HAWS v. COMMISSIONER

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.
 - 2 -

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
 - 3 -

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.
 - 4 -

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.
 - 5 -

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
 - 6 -

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,
 - 7 -

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.
 - 8 -

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...)
 - 9 -

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.
 - 10 -

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
 - 11 -

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.
 - 12 -

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.
 - 13 -

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
 - 14 -

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
 - 15 -

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
 - 16 -

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
 - 17 -

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.