T.C. Summary Opinion 2007-206
UNITED STATES TAX COURT
DOUGLAS W. AND GAIL CAPLE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22697-04S. Filed December 10, 2007.
Douglas W. and Gail Caple, pro sese.
Mark D. Peterson and Mark Miller, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case. Unless otherwise indicated, subsequent
section references are to the Internal Revenue Code.
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This matter 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 issued for unpaid
Federal income tax for taxable years 1993 and 1994.1
The issues for decision are: (1) Whether petitioners may
contest the liabilities respondent assessed for the taxable years
1993 and 1994, (2) whether respondent properly abated interest
and adjusted accuracy-related penalties assessed against
petitioners for 1993 and 1994 in accordance with an agreement
between the parties, and (3) whether respondent’s Appeals officer
abused her discretion in rejecting petitioner’s offer-in-
compromise.
Background
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 Appleton, Wisconsin, on the date the
petition was filed. Until 1994, petitioner Douglas W. Caple (Mr.
Caple) worked as a night-shift first-aid responder at Ocean Angle
Steel, an industrial plant. After leaving this position sometime
1
The outstanding Federal tax owed for taxable year 1993 has
been paid in full as a result of respondent’s applying
petitioners’ overpayment refunds from subsequent years to the
amount owed for taxable year 1993. Respondent also applied a
portion of petitioners’ overpayment refunds to the amount owed
for taxable year 1994. As of Aug. 21, 2006, the outstanding
liability owed for 1994 was $14,670.74.
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in 1994, Mr. Caple worked part time both as a school bus driver
and as a manager at Best Buy, an electronics retailer. Most
recently, Mr. Caple has worked as a day trader of stocks.2
Petitioner Gail Caple (Mrs. Caple) is employed by Affinity Health
Systems as an insurance specialist.
Before Mr. Caple’s separation from Ocean Angle Steel, he
underwent job-related medical testing that uncovered a condition
known as primary sclerosing cholangitis, a terminal disease, the
only known cure for which is a liver transplant. At or near the
time of Mr. Caple’s diagnosis, his father (who was also suffering
from an unspecified terminal illness) gave petitioners the funds
necessary for Mr. Caple to pay for a liver transplant, provided
he were to receive a donor organ. Although petitioners attempted
to “shelter”3 this gift, they later used the funds for
unspecified expenses.
Petitioners have one child, Ashley Caple (Ashley), who is a
student at the University of Wisconsin at Oshkosh. In addition
to paying Ashley’s college expenses totaling $14,000 per year
(tuition, room, and board), petitioners maintain health insurance
coverage for Ashley. Petitioners incurred all medical costs for
2
In 2003, petitioners reported sales in excess of $2
million from Mr. Caple’s day trading activity.
3
This description is petitioners’, not the Court’s.
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Ashley’s care that were not otherwise covered by their
insurance.4
Petitioners’ 1993 and 1994 Taxable Years
In taxable years 1993 and 1994, petitioners sold Wal-Mart
stock for $57,400 and $56,650, respectively. Petitioners failed
to report the proceeds from either sale on their 1993 or 1994
Federal income tax return.
Respondent commenced an examination of petitioners’ 1993 and
1994 Federal income tax returns. Following notice that these
returns had been selected for examination, petitioners promptly
contacted respondent’s Appeals Office; they were unable to reach
a mutually satisfactory resolution to the matter of petitioners’
unreported income.
On December 6, 1996, respondent sent petitioners a notice of
deficiency for taxable years 1993 and 1994. The notice of
deficiency was sent to petitioners’ current address, and it
informed petitioners of their right to file a petition for
redetermination with the Court no later than 90 days from the
date of mailing. Petitioners filed a petition with the Court on
July 8, 1997, citing a series of “extra-ordinary [sic]
circumstances that prevented [them] from filing” before the 90-
4
Aside from petitioners’ testimony regarding Ashley’s
various medical conditions, and proof of their insurance, the
record is devoid of any evidence substantiating the costs
petitioners actually incurred with respect to Ashley’s medical
expenses.
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day period for filing had elapsed. Petitioners cited a series of
problems, including: (1) Mr. Caple’s terminal illness,5 (2) the
death of Mr. Caple’s father in February 1997, (3) two “stressful
lawsuits” of an unspecified nature, and (4) petitioners’ “severe”
financial problems.
On September 3, 1997, the Court issued to petitioners a
notice of filing by respondent of a motion to dismiss for lack of
jurisdiction. Petitioners were required by the notice of filing
to file an objection to respondent’s motion to dismiss within 20
days; they failed to do so. On October 8, 1997, the Court
granted respondent’s motion to dismiss.
Respondent assessed petitioners’ Federal income tax owed for
taxable years 1993 and 1994, together with interest and
penalties, on June 23, 1997. Respondent’s statements of account
show that from the date the assessment was made, there occurred a
series of payments, credits, additional assessments, and
adjustments with respect to both taxable years at issue. As of
May 31, 2004, the date on which petitioners requested that a copy
of respondent’s statements be mailed to them, the transcripts
showed a zero balance remaining for taxable year 1993 and a
balance remaining (including interest and penalties) of
$21,606.92 for taxable year 1994.
5
Mr. Caple was told by his doctors in 1996 that he had only
2 years to live.
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Collections Action and Petitioners’ Offer-in-Compromise
On June 24, 2002, respondent filed a Notice of Federal Tax
Lien and Your Right to a Hearing Under IRC 6320 showing $1,346.96
owed for taxable year 1993 and $15,346.52 owed for taxable year
1994. Respondent sent to petitioners a Final Notice--Intent to
Levy and Notice of Your Right to a Hearing on June 27, 2002.
On August 19, 2002, petitioners mailed to respondent a Form
12153, Request for a Collection Due Process Hearing (CDP
hearing). Respondent notified petitioners by letter on September
19, 2002, that he had received petitioners’ request for a CDP
hearing and, in turn, had forwarded that request to his Appeals
Office.
On May 13, 2004,6 Appeals Officer Beverly A. Roberts (Ms.
Roberts) responded in writing to petitioners’ request for a CDP
hearing. Ms. Roberts informed petitioners that they could
request either a face-to-face meeting or a telephone conference.
Petitioners requested a telephone conference with Ms. Roberts for
their CDP hearing on May 27, 2004.
6
At trial, respondent acknowledged that for reasons
unbeknownst to him, no action had occurred on petitioners’ file
from September 2002 until May 2004. Our examination of the
record, however, indicates that respondent was notified on July
24, 2002, that petitioners were parties in a bankruptcy suit.
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During their CDP hearing,7 petitioners requested that their
liabilities for 1993 and 1994 be “dropped” because of Mr. Caple’s
health status and the “inefficiency of the IRS personnel.”
Petitioners admitted during the hearing that while they had
“sufficient assets” to pay the amounts owed, they had no current
income and were living at “the poverty line.”8
During the hearing, petitioners discussed the general nature
of Mr. Caple’s illness, but they did not provide Ms. Roberts with
any specific documentation relating to his current medical
condition and/or prognosis. Petitioners did not provide Ms.
Roberts with any documentation relating to Mr. Caple’s medical
condition following the hearing. Petitioners did provide a
written statement detailing Mr. Caple’s and Ashley’s
medical ailments; however, they did not provide any documentation
in support of their statements.9
7
Ms. Roberts and Mr. Caple exchanged telephone messages
before and on May 27, 2004. Sometime in the morning of May 27,
2004, Mr. Caple left Ms. Roberts a voicemail message asking her
to “call him back after he got back from his run at 1 p.m.”
8
Petitioners did not provide Ms. Roberts (either before or
after the hearing) with evidentiary support for their claim that
they were living at the “poverty line.” Petitioners did,
however, provide a summary of assets to respondent’s Appeals
Office that showed their total general equity to be $169,570. We
note that in 2004, the Federal poverty line for a family of three
was set at $15,670. Annual Update of HHS Poverty Guidelines, 69
Fed. Reg. 7336 (Feb. 13, 2004).
9
Petitioners’ only daughter, Ashley, was 16 years old at
the time of the hearing. When this matter was before the Court,
(continued...)
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Mr. Caple also raised the issue of whether respondent had
abated interest and adjusted accuracy-related penalties with
respect to their accounts for 1993 and 1994. Respondent had
previously agreed to abate interest and adjust the penalties
assessed against petitioners, pursuant to an agreement reached
between petitioners and respondent’s Milwaukee Problem Resolution
Office. During the hearing, petitioners questioned whether
respondent had, in fact, properly abated the interest and
adjusted these penalties per their agreement. Ms. Roberts
reviewed petitioners’ account records during the hearing and
explained to them that these transcripts showed that the section
6662 penalties had been adjusted to zero and the interest had
been abated. Per petitioners’ request, Ms. Roberts then sent a
copy of these account statements/transcripts to petitioners
following the hearing.
On June 29, 2004, petitioners submitted to respondent a Form
656, Offer in Compromise (OIC). Petitioners offered to settle
the outstanding amount of tax owed by them as follows: (1) A
payment of $100 (to be obtained from “checking accounts,
investment accounts, and selling autos”10), (2) the application
9
(...continued)
Ashley was a college student and covered under their health
insurance plan.
10
Petitioners admitted, both during the hearing and when
this matter was heard by the Court, that in 1999, they purchased
(continued...)
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of “$18,000 in tax credits”, and (3) petitioners’ expected
“future tax benefits.” Petitioners attached five typed pages to
their Form 656 explaining their OIC. In the attachment,
petitioners stated that their OIC was reasonable in the light of
their protracted dealings with respondent since 1996 and Mr.
Caple’s and Ashley’s extensive medical ailments and the costs
associated with their care.
On September 22, 2004, respondent rejected petitioners’ OIC
on the grounds that petitioners had failed to substantiate their
hardship and that they had sufficient assets to pay the amount
owed.
On October 27, 2004, respondent issued petitioners a Notice
of Determination Concerning Collection Action(s) Under Section
6320, in which respondent determined the notice of Federal tax
levy for taxable years 1993 and 1994 to be proper and determined
that collection of the tax liabilities for those years should
proceed.
On June 26, 2006, respondent issued another notice of intent
to levy. Petitioners filed a “Petition for Redetermination of a
10
(...continued)
for $12,000 an antique Porsche that in 2004, had a fair market
value of $9,000, and that in 2004, they sold for $14,000 a motor
boat that they had owned for several years. Petitioners maintain
that they “refunded” the proceeds from the sale of the boat to
Ashley, because they had previously “borrowed” $14,000 from her
college fund.
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Deficiency” requesting the elimination of all taxes owed,
including penalties and interest.
Discussion
Before a levy may be made on any property or right to
property, taxpayers are entitled to a notice of intent to levy
and notice of their right to a fair hearing before an impartial
officer of the Commissioner’s Appeals Office. Secs. 6330(a) and
(b), 6331(d). If the taxpayers request a hearing, they may raise
in that hearing any relevant issue relating to the unpaid tax or
the proposed levy, including challenges to the appropriateness of
the collection action and “offers of collection alternatives,
which may include * * * an offer-in-compromise.” Sec.
6330(c)(2)(A). A determination is then made that takes into
consideration those issues, the verification that the
requirements of applicable law and administrative procedures have
been met, and “whether any proposed collection action 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).
Petitioners have not argued that any portion of their
outstanding tax liability is uncollectible; however, they do
argue that they were unfairly denied an opportunity to file a
petition with the Court for redetermination of the deficiencies,
and that a portion of their liability--the interest and the
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penalties applied under section 6662--was not properly abated and
adjusted in accordance with the agreement they reached with
respondent’s Problem Resolution Office. We will first consider
the merits of these arguments.
Petitioners’ Right To Contest the Underlying Liability
The Court’s jurisdiction to redetermine a deficiency depends
upon the issuance of a valid notice of deficiency and the timely
filing of a petition for redetermination. Levitt v.
Commissioner, 97 T.C. 437, 441 (1991). Assuming the Commissioner
has issued a valid deficiency notice, section 6213(a) provides in
pertinent part that the taxpayer must file a petition with the
Court within 90 days of the mailing of the deficiency notice.
Respondent mailed a deficiency notice to petitioners on
December 6, 1996. It is undisputed that petitioners received
this notice in due course. Petitioners failed to file a petition
for redetermination within 90 days of the date the notice was
mailed. Because petitioners’ reasons as to why they did not file
a petition are irrelevant,11 we hold that petitioners are not
entitled to raise as an issue their underlying tax liability.
11
Petitioners admit their timely receipt of the notice.
They stated that the declining health of Mr. Caple’s father, and
other factors, left them unable to deal with the situation.
“Once respondent places the deficiency notice within the
taxpayer’s grasp * * * [in ample time to file a petition with the
Tax Court, respondent] satisfies the requirement of section 6212;
if the taxpayer turns a blind eye to that information, she does
so at her own peril.” Patmon & Young Profl. Corp., T.C. Memo.
1993-143, affd. 55 F.3d 216 (6th Cir. 1995).
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Abatement of Interest and Adjustment of Penalties
Petitioners challenge respondent’s collection action on the
grounds that respondent did not properly account for an agreement
reached between petitioners and respondent’s Milwaukee Problem
Resolution Office to abate all interest and adjust the section
6662(e) penalty to zero for each of the taxable years at issue.
Ms. Roberts testified that the agreement reached between the
parties applied to the original assessment only and did not apply
to the period after the assessment where petitioners’ outstanding
liability went unpaid.
Our review of the record12 indicates that respondent did, in
fact, abate interest and adjust the section 6662(e) penalty to
zero with respect to the original assessment for each of the
taxable years in issue. We believe Ms. Roberts’s testimony that
the agreement between the parties applied to the original
assessment only and not to the period after the assessment
through the present. Accordingly, we hold that respondent did
properly abate and adjust the interest and the section 6662
penalties with respect to the assessments made for petitioners’
1993 and 1994 taxable years.
12
Specifically, respondent’s account statements for
petitioners’ 1993 and 1994 taxable years. These documents were
provided to petitioners, and petitioners offered no evidence to
contradict their content.
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Rejection of Petitioners’ OIC
Because petitioners cannot dispute their underlying tax
liability, we review respondent’s determination with respect to
their OIC under the abuse of discretion standard. See sec.
6330(d); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).
We find that respondent’s rejection of petitioners’ proposed
OIC was not an abuse of discretion. Respondent’s determination
was based on all of the information petitioners provided
reflecting their financial solvency to Ms. Roberts, respondent’s
Appeals Officer. See Crisan v. Commissioner, T.C. Memo. 2003-
318; Schulman v. Commissioner, T.C. Memo. 2002-129. The Appeals
officer reasonably determined, on the basis of petitioners’
yearly income ($35,616) and asset value (TD Waterhouse account,
$41,301.41; vehicles--including “1995 boat”, $59,100; and Mrs.
Caple’s profit sharing plan, $30,000)--totaling $166,017.41--that
petitioners’ proposed OIC to pay $100 should be rejected.
In addition to the $100 payment, petitioners also offered
“$180,000 in future benefits” as part of their OIC. Unsure of
exactly what petitioners meant by this offer, the Court attempted
to ascertain petitioners’ intent. The Court’s query on this
matter resulted in the following exchange:
THE COURT: These are for future credits, not
past credits?
MS. CAPLE: Future credits.
THE COURT: Future credits?
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MR. CAPLE: Future credits.
THE COURT: Well, suppose if, God forbid, both
of you passed away, there would be
no credits.
MS. CAPLE: Right. That’s right. It’s not
like you’re going to need them.
MR. CAPLE: We would like to apply some of
that * * *.
On the basis of the foregoing exchange and Ms. Roberts’s
testimony explaining why she could not consider “future credits”
as part of petitioners’ OIC, we consider this portion of
petitioners’ OIC to be no more than an irrelevant and misguided
attempt on their part to satisfy their outstanding tax liability.
Ms. Roberts did not abuse her discretion in rejecting this
portion of petitioners’ OIC.
Finally, and with respect to petitioners’ argument that Ms.
Roberts refused to consider factors illustrating petitioners’
economic hardship and extraordinary medical expenses, we are
unpersuaded, on the basis of the foregoing discussion of
petitioners’ assets, that petitioners were unable to pay the
$14,670.74 owed at the time of the hearing. Second, the record
reflects only one letter, dated January 17, 1995, regarding Mr.
Caple’s medical condition. Petitioners have provided no
additional evidence, aside from their statements (which were
neither substantive nor credible), to indicate the impact of
either Mr. Caple’s or Ashley’s medical expenses, although they
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admit that both father and daughter were at that time, and still
are, covered under their medical insurance policy.
Despite ample evidence to the contrary, petitioners have
maintained that they are unable to make more than the $100
proposed in their OIC, an amount that respondent’s Appeals
officer did not abuse her discretion in rejecting.
We therefore hold that respondent’s determination was not an
abuse of discretion and that respondent may proceed with his
collection of the tax liability by levy upon petitioners’
property.
Decision will be entered
for respondent.