T.C. Summary Opinion 2006-63
UNITED STATES TAX COURT
JAMES WELDON AARON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14787-04S. Filed April 24, 2006.
James Weldon Aaron, pro se.
Monica J. Miller, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of sections 6330(d) and 7463 of the
Internal Revenue Code in effect when the petition was filed. The
decision to be entered is not reviewable by any other court, and
this opinion should not be cited as authority. Unless otherwise
indicated, all subsequent section references are to the Internal
Revenue Code in effect at relevant times.
- 2 -
This proceeding arises from a petition for judicial review
filed in response to a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330 (notice of
determination) sent to petitioner on July 12, 2004. The issue
for decision is whether respondent abused his discretion in
sustaining a notice of Federal tax lien filed against petitioner.
Background
Some of the facts have been stipulated, and they are so
found. The record consists of the stipulation of facts with
attached exhibits, an additional exhibit introduced at trial, and
the testimony of petitioner. At the time of filing the petition,
petitioner resided in Sebring, Florida.
Respondent made assessments against petitioner for income
taxes, related penalties, and interest for the taxable years
1994, 1995, 1996, and 2002. Respondent sent a notice and demand
for payment for each of the years at issue, but petitioner failed
to remit payment.
In February 2003, petitioner submitted an offer-in-
compromise (OIC), in which he offered to pay $3,000 to compromise
his tax liabilities for the taxable years 1994, 1995, and 1996.1
The OIC was based on doubt as to collectibility and promotion of
effective tax administration. In a written statement attached to
1
The OIC also included the taxable years 1992 and 1993 but
did not include the taxable year 2002. The taxable years 1992
and 1993 are not before the Court.
- 3 -
the OIC, petitioner claimed he was unable to pay his tax
liabilities because he: (1) Earned $7.35 an hour as a customer
service representative; (2) had a wife2 and three children; (3)
had a monthly car payment; and (4) contributed to the support and
maintenance of his then-94-year-old mother.
Respondent processed petitioner’s OIC and assigned it to an
offer specialist. The offer specialist sent petitioner a letter
in July 2003 requesting, among other things, “Information to
substantiate current income for yourself and your spouse (W2s,
1099s, etc)”. The letter states in part:
If you or your spouse are involved with any businesses
as an officer, a partner, an owner, or an investor,
provide a copy of the last three (3) Federal income tax
reports, if other than Form 1040; schedule of
disbursements made to you, including loans, dividends,
interest, wages for the past three (3) years; names of
officers directors, and stockholders.
Petitioner and the offer specialist exchanged correspondence
over the next several months. At some point during that time,
respondent learned that petitioner was operating a paralegal
business that was not mentioned in his OIC. On February 11,
2004, the offer specialist asked petitioner to provide a
statement of his income from the paralegal business signed under
penalty of perjury. Petitioner refused to provide the statement.
At or about the same time, the offer specialist determined that
petitioner’s offer of $3,000 was insufficient because the total
2
Petitioner’s wife is not a party to this case.
- 4 -
value of his real property interests exceeded his unpaid tax
liabilities.
Respondent returned the OIC to petitioner on February 27,
2004, with a letter that states: “We requested substantiation of
your financial information. We have not received all of the
required information. Therefore, we have closed your offer.”
Respondent filed a notice of Federal tax lien against petitioner
on March 9, 2004, for the taxable years 1994, 1995, 1996, and
2002. The total amount reflected on the notice of Federal tax
lien was $4,619.60. Respondent issued a Notice of Federal Tax
Lien Filing and Your Right to a Hearing Under IRC 6320 to
petitioner on March 12, 2004.
Petitioner timely submitted a Form 12153, Request for a
Collection Due Process Hearing. The Form 12153 states only that
petitioner wished to continue pursuing an OIC. Petitioner and
respondent’s settlement officer held a face-to-face hearing in
May 2004. Petitioner did not dispute his underlying liabilities
or raise a spousal defense. The settlement officer informed
petitioner that his offer of $3,000 was insufficient because of
the total value of his real property interests.3 The settlement
3
In his OIC, petitioner indicated he owned four parcels of
real property. The notice of determination, however, states that
petitioner and the offer specialist “reviewed the nine parcels of
real property in which * * * [petitioner] ha[s] an interest.” A
notarized document that petitioner signed on Feb. 16, 2004, also
indicates that he had interests in nine parcels of real property.
(continued...)
- 5 -
officer suggested an installment agreement because petitioner
lacked liquid assets with which to pay his tax liabilities.
Petitioner was not willing to enter into an installment
agreement; instead, he wanted to discharge his liabilities
through a lump-sum payment as part of an OIC.
Petitioner and the settlement officer spoke by telephone in
the weeks following the face-to-face hearing. The settlement
officer sent petitioner a proposed installment agreement that
called for monthly payments of $140 until petitioner’s
liabilities were paid in full. Petitioner did not sign the
proposed installment agreement. On July 12, 2004, respondent
issued a notice of determination to petitioner sustaining the
filing of the notice of Federal tax lien. The notice of
determination states that the “requirements of various applicable
legal and administrative procedures have been met”. It also
states that the notice of Federal tax lien was filed “since the
unpaid balance of assessment was $5,000 or more [Internal Revenue
Manual 5.12.1.13-Filing Guidelines]”.
Discussion
Section 6321 imposes a lien in favor of the United States on
all property and rights to property of a person when a demand for
the payment of the person’s liability for taxes has been made and
3
(...continued)
The discrepancy has not been explained.
- 6 -
the person fails to pay those taxes. Such a lien arises when an
assessment is made. Sec. 6322. Section 6323(a) requires the
Secretary to file a notice of Federal tax lien if the lien is to
be valid against any purchaser, holder of a security interest,
mechanic’s lienor, or judgment lien creditor. Lindsay v.
Commissioner, T.C. Memo. 2001-285, affd. 56 Fed. Appx. 800 (9th
Cir. 2003).
Section 6320 provides that a taxpayer shall be notified in
writing by the Secretary of the filing of a notice of Federal tax
lien and provided with an opportunity for an administrative
hearing. An administrative hearing under section 6320 is
conducted in accordance with the procedural requirements of
section 6330. Sec. 6320(c). At the administrative hearing, a
taxpayer is entitled to raise any relevant issue relating to the
unpaid tax, including a spousal defense or collection
alternatives such as an offer-in-compromise or an installment
agreement. Sec. 6330(b) and (c)(2); sec. 301.6320-1(e)(1),
Proced. & Admin. Regs. A taxpayer also may challenge the
existence or amount of the underlying tax liability, including a
liability reported on the taxpayer’s original return, if the
taxpayer “did not receive any statutory notice of deficiency for
such tax liability or did not otherwise have an opportunity to
- 7 -
dispute such tax liability.” Sec. 6330(c)(2)(B); see also Urbano
v. Commissioner, 122 T.C. 384, 389-390 (2004); Montgomery v.
Commissioner, 122 T.C. 1, 9-10 (2004).
At the conclusion of the hearing, the Appeals officer must
determine whether and how to proceed with collection, taking into
account, among other things, collection alternatives proposed by
the taxpayer and whether any proposed collection action balances
the need for the efficient collection of taxes with the
legitimate concern of the taxpayer that the collection action be
no more intrusive than necessary. See sec. 6330(c)(3).
Section 6330(d) provides for judicial review of the
administrative determination in the Tax Court or a Federal
District Court, as may be appropriate. Where the validity of the
underlying tax liability is properly at issue, the Court will
review the matter de novo. However, where the validity of the
underlying tax liability is not properly at issue, the Court will
review the Commissioner’s administrative determination for abuse
of discretion. Goza v. Commissioner, 114 T.C. 176, 181-182
(2000).
Petitioner does not seek to challenge his underlying tax
liabilities. We therefore review respondent’s determination for
abuse of discretion. See Lunsford v. Commissioner, 117 T.C. 183,
185 (2001); Goza v. Commissioner, supra. We generally consider
only arguments, issues, and other matters that were raised at the
- 8 -
administrative hearing or otherwise brought to the attention of
the Appeals Office. Magana v. Commissioner, 118 T.C. 488, 493
(2002); sec. 301.6320-1(f)(2), Q&A-F5, Proced. & Admin. Regs.
The sole collection alternative petitioner proposed was an
OIC.4 Section 7122(a) authorizes the Secretary to compromise any
civil case arising under the internal revenue laws. As is
relevant here, grounds for compromise of a liability include
doubt as to collectibility or promotion of effective tax
administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.
Before discussing each of these grounds, we address
respondent’s contention, raised for the first time in his
pretrial memorandum, that petitioner’s failure to pay his 2002
tax liability rendered him noncompliant with Federal tax laws.
The Court has held that where a taxpayer is not currently in
compliance with Federal tax laws, a determination that the
taxpayer is not entitled to an OIC does not constitute abuse of
discretion. Rodriguez v. Commissioner, T.C. Memo. 2003-153; see
also Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005),
affg. 123 T.C. 1 (2004). The Court also has held, however, that
4
Petitioner’s OIC does not address the taxable year 2002.
It is unclear whether he later proposed an OIC as a collection
alternative for that year. On the basis of our discussion and
resolution of the issue for decision, infra, the result in this
case will not change if we find that petitioner offered to
compromise his 2002 tax liability. We therefore assume, without
deciding, that the issue of an OIC for the taxable year 2002 was
raised and is properly before the Court.
- 9 -
we generally do not consider an issue that is raised for the
first time at trial. See, e.g., Foil v. Commissioner, 92 T.C.
376, 418 (1989), affd. 920 F.2d 1196 (5th Cir. 1990); Markwardt
v. Commissioner, 64 T.C. 989, 997 (1975). Respondent has offered
no explanation for not raising the issue of petitioner’s
noncompliance earlier. We do not consider this issue, nor does
it affect the outcome of this case.
Doubt as to Collectibility
The Secretary may compromise a tax liability for doubt as to
collectibility when “the taxpayer’s assets and income are less
than the full amount of the assessed liability.” Sec.
301.7122-1(b)(2), Proced. & Admin. Regs. Respondent determined
that the total value of petitioner’s interests in real property
exceeded the amount of his unpaid tax liabilities. At trial,
petitioner stated he “had no problem” with respondent’s
determination with respect to his real property interests. He
also conceded that he had sufficient assets to pay his tax
liabilities for the years at issue. Accordingly, he is not
entitled to compromise his tax liabilities on the basis of doubt
as to collectibility.
Effective Tax Administration
The Secretary may compromise a liability on the ground of
effective tax administration when: (1) Collection of the full
liability will create economic hardship; or (2) exceptional
- 10 -
circumstances exist such that collection of the full liability
would undermine public confidence that the tax laws are being
fairly and equitably administered. Speltz v. Commissioner, 124
T.C. 165, 172-174 (2005); sec. 301.7122-1(b)(3), Proced. & Admin.
Regs.
1. Economic Hardship
Factors supporting (but not conclusive of) a determination
that collection would cause economic hardship include, but are
not limited to:
(A) Taxpayer is incapable of earning a living
because of a long term illness, medical condition, or
disability, and it is reasonably foreseeable that
taxpayer’s financial resources will be exhausted
providing for care and support during the course of the
condition;
(B) Although taxpayer has certain monthly income,
that income is exhausted each month in providing for
the care of dependents with no other means of support;
and
(C) Although taxpayer has certain assets, the
taxpayer is unable to borrow against the equity in
those assets and liquidation of those assets to pay
outstanding tax liabilities would render the taxpayer
unable to meet basic living expenses.
Sec. 301.7122-1(c)(3)(i), Proced. & Admin. Regs.
Petitioner does not contend that he has a long-term illness,
medical condition, or disability. Nor does he claim that
borrowing against the equity in his real property interests would
render him unable to meet basic living expenses. Although
petitioner contributes to the support of his family, he has
- 11 -
neither argued nor demonstrated that his monthly income is
exhausted caring for them or that they have no other means of
support. Accordingly, petitioner has not shown that collection
of the full liability would cause him economic hardship.
2. Compelling Public Policy or Equity Considerations
Petitioner argues that his due process rights were violated
when respondent’s offer specialist asked him to provide a sworn
statement of his income from the paralegal business. According
to petitioner, the offer specialist requested the statement only
after informing him that she would reject his OIC because of the
real property interests he owned. Petitioner claims he asked the
offer specialist to make her request in writing, but she refused.
Petitioner contends that the offer specialist’s actions were
“arbitrary and capricious” and “denied * * * [him] due process”.
Although petitioner’s argument is vague, we interpret his
position to be that his OIC should have been accepted on the
basis of public policy or equity considerations.
The Secretary may enter into a compromise to promote
effective tax administration where compelling public policy or
equity considerations identified by the taxpayer provide a
sufficient basis for compromising the liability. Sec. 301.7122-
1(b)(3)(ii), Proced. & Admin. Regs. A compromise will be
justified only where, because of exceptional circumstances,
collection of the full liability would undermine public
- 12 -
confidence that the tax laws are being administered in a fair and
equitable manner. A taxpayer proposing a compromise on the basis
of effective tax administration will be expected to demonstrate
circumstances that justify a compromise even though a similarly
situated taxpayer may have paid his liability in full. Id.
Examples of where a compromise is allowed for purposes of public
policy and equity include: (1) A taxpayer who was hospitalized
regularly for a number of years and was unable to manage his
financial affairs incurs significant tax liabilities, penalties
and interest; and (2) a taxpayer learns at audit that he received
erroneous advice from the IRS and, as a result, is facing
additional taxes, penalties, and additions to tax. Speltz v.
Commissioner, supra at 173; sec. 301.7122-1(c)(3)(C)(iv), Proced.
& Admin. Regs.
Petitioner has identified no public policy or equity
considerations that would justify a compromise on the basis of
effective tax administration. The Government may request
additional information from a taxpayer after an OIC is accepted
for processing. Sec. 301.7122-1(d)(2), Proced. & Admin. Regs.
The taxpayer’s refusal to provide the requested information
within a reasonable time is grounds for returning the OIC. Id.
Petitioner failed to mention the paralegal business in his OIC.
When the offer specialist learned of the existence of this
business, she was entitled to request additional information,
- 13 -
which she did in July 2003 and February 2004. Petitioner’s
refusal to provide the requested information was grounds for
returning his OIC. Accordingly, petitioner has not shown that
compromising his tax liabilities would promote effective tax
administration.
Applicable Law and Administrative Procedure
Petitioner’s final argument is that respondent failed to
comply with section 6330(c). This section provides that the
officer conducting the administrative hearing must verify that
the requirements of applicable law and administrative procedure
have been met. For example, the hearing officer must verify that
the taxpayer was properly issued a notice of Federal tax lien,
which must include the amount of unpaid tax, the taxpayer’s right
to request an administrative hearing, the administrative appeals
available to the taxpayer, and the procedures relating to the
release of liens. Sec. 6320(a)(1)-(3); see also Anderson v.
Commissioner, T.C. Memo. 2003-112.
Petitioner’s sole contention with respect to section 6330(c)
is that the Internal Revenue Manual (IRM) prohibits the filing a
notice of Federal tax lien if the taxpayer’s unpaid balance of
assessment is under $5,000. The total amount reflected on the
notice of Federal tax lien that respondent filed against
petitioner was $4,619.60. Thus, petitioner argues, the
settlement officer erred in determining that petitioner’s “unpaid
- 14 -
balance of assessment was $5,000 or more” and thereby violated
section 6330(c). We disagree.
IRM sec. 5.12.2.8.2 (March 1, 2004)5 states that a notice of
Federal tax lien generally should not be filed if the taxpayer’s
aggregate unpaid balance of assessment is less than $5,000. It
also states, however, that a notice “may be filed when, in the
judgment of the revenue officer, it is in the best interest of
the government to record the lien” and a group manager approves.
IRM sec. 5.12.2.8.2(1)(a). Thus, there is no absolute
prohibition on filing a notice of Federal tax lien if the unpaid
balance of assessment is less than $5,000.
Even if respondent did fail to comply with the provisions of
the IRM, those provisions govern only the internal affairs of the
Internal Revenue Service; they do not have the force and effect
of law. Valen Manufacturing Co. v. United States, 90 F.3d 1190,
1194 (6th Cir. 1996); United States v. Horne, 714 F.2d 206, 207
(1st Cir. 1983); see also Miller v. Commissioner, 114 T.C. 184,
195 (2000) (“The authoritative sources of Federal tax law are the
statutes, regulations, and judicial decisions”), affd. sub nom.
Lovejoy v. Commissioner, 293 F.3d 1208 (10th Cir. 2002). The
procedures in the IRM do not confer rights on taxpayers. United
5
The notice of determination refers to IRM sec. 5.12.1.13
(Apr. 30, 2002), which was replaced by IRM sec. 5.12.2.8.1 and
5.12.2.8.2 (Mar. 1, 2004). For purposes of this opinion, there
is no substantive difference between the older and newer IRM
provisions.
- 15 -
States v. Horne, supra at 207; United States v. Mapp, 561 F.2d
685, 690 (7th Cir. 1977). As the Court of Appeals for the
Eleventh Circuit has stated: “The IRS operating procedures
contained in the IRM do not delineate substantive rights of
individuals but instead simply establish intra-agency operating
procedures. As such, they are a species of rule that is not
judicially enforceable against the agency.” First Alabama Bank,
N.A. v. United States, 981 F.2d 1226, 1230 (11th Cir. 1993).
Accordingly, petitioner’s argument fails.
On the basis of our review of the record, we conclude that
respondent satisfied the requirements of section 6330(c) and did
not abuse his discretion in sustaining the notice of Federal tax
lien filed against petitioner. Respondent’s determination
therefore is sustained. In reaching our holding, we have
considered all arguments made, and, to the extent not mentioned,
we conclude that they are moot, irrelevant, or without merit.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.