997 financial information. At the
hearing, the hearing officer stated that respondent erred in not
issuing a written rejection letter that advised petitioner of her
right to appeal the rejection of her 1997 offer in compromise to
respondent’s Office of Appeals. The hearing officer agreed to
3
Petitioner contends that respondent applied the policy to
petitioner in 1997. We decide this issue in the opinion.
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consider petitioner’s offer in compromise if petitioner would
provide current financial information. Petitioner provided only
some of her current financial information, and so the hearing
officer did not consider the offer in compromise.
On October 6, 2000, respondent issued a notice of
determination in which respondent determined to proceed with
collection from petitioner of her taxes owing for 1989-92.
Discussion
Petitioner contends that respondent’s refusal to consider
her offer in compromise for 1989-92 because she did not provide
current financial information was an abuse of discretion.4 We
disagree. Section 7122(c)(1) provides that the Secretary shall
prescribe guidelines for the Internal Revenue Service to use in
determining whether to accept an offer in compromise.
Treasury regulations provide that the Commissioner will not
process an offer in compromise that lacks sufficient information
to permit the Commissioner to evaluate its acceptability. Sec.
301.7122-1T(c)(2), Temporary Proced. & Admin. Regs., 64 Fed. Reg.
39020 (July 21, 1999). The Commissioner will not process an
offer in compromise if the financial information submitted with
it is older than 12 months. 2 Administration, Internal Revenue
Manual (CCH), ch. 5.1(1) (Feb. 4, 2000). The hearing officer
4
At the hearing, petitioner told the hearing officer that
she did not want her offer in compromise to be considered based
on current financial information.
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followed those guidelines by requiring that petitioner provide
current financial information to evaluate whether her offer in
compromise was adequate and should be accepted. The decision not
to process petitioner’s offer in compromise on account of her
failure to submit current financial information was consistent
with prescribed guidelines and was a reasonable exercise of the
Commissioner’s discretion.
Respondent erred in not sending petitioner a written notice
that respondent had rejected her 1997 offer in compromise. See
former sec. 301.7122-1(d)(4), Proced. & Admin. Regs. (taxpayer
must be given prompt notice in writing of rejection of offer in
compromise). Petitioner contends that, because of that error, we
should remand this case to respondent’s Office of Appeals for
consideration of her offer in compromise based on her 1997
financial information. We disagree.
In 1997, respondent twice considered and rejected
petitioner’s $3,618 offer to compromise a tax liability of about
$86,000. Respondent concluded that the net realizable equity in
petitioner and Mr. Moorhous’s assets was at least $125,000
greater than the $3,618 amount offered in compromise. We have no
reason to believe that result would change if respondent again
considered petitioner’s offer in compromise based on her
financial information for 1997.
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Respondent’s failure to send petitioner a written rejection
of her 1997 offer in compromise did not deprive her of any
administrative appeal rights. The hearing officer for
petitioner’s section 6330 hearing stated that respondent erred in
not issuing a written rejection letter that advised petitioner of
the right to administratively appeal that rejection. Respondent
contends on brief that that statement by the hearing officer was
wrong because, in 1997, taxpayers had no appeal rights concerning
rejected offers in compromise. Petitioner does not dispute
respondent’s statement in this regard and offers no contrary
authority. We conclude that petitioner was not prejudiced by the
hearing officer’s failure to consider her offer in compromise
based on 1997 financial information or by respondent’s failure to
give her written notice in 1997 that her 1997 offer in compromise
had been rejected. See Rodriguez v. Commissioner, T.C. Memo.
2003-153.
Petitioner contends that respondent’s refusal to consider
her offer in compromise in 1997 was based on respondent’s policy
then in effect of generally not accepting offers in compromise
from Federal employees. We disagree. There is no evidence to
support her contention, and there is credible evidence showing
that respondent did not apply that policy to her.
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We conclude that respondent’s determination to proceed with
collection as to petitioner’s 1989-92 tax liabilities was not an
abuse of discretion.
Decision will be
entered for respondent.