T.C. Summary Opinion 2004-14
UNITED STATES TAX COURT
GERRY ASHURST, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
KEAN H. ASHURST, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 161-03S, 162-03S. Filed February 9, 2004.
Gerry Ashurst and Kean H. Ashurst, pro sese.
Paul J. Krazeise, Jr., for respondent.
KROUPA, Judge: These cases were heard pursuant to the
provisions of section 7463.1 The decisions to be entered are not
reviewable by any court, and this opinion should not be cited as
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended.
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authority. These cases arise from petitions2 filed under section
6330(d) in response to Notices of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330
(Determination Notices) by petitioners Gerry Ashurst (Mrs.
Ashurst) and Kean H. Ashurst (Mr. Ashurst), wife and husband.
The sole issue for decision is whether the Settlement officer
abused his discretion in rejecting petitioners’ Offer In
Compromise (OIC). We hold he did not.
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. Petitioners resided in
LaGrange, Kentucky, at the time they filed the petitions.
Petitioners filed their Federal income tax returns for 1991,
1992, 1993, 1994, 1995, and 1996, reflecting unpaid balances due.
The balances were assessed and, with penalties and accrued
interest, exceed $27,000.
On July 22, 2000, respondent issued a Final Notice - Notice
of Intent to Levy and Notice of Your Right to a Hearing (Final
Notice) with regard to petitioners’ unpaid Federal income tax
liabilities for 1991, 1992, 1993, 1994, 1995, and 1996, totaling
$27,140.
2
These cases have been consolidated for purposes of trial,
briefing, and opinion.
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In response to the Final Notice, petitioners requested a
hearing pursuant to section 6330(b) (hearing) on August 7, 2000.
On June 8, 2001, Appeals Officer William Smith of the Salt Lake
City, Utah Appeals Office (Appeals Officer Smith) sent a letter
to petitioners scheduling a hearing for July 12, 2001. The
hearing was subsequently postponed because petitioners indicated
that they would file an OIC with respect to their outstanding tax
liabilities.
On July 3, 2001, petitioners submitted an OIC for their
unpaid income tax liabilities for 1991, 1992, 1993, 1994, 1995,
1996, as well as 2000. On a Form 656, Offer in Compromise,
petitioners indicated that Mr. Ashurst had been unemployed since
July of 2000, that he had coronary surgery in August of 1998,
that prevented him from engaging in physical activity, and that
they had exhausted all their resources in seeking employment and
maintaining the household. Petitioners offered to compromise
their tax liabilities of approximately $27,000 for the years 1991
through 1996 and 2000 with a one-time payment of $3,500.
On July 9, 2001, Appeals Officer Smith informed petitioners
that their offer was received and that an Offer examiner would
contact them to evaluate their request. On January 16, 2002,
Bonnie Griggs, a Revenue officer from the Ogden, Utah, Office of
the Internal Revenue Service (Revenue Officer Griggs) sent
petitioners a letter stating that the OIC had been reviewed and
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that additional information was needed. After receiving and
reviewing petitioners’ financial information, Revenue Officer
Griggs, in a letter dated March 18, 2002, informed petitioners
that she was unable to recommend that their offer be accepted
because the information petitioners provided indicated that they
could pay their entire income tax liabilities.3 The letter also
stated that if petitioners did not agree with the statements,
they could call her to discuss the offer or discuss other
collection alternatives.
Petitioners and Revenue Officer Griggs further corresponded
during March and May of 2002, in which petitioners submitted
additional financial information to her. On May 29, 2002, the
Revenue officer sent petitioners a letter stating that on the
basis of the new information provided, she had recalculated
petitioners’ financial situation. Because petitioners’ projected
income and net assets, as recalculated, still enabled them to pay
their tax liabilities in full, she would not recommend their
3
Revenue Officer Griggs determined that, after allowing for
necessary living expenses, petitioners’ monthly income and
realizable assets enabled them to make a maximum payment of
$1,168 per month. The Revenue officer stated that because she was
unable to reach petitioners she used their Dec. 31, 2000, income
to compute their monthly income. The officer determined that
petitioners had a total monthly income of $6,486 and expenses of
$5,318 leaving an ability to pay $1,168 per month over a period
of 4 years.
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offer for acceptance.4 In the letter, she also suggested that
petitioners enter into a regular installment agreement for $836
per month.
On June 3, 2002, petitioners faxed Revenue Officer Griggs a
letter stating:
I am unwilling and unable to accept this
evaluation by your office. I currently have no
earnings other than my wife’s income and due to my
heart condition current prospects for employment are
very slim. * * * I have explained my circumstances to
you in writing and verbally and consider you (sic) lack
of understanding as nothing more than harassment in
this case. Therefore I am requesting that this case be
forwarded back to Appeals (Bill Smith).
An Appeals hearing was held with Mr. Ashurst on behalf of
petitioners on July 22, 2002. The hearing focused on
petitioners’ OIC as well as other collection alternatives. It
was agreed that Mr. Ashurst would inform Appeals Officer Smith
about his future work prospects. No such information was
provided, however. Further, subsequent attempts to contact
petitioners failed because no working phone numbers were
available.
On December 2, 2002, Appeals Officer Smith sent petitioners
the Determination Notices rejecting their OIC and concluding that
collection could proceed. The Determination Notices stated that
4
After considering the additional information provided by
petitioners, Revenue Officer Griggs determined that petitioners
would be able to pay $836 per month based upon petitioners’
monthly income of $5,257 and monthly expenses of $4,421.
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the OIC was rejected because petitioners could pay their tax
liabilities in full.
On January 3, 2003, petitioners filed petitions with this
Court in response to the Determination Notices. A trial hearing
was held on September 8, 2003, in Louisville, Kentucky, at which
petitioners contested respondent’s rejection of their OIC, stated
that their circumstances have changed dramatically, and asked the
Court to remand their case to Appeals for a reconsideration of
their offer.
By order dated November 13, 2003, this Court remanded
petitioners’ 1991, 1992, 1993, 1994, 1995, 1996, and 2000, income
tax years to the Commissioner for the purpose of considering
petitioners’ OIC, taking into consideration petitioners’ change
in circumstances. The order also allowed petitioners, if they
wished to do so, to offer another collection alternative pursuant
to section 6330(c)(2)(A)(iii). The parties were to inform the
Court of the outcome of these proceedings by January 15, 2004.
Pursuant to the order, petitioners submitted additional
information to respondent, including an updated itemization of
income and expenses as well as other financial documents.
On December 30, 2003, after a reconsideration of
petitioners’ financial information, Settlement Officer John N.
Brandon, Jr., of the Louisville, Kentucky, Appeals Office
(Settlement Officer Brandon) sent petitioners a letter rejecting
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their OIC. In the letter, Settlement Officer Brandon stated
that, based on the data petitioners submitted, it appeared that
petitioners could make monthly payments in the amount of $439 and
could therefore pay their liability in full within the limitation
period. Settlement Officer Brandon also offered petitioners an
installment agreement as a collection alternative (Installment
Agreement). The Installment Agreement provided for the payment
of $439 per month for 13 months and $604 per month thereafter,5
until the liability was paid in full.
On January 3, 2004, petitioners sent, via facsimile, a
letter to respondent that we interpreted as petitioners’
rejection of the Installment Agreement proposed by Settlement
Officer Brandon. The issue now before us, therefore, is whether
Settlement Officer Brandon abused his discretion in rejecting
petitioners’ OIC and allowing collection by levy action to
proceed.
Discussion
Before a levy may be made on any property or right to
property, a taxpayer is entitled to a fair hearing before an
impartial officer of the Appeals Office. Secs. 6330(a) and (b),
and 6331(d). If the taxpayer requests a hearing, he may raise at
that hearing any relevant issue relating to the unpaid tax or the
5
Petitioners are expected to have satisfied certain medical
expenses after 13 months.
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proposed levy. Sec. 6330(c)(2). Such issues include any
appropriate spousal defense, challenges to the appropriateness of
collection, and offers of collection alternatives such as an
installment agreement or an offer-in-compromise. Sec.
6330(c)(2)(A). After the hearing, a determination is made that
addresses those issues raised by the taxpayer, verifies that all
requirements of applicable law and administrative procedures have
been met, and balances the need for the efficient collection of
taxes with the legitimate concern of the person that any
collection action be no more intrusive than necessary. Sec.
6330(c)(3)(C).
The sole issue raised by petitioners both at the hearing and
at trial is respondent’s consideration of their OIC. We must
decide, therefore, whether the Settlement officer’s rejection of
petitioner’s OIC was proper.
A. Standard of review
Because the validity of petitioners’ underlying tax
liabilities is not in issue, we review the administrative
determination for abuse of discretion. See Sego v. Commissioner,
114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,
181-183 (2000). In doing so, we do not conduct an independent
review of what would be an acceptable offer in compromise.
Rather, we review only whether the Settlement officer's refusal
to accept petitioners’ OIC was arbitrary, capricious, or without
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sound basis in fact or law. See Woodral v. Commissioner, 112
T.C. 19, 23 (1999).
B. Petitioners’ Offer
Section 7122(a) authorizes a compromise of a taxpayer’s
Federal tax liability. An OIC may be accepted where there is
doubt as to liability or collectibility, or where it would
promote effective tax administration. Sec. 301.7122-1T(b),
Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21,
1999). One of the factors considered in determining whether to
accept or reject an OIC is whether the collection of the full
liability would result in economic hardship to the taxpayer.
Sec. 302.7122-1T(b)(4)(i), Temporary Proced. & Admin. Regs.,
supra. Economic hardship is defined as the inability of the
taxpayer to pay his or her reasonable living expenses. Sec.
301.6343-1(b)(4), Proced. & Admin. Regs.
Throughout the consideration of their OIC, petitioners
maintained that they do not have sufficient income to pay their
liabilities in full. After reviewing petitioners’ financial
situation, however, the Settlement officer determined that their
financial situation enabled them to pay the entire tax liability
within a reasonable time. This determination was based on the
information petitioners provided to the Settlement officer as to
their income and expenses. Petitioners’ financial information
indicated that both petitioners had gainful employment and that
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their monthly income exceeded their necessary living expenses,
thereby allowing the full payment of their liabilities.
In reviewing petitioners’ OIC, we note that the Settlement
officer used information that was favorable to petitioners. For
example, the Settlement officer allowed petitioners monthly
living expenses that exceeded the amount they claimed on their
Form 433-A, Collection Information Statement For Individuals.
Moreover, in determining petitioners’ income, the Settlement
officer used income figures that were less than those actually
reported by petitioners. Notwithstanding his use of these
favorable estimates, the Settlement officer still concluded that
petitioners could pay their entire tax liabilities in full.
We have reviewed the entire record, including the financial
information presented to the Settlement officer, and cannot find
that the Settlement officer’s determination rejecting
petitioners’ OIC was an abuse of discretion. See Van Vlaenderen
v. Commissioner, T.C. Memo. 2003-346; Crisan v. Commissioner,
T.C. Memo. 2003-318; Willis v. Commissioner, T.C. Memo.
2003-302. Accordingly, collection by levy of petitioners’ unpaid
tax liabilities reflected in the Determination Notices may
proceed.
To reflect the foregoing,
Decisions will be
entered for respondent.