T.C. Summary Opinion 2004-44
UNITED STATES TAX COURT
JAMES DWAIN & JILL R. HAWS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19830-02S. Filed April 6, 2004.
Patrick D. Costello, for petitioners.
Kelley A. Blaine, for respondent.
THORNTON, Judge: This case was heard pursuant to the
provisions of section 7463.1 The decision to be entered is not
reviewable by any other court, and this opinion should not be
cited as authority. This case arises from a petition for
judicial review filed pursuant to section 6330(d). The issue for
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended.
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decision is whether the Appeals Office determination to proceed
with a proposed levy should be sustained.
Background
When petitioners filed their petition, they resided in
Boise, Idaho. Petitioners are married and for all relevant years
filed joint Federal income tax returns.
On October 24, 1999, petitioners filed an untimely 1992
joint Federal income tax return. They reported a $3,049.65 tax
liability but did not include payment with their return.
On December 20, 1999, respondent assessed petitioners’
reported 1992 tax liability (after allowing them a $452 earned
income credit), plus a $584.47 addition to tax for late filing of
their 1992 return, a $593.75 addition to tax for failing to pay
tax, and $2,337.15 interest. On that same date, respondent
issued to petitioners a statutory notice of balance due.
Petitioners also failed to pay taxes for their 1991, 1993,
and 1994 tax years. The unpaid taxes for these years were the
subject of a prior collection proceeding, culminating in a
section 6330 Appeals Office hearing that occurred sometime in
early 2000. On June 1, 2000, petitioners signed a Form 433-D,
Installment Agreement (the installment agreement), prepared by
Appeals Officer Bob Baker. The installment agreement states that
it covers the tax years 1991, 1993, and 1994. Notwithstanding
this statement, petitioners believed, on the basis of their
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communications with Appeals Officer Baker, that it covered all
years for which they owed tax, including 1992.
The installment agreement lists the “Amount owed” as $1,455
and states that petitioners agree to pay this amount, plus
interest and penalties, in monthly installments of $125,
commencing April 15, 2000, and continuing until the total
liability is paid in full.2 Pursuant to this agreement,
petitioners made the following payments, as reflected in
respondent’s transcripts of account:
July 14, 2000 $125
Aug. 23, 2000 130
Sept. 18, 2000 125
Nov. 6, 2000 125
Nov. 16, 2000 125
Respondent’s transcripts of account reflect that the first
three payments were credited against petitioners’ 1991 tax
liability, as was $9.42 of the November 6, 2000, payment, which
apparently brought petitioners’ 1991 balance to zero. The
$115.58 balance of the November 6, 2000, payment and the one
2
The record does not reveal why the Form 433-D states that
the first installment payment was due 2-1/2 months before
petitioners signed the Form 433-D, Installment Agreement (the
installment agreement). We surmise that there was a delay
between the preparation of the Form 433-D and petitioners’
signing it.
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subsequent $125 payment were credited against petitioners’ 1992
tax liability.3
At some point, apparently after November 16, 2000,
petitioners received notice from respondent of an unpaid 1992 tax
liability that exceeded the amount indicated on the installment
agreement. They made inquiries of Appeals Officer Baker, who
advised them to make no more installment payments until he
ascertained what had happened.4
On January 26, 2002, respondent issued to petitioners a
notice of intent to levy with respect to their 1992 unpaid tax.
On or about February 15, 2002, petitioners filed a Form 12153,
Request for a Collection Due Process Hearing, signed only by Mr.
Haws. On the Form 12153, Mr. Haws’ explanation of his reasons
for disagreeing with the proposed collection action states in its
entirety: “I have paid taxes as agreed thru Appeals & Advocates
Office”.
3
In respondent’s transcripts of accounts, each of the five
payments is described as a “Miscellaneous Payment”. The only
explicit references to the installment agreement in respondent’s
transcripts of accounts are identical entries for petitioners’
1992, 1993, and 1994 tax years, which simply state “Installment
Agreement.” These entries are dated Apr. 3, 2001--some 9 months
after the installment agreement was executed and after petitioner
had already made five payments pursuant to the installment
agreement.
4
The record does not reflect what further communications,
if any, petitioners might have had with Appeals Officer Bob
Baker.
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On October 15, 2002, respondent’s Settlement Officer Richard
Stefanski conducted a telephone hearing with Mr. Haws with
respect to petitioners’ 1992 unpaid tax. In that hearing,
Mr. Haws argued that the 1992 joint tax liability could be no
greater than $1,455, the amount shown on the Form 433-D. Mr.
Haws further argued that the $1,455 liability had been fully
satisfied through various payments and overpayment credits.
Settlement Officer Stefanski reviewed the administrative file and
respondent’s transcripts of petitioners’ accounts and determined
that the balance due for 1992 was greater than $1,455.
On November 20, 2002, the Appeals Office issued Mr. Haws a
notice of determination sustaining the proposed levy for 1992.
The Appeals Office determined that the 1992 liability was due and
owing, that Mr. Haws had not shown or documented otherwise, and
that “Without payment in full or in installments, or other
resolution such as an offer in compromise or demonstration of
financial hardship, Appeals must sustain the proposed levy.”
Attached to the Notice of Determination is Settlement Officer
Stefanski’s memorandum, which states in pertinent part:
The current assessed balance due [for petitioners’ 1992
tax year] stands at $1,828.37, and the balance due
today, including penalty and interest accruals, stands
at $2,640.00.
Mr. Haws had previously entered into an installment
agreement during a collection due process (CDP) hearing
in 2001 in Boise, which included the 1992 period as
well as other periods for which liabilities existed:
1990, 1991, 1993, and 1994. Though 1992 was not one of
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the periods at issue in that hearing, it had to be
included in the installment agreement since all periods
have to be included in an agreement for approval of
that agreement.
* * * * * * *
Mr. Haws insisted that the installment agreement was a
binding contract for the amount of $1,455.00 only and
that he should not have to pay more. I told Mr. Haws
that what he was suggesting was an offer in compromise
not an installment agreement since the balance due
including penalty and interest was greater than
$1,455.00.
* * * * * * *
I asked Mr. Haws if he wanted to submit an offer in
compromise in the context of the CDP hearing or a
financial statement to demonstrate financial hardship,
but he said no, he wanted to go to tax court to contest
the balance due instead.
On June 23, 2003, the trial was held in this case. On
August 12, 2003, respondent filed a motion to dismiss Jill R.
Haws for lack of jurisdiction, on the ground that no notice of
determination was issued to her for 1992. On September 11, 2003,
petitioners filed their memorandum in opposition to respondent’s
motion.
Discussion
A. The Parties’ Positions
Petitioners contend that when they entered into the
installment agreement, Appeals Officer Baker had represented to
Mr. Haws that it would cover all unpaid tax liabilities then
outstanding, in accordance with what respondent admits to be
established policy regarding installment agreements. Therefore,
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petitioners argue, if the 1992 year was not included in the
installment agreement, then it must be because their 1992 balance
due was zero. Alternatively, petitioners contend that regardless
of whether the 1992 tax year was included in the installment
agreement, respondent should be equitably estopped from
collecting from them more than the $1,455 listed on the Form
433-D.
Respondent’s position is confused and inconstant. As
previously noted, respondent’s notice of determination expressly
states that the installment agreement which petitioners signed on
June 1, 2000, “included the 1992 period as well as other periods
for which liabilities existed”. In his trial memorandum, filed
at trial, respondent argues that petitioners entered into an
installment agreement with respect to the unpaid 1992 tax
liability on April 3, 2001, and then failed to make any voluntary
payments on the installment agreement. On opening posttrial
brief, respondent contends ambivalently that “On April 3, 2001,
an installment agreement between petitioner James Haws and the
Service became effective, or was entered onto the Service’s
computer systems, for tax year 1992 in addition to the years
affected by the prior CDP case.”5 On reply brief, respondent
5
This proposed finding of fact tracks the parties’
stipulation number four, except for the final phrase “in addition
to the years affected by the prior CDP case”, which does not
appear in the stipulation.
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falls largely silent on this issue but seems to acknowledge that
“not listing 1992 as a year covered in the installment agreement”
might be regarded as an “isolated” act of “misconduct.”
B. Whether the Installment Agreement Included 1992
We first address respondent’s sometime assertion that on
April 3, 2001, petitioners entered into an installment agreement
that covered their 1992 tax liability. This position is
inconsistent with respondent’s sometime position that the 1992
tax year had to be included in the installment agreement which
petitioners signed on June 1, 2000; moreover, there is no
evidence to support it. It is true that respondent’s transcript
of account for petitioners’ 1992 tax year shows an entry dated
April 3, 2001, stating without elaboration, “Installment
Agreement”. But it is also true that petitioners’ 1993 and 1994
transcripts of account show identical entries, also dated
April 3, 2001.6 It seems most likely that all these
6
The transcripts of petitioners’ 1992, 1993, and 1994
accounts contain entries on Apr. 3, 2001, with a transaction code
of 971 and an action code of 063, which indicate an approved
installment agreement for that date. See Internal Revenue
Manual, sec. 5.14.1.3(2) (effective Oct. 18, 1999, to Mar. 30,
2002). The Forms 4340, Certificate of Assessments, Payments, and
Other Specified Matters, for 1992, 1993, and 1994, reflect a
corresponding entry for an installment agreement for each taxable
year.
It is unclear why the transcript of petitioners’ 1991
account does not also show an entry for the installment
agreement. We surmise that this seeming omission might be due to
the fact that petitioners’ 1991 balance had been extinguished by
(continued...)
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April 3, 2001, entries represent belated recordations of the
June 1, 2000, installment agreement.
On the basis of the limited evidence in the record and
respondent’s failure adequately to explain his own administrative
processes or even to maintain a consistent position with respect
thereto, we conclude that petitioners and respondent mutually
intended to include in the June 1, 2000, installment agreement
all years, including 1992, as to which petitioners had unpaid tax
liabilities. We further conclude that in drafting the
installment agreement, respondent’s employees or agents
inadvertently omitted any reference to the 1992 tax year and also
inadvertently omitted the corresponding amount of 1992 unpaid
tax. We further conclude that, notwithstanding these erroneous
omissions, respondent regarded the installment agreement as
covering petitioners’ 1992 tax year, as reflected by the April 3,
2001, entry on petitioners’ transcript of account.
Consequently, we agree with petitioners that the installment
agreement covered their 1992 year. As explained below, however,
we disagree with petitioners that the installment agreement, by
listing a total “amount owed” for all tax periods that was less
than their unpaid 1992 tax liability, thereby abrogated or
limited their obligation to pay their 1992 taxes.
6
(...continued)
Apr. 3, 2001, when the installment agreement was recorded for the
other years.
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C. Effect of the Noninclusion of Petitioners’ 1992 Taxes in the
Installment Agreement
The parties agree that respondent’s established policy is to
include all balance due accounts in an installment agreement.
Contrary to petitioners’ assertion, however, it does not follow
that noninclusion of a balance due for a particular year thereby
eliminates it. We have concluded that the noninclusion of the
1992 balance due was most likely a mistake. Respondent’s
transcripts of petitioners’ accounts, which are in evidence and
which petitioners do not directly challenge, show that at all
relevant times (including now) petitioners have had an
outstanding unpaid balance for their 1992 tax year. We are
unconvinced that the appropriate remedy for respondent’s
ostensible mistake is to grant petitioners a windfall of a
portion of their otherwise undisputed 1992 tax liability.
In this regard, we note that respondent is not authorized to
compromise a liability except as provided in section 7122
regarding offers in compromise. See Harbaugh v. Commissioner,
T.C. Memo. 2003-316 (“It is well settled that section 7122 and
the regulations thereunder provide the exclusive method of
effectuating a valid compromise of assessed tax liabilities.”).
Unlike an offer in compromise, an installment agreement
necessitates full payment of the tax liability involved without
compromise. See sec. 301.6159-1, Proced. & Admin. Regs.
(providing that an installment agreement “allows the taxpayer to
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satisfy a tax liability by making scheduled periodic payments
until the liability is fully paid” (emphasis added)); Internal
Revenue Manual, sec. 5.14.1.1 (effective Oct. 18, 1999, to
Mar. 30, 2002); see also Willis v. Commissioner, T.C. Memo. 2003-
302. In any event, petitioners make no claim, and the record
provides no basis for concluding, that they entered into an offer
in compromise with respondent.7
We are also unpersuaded by petitioners’ contention that
respondent should be equitably estopped from collecting more than
the $1,455 shown on the Form 433-D. As a general matter, “the
doctrine of equitable estoppel is applied against * * * [the
Commissioner] ‘with the utmost caution and restraint’”. Boulez
v. Commissioner, 76 T.C. 209, 214-215 (1981) (quoting Estate of
Emerson v. Commissioner, 67 T.C. 612, 617-618 (1977)), affd. 810
F.2d 209 (D.C. Cir. 1987); see also Kronish v. Commissioner, 90
T.C. 684, 695 (1988). The Court of Appeals for the Ninth Circuit
has held that before the Commissioner may be estopped from
collecting taxes, the taxpayer must establish, in addition to the
usual elements of estoppel, “‘affirmative [mis]conduct going
beyond mere negligence’ and must also show ‘that the government’s
act will cause a serious injustice and the imposition of estoppel
7
After respondent informed petitioners that they owed
additional amounts for 1992, petitioners submitted an offer in
compromise offering to pay zero taxes consistent with the
installment agreement. Respondent rejected petitioners’ offer in
compromise for a failure to submit sufficient information.
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will not unduly harm the public interest.’” Purcell v. United
States, 1 F.3d 932, 939 (9th Cir. 1993) (quoting S & M Inv. Co.
v. Tahoe Regl. Planning Agency, 911 F.2d 324, 329 (9th Cir.
1990)). “Affirmative misconduct” requires ongoing active
misrepresentations or a pervasive pattern of false promises, as
opposed to an isolated act of providing misinformation. Watkins
v. United States Army, 875 F.2d 699, 708 (9th Cir. 1989); River
City Ranches # 1 Ltd. v. Commissioner, T.C. Memo. 2003-150.
In the instant case, we are unpersuaded that there was any
affirmative misconduct on the part of respondent’s employees or
agents. At most, there appears to have been an isolated mistake
in failing to list the 1992 tax year and include the unpaid 1992
tax liability on the Form 433-D. Petitioners do not assert, and
there is no evidentiary basis for concluding, that any of
respondent’s employees or agents ever represented to petitioners
that any of their unpaid tax liabilities, including their 1992
tax liabilities, would be compromised or eliminated pursuant to
the installment agreement.8
Accordingly, we are unpersuaded that respondent should be
estopped from collecting more than the $1,455 listed on the Form
433-D. Nevertheless, for the reasons described below, we do not
8
The Form 433-D itself makes no such representation, as it
omits mention of both the 1992 tax year and the unpaid 1992 tax
liability.
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sustain the Appeals Office determination that the proposed levy
should proceed.
D. Verification Requirement
Under section 6330(c)(1), the Appeals officer is required to
investigate and verify that the requirements of any applicable
law or administrative procedure have been met. Section
6330(c)(1) does not require the Commissioner to rely on a
particular document to satisfy the verification requirement
contained therein, and the Appeals officer may generally rely on
transcripts of account, see McIntosh v. Commissioner, T.C. Memo.
2003-279, or Forms 4340, see Lunsford v. Commissioner, 117 T.C.
183, 187-188 (2001), to satisfy the verification requirement.
See also Kuglin v. Commissioner, T.C. Memo. 2002-51. If the
transcripts of account or Forms 4340 reveal irregularities,
however, further investigation is required. See, e.g., Huff v.
United States, 10 F.3d 1440, 1446 (9th Cir. 1993); Lunsford v.
Commissioner, supra.
Settlement Officer Stefanski relied solely on transcripts
of account to verify that the requirements of any applicable law
or administrative procedure have been met. These transcripts
showed that an installment agreement was approved on April 3,
2001, for petitioners’ 1992, 1993, and 1994 tax liabilities.
Although Settlement Officer Stefanski acknowledged that the 1992
tax liability was included in the installment agreement, he
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ultimately determined that this circumstance had no relevance in
this collection proceeding because the installment agreement
could not limit petitioners’ 1992 tax liability to $1,455.
Consequently, the Appeals Office sustained the proposed levy.
Pursuant to section 6331(k)(2)(C), however, no levy may be
made with respect to any unpaid tax during the period that an
installment agreement is in effect for payment of the tax.
Consequently, Settlement Officer Stefanski (and we) having
concluded that the installment agreement covered petitioners’
1992 tax year, the proposed levy action is inappropriate if the
installment agreement is still in effect. There is no evidence
in the record to suggest that it is not. By statute, respondent
is required to give petitioners at least 30 days’ notice before
terminating the installment agreement. See sec. 6159(b)(5)(A).
There is no suggestion in the record that respondent ever gave
petitioners any such notice. Mr. Haws’s unrefuted testimony is
that he stopped making installment payments on the advice of
Appeals Officer Baker, to await further deliberations by the
Appeals Office and not because the installment agreement was
terminated.
In these circumstances, we cannot agree that the Appeals
Office properly verified that the requirements of applicable law
or administrative procedure were met with respect to petitioners’
1992 tax liability. Insofar as the installment agreement is
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still in effect, the proposed levy is barred by section
6331(k)(2)(C). Insofar as respondent has sought or seeks to
terminate the installment agreement, there is no suggestion that
the notice procedures of section 6159(b)(5) have been met.
Consequently, on the instant record we conclude and hold that the
Appeals Office has failed to verify that the requirements of any
applicable law or administrative procedure have been met pursuant
to section 6330(c)(1).
E. Remand to Appeals Office
In appropriate circumstances, we may remand a section 6330
case to the Internal Revenue Service Appeals Office for further
investigation and consideration of the taxpayer’s arguments. See
Keene v. Commissioner, 121 T.C. 8, 19 (2003); Lunsford v.
Commissioner, 117 T.C. at 189; Harrell v. Commissioner, T.C.
Memo. 2003-271. For the reasons discussed above, we remand this
case to the Appeals Office for an additional hearing to further
investigate and consider the effect of the installment agreement
on the proposed levy. On remand, if it is determined that the
installment agreement has not been terminated, petitioners should
be given an opportunity to continue making payments under it to
satisfy their unpaid 1992 liability and any remaining liability
with respect to the other years covered by the installment
agreement. Insofar as the interruption of petitioners’ payments
under the installment agreement may have resulted from incorrect
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payout information contained on the Form 433-D or from their
following the advice of respondent’s employees or agents to
discontinue their installment payments, the Appeals Office should
consider whether it is appropriate to abate interest associated
with such delay. Cf. Douponce v. Commissioner, T.C. Memo. 1999-
398. In light of the confusion caused by respondent’s errors in
processing this case, petitioners should also be allowed to make,
and the Appeals Office should consider, a new offer in compromise
or a new installment agreement.
On remand, the Appeals Office should also determine whether
Mrs. Haws should have been included in the notice of
determination. We point out that petitioners are joint filers,
the levy is proposed for a joint tax liability, and respondent
issued a notice of intent to levy addressed to both petitioners.
Also, the administrative record shows that throughout this
proceeding respondent has addressed correspondence to both
petitioners. Further, there is no evidence that respondent
contacted Mrs. Haws regarding her failure to sign Form 12153.
See 4 Administration, Internal Revenue Manual (CCH), sec.
8.7.2.3.3(3), at 27,277 (effective Nov. 13, 2001) (stating that
Appeals should attempt to get written confirmation from a
nonsigning spouse whether he or she also wishes a hearing).
Accordingly, we withhold action on respondent’s motion to dismiss
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for lack of jurisdiction as to Mrs. Haws to permit the record to
be supplemented on remand. In any event, we anticipate that
Mrs. Haws will be treated in the same manner as Mr. Haws if any
administrative resolution is reached in this case.
In light of the foregoing,
An appropriate order
will be issued.