T.C. Memo. 2004-101
UNITED STATES TAX COURT
SEGUDINO AND DELFA RAZO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16969-02L. Filed April 9, 2004.
David P. Leeper, for petitioners.
Michael W. Bentley and Gordon P. Sanz, for respondent.
MEMORANDUM OPINION
GOEKE, Judge: This proceeding was commenced in response to
a “NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
SECTION 6320 AND/OR 6330" (notice of determination). The notice
of determination sustained the Federal tax lien, but suspended
petitioners’ account as “temporarily not collectible”. The issue
for decision is whether it was an abuse of discretion for
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respondent’s Appeals officer to sustain the lien and reject
petitioners' offer to compromise their 1995, 1996, and 1997
liabilities of $7,832.90 for $100. Because of the value of
petitioners’ assets, we hold that it was not an abuse of
discretion.
Background
The parties submitted this case fully stipulated under Rule
1221. The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners, Mr. Razo and
Mrs. Razo, resided in El Paso, Texas, at the time they filed
their petition. This Court, in an Order dated November 19, 2003,
denied a motion by respondent to dismiss for lack of
jurisdiction, as supplemented.
Petitioners filed joint Federal income tax returns for 1995,
1996, and 1997. Each of these returns showed tax due, but
petitioners did not submit payment with the returns. On March 1,
2002, respondent issued petitioners a Notice of Federal Tax Lien
Filing and Your Right to a Hearing Under I.R.C. Section 6320,
listing their total 1995, 1996, and 1997 liabilities as
$7,832.90. On March 4, 2002, respondent filed a notice of
Federal tax lien in El Paso County, Texas.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at the time the petition was
filed, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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On March 26, 2002, petitioners’ counsel, acting under a
power of attorney from petitioners, submitted on behalf of
petitioners a Form 12153, Request for a Collection Due Process
Hearing, requesting a hearing under section 6320 with
respondent's Appeals Office. Also submitted with the Form 12153
was a Form 656, Offer in Compromise, setting forth petitioners’
offer to pay $100 to settle their 1995, 1996, and 1997 tax
liabilities. Petitioners’ offer in compromise was based on
“effective tax administration” (ETA).
A section 6320 hearing was held on August 14, 2002. On
October 3, 2002, respondent's Appeals officer issued the notice
of determination rejecting petitioners’ offer in compromise and
sustaining the Federal tax lien, but recommending that
petitioners' accounts be suspended as "temporarily not
collectible". The Appeals officer based his determination to
sustain the lien on the value of certain assets owned by
petitioners, which include a house, two vehicles, and personal
effects. The Appeals officer measured the quick sale value of
petitioners’ assets, less encumbrances against them, and found
that the net amount of petitioners’ equity in the assets greatly
exceeded petitioners’ tax liabilities for the years 1995-97. For
example, one of petitioners’ automobiles alone had a quick sale
value in excess of the tax liabilities. However, the Appeals
officer then noted that petitioners faced various hardships that
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would impede their ability to earn greater income in the future,
or pay off their existing debts in an installment agreement. Mr.
Razo is 62 years old and is employed as a manual laborer. Mrs.
Razo is unemployed due to health problems. In addition, the
Appeals officer noted that petitioners are currently in arrears
on their mortgage and car payments, and they owe significant
amounts of real estate taxes. The Appeals officer recommended
that petitioners’ account be suspended as “temporarily not
collectible”. By suspending their account as “temporarily not
collectible”, the Appeals officer halted collection activity
until petitioners’ financial situation changes and either payment
is forthcoming or another collection alternative is feasible.
The determination would allow the Government to recover a portion
of any proceeds from a future sale or foreclosure on any of
petitioners’ assets. The Appeals officer concluded that although
it was unlikely that petitioners would be able to pay their
liabilities other than from the value of their assets, the lien
would enable the Government to preserve its priority rights in
any foreclosure or bankruptcy proceedings. Petitioners timely
filed a petition with this Court for review of the Appeals
officer’s determination.
Discussion
Sections 6320 (pertaining to liens) and 6330 (pertaining to
levies) were enacted as part of the Internal Revenue Service
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Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401,
112 Stat. 746, in order to afford taxpayers new procedural
protections with regard to collection matters. Section 6320
generally provides that the Secretary cannot proceed with
collection of taxes by way of a lien on a taxpayer’s property
until the taxpayer has been notified in writing and provided with
an opportunity for an administrative review in the form of a
hearing before an impartial officer of the Internal Revenue
Service Office of Appeals. Sec. 6320(b). Generally, hearings
under section 6320 are conducted in accordance with the
procedural requirements set forth in section 6330(c). Sec.
6320(c). At the hearing, the Appeals officer shall obtain
verification that the requirements of any applicable laws and
administrative procedures have been met. Sec. 6330(c)(1).
Taxpayers may raise appropriate spousal defenses, challenges to
the appropriateness of the collection action, and offers of
collection alternatives, which may include offers in compromise.
Sec. 6330(c)(2)(A)(iii). In certain circumstances, taxpayers may
also challenge their underlying tax liability at the hearing.
Sec. 6330(c)(2)(B).
In this case, petitioners do not dispute that the Appeals
officer obtained verification that the requirements of any
applicable laws and administrative procedures had been met. In
addition, petitioners do not dispute the existence or amount of
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their underlying tax liability. The only collection alternative
offered by petitioners at their hearing was their offer in
compromise for $100. No other issues were raised.
We review the Appeals officer’s determination for an abuse
of discretion. Goza v. Commissioner, 114 T.C. 176, 182 (2000).
We must decide whether respondent exercised his discretion
arbitrarily, capriciously, or without sound basis in fact or law.
Woodral v. Commissioner, 112 T.C. 19, 23 (1999); Fargo v.
Commissioner, T.C. Memo. 2004-13. The issue raised with the
Appeals officer is the proper point of reference in determining
whether the Appeals officer abused his discretion. Magana v.
Commissioner, 118 T.C. 488, 493-494 (2002).
Petitioners contend that the Appeals officer abused his
discretion in rejecting their offer to compromise the $7,832.90
total liability for $100. Specifically, petitioners argue that
their offer in compromise should have been accepted because they
will not be able to meet basic living expenses if their assets
are lost to foreclosure and respondent’s lien is left in place.
They point to their poor health, age, and education as evidence
that they will experience economic hardship if the value of their
equity is not available to them. They also argue that the
examples contained in section 301.7122-1(c)(3)(iii), Proced. &
Admin. Regs., compel respondent to accept their ETA offer.
We note at the outset that based on the record petitioners
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are not destitute. The record reflects that petitioners own two
automobiles, one with a quick sale value of $10,120, subject to
an encumbrance of $921, and the other with a quick sale value of
$8,988, subject to an encumbrance of $5,700. Petitioners do not
dispute that these figures are correct. The Appeals officer
sustained the lien and suspended their account as “temporarily
not collectible”. There is no evidence that the Government is
currently taking any efforts to collect on petitioners’ account.
Section 301.7122-1(c)(3), Proced. & Admin. Regs., authorizes
the Internal Revenue Service, in compromising liabilities, to
take into account circumstances where payment in full would
create economic hardship. In this case, the Appeals officer
determined that petitioners did not have sufficient income to
enter an installment agreement. However, the regulations do not
require the Commissioner to relieve a liability completely
because the taxpayers are unable to pay the liability from
current income. Petitioners have not shown that they are unable
to pay at least a part of their liability from their remaining
assets. Their $100 de minimis offer effectively asks respondent
to forgive their entire liability, despite the value of their
assets. On the basis of the undisputed facts presented to the
Appeals officer, if petitioners were to sell one of their two
automobiles, they could pay the entire amount of the liability at
issue. Under these circumstances, we cannot find an abuse of
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discretion in the Appeals officer’s determination to reject
petitioners’ de minimis offer in compromise. The Government is
entitled to preserve its priority regarding petitioners’ assets,
given their value and the uncertainty regarding their
disposition. In the face of petitioners’ de minimis offer,
respondent’s willingness to forgo collection until petitioners’
financial situation changes was reasonable and certainly was not
an abuse of discretion.
To reflect the foregoing,
Decision will be entered
for respondent.