T.C. Memo. 2008-58
UNITED STATES TAX COURT
JAN L. ASHLOCK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8778-06L. Filed March 10, 2008.
Gerald W. Douglas, for petitioners.
John D. Davis, Thomas J. Travers, and Robin Ferguson, for
respondent.
MEMORANDUM OPINION
SWIFT, Judge: Under section 6320, petitioner challenges
respondent’s notice of determination rejecting petitioner’s
$2,400 offer-in-compromise (OIC) and sustaining respondent’s
notice of Federal tax lien relating to petitioner’s outstanding
- 2 -
Federal income tax liabilities for 1996, 2000, 2001, 2002, and
2003, representing a cumulative total of $44,383.1
Unless otherwise indicated, all section references are to
the sections of the Internal Revenue Code applicable to this
collection action, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Background
The facts of this case have been submitted fully stipulated
under Rule 122 and are so found.
Petitioner is a resident of Oregon. Petitioner has been
employed as a nurse for many years.
In 2001, petitioner was divorced from her husband of
8 years.
As part of the divorce from her husband and separation of
their marital property, in 2001 petitioner was to receive assets
with a value of $26,480, including an interest in real property
located at 400 Lake Street, Berrien Springs, Michigan (the
Michigan property). The interest had a value of $25,000 to
petitioner, as specified by the divorce court.
The June 6, 2001, judgment in dissolution of petitioner’s
marriage expressly awarded to petitioner “all the parties’
1
Petitioner’s OIC also related to additional outstanding
Federal income tax liabilities petitioner owed for 1995 but which
are not otherwise involved in this case.
- 3 -
interest in the Michigan property.” Also per the 2001 judgment
in dissolution of marriage, petitioner had monthly income of
$6,755.
Eight years earlier, in December 1992, the Michigan property
had been the subject of sale and purchase documentation between
petitioner as seller and a relative of petitioner as purchaser.
The stated purchase price for this purported sale of the Michigan
property was approximately $136,000.
In 2003, the Michigan property was sold to a third party.
The title closing documents do not indicate that petitioner had
an ownership interest in the Michigan property and do not
indicate that petitioner was entitled to any of the sales
proceeds.
On January 1, 2004, a chapter 7 bankruptcy order was issued
in petitioner’s behalf discharging petitioner’s liability on
various debts. Petitioner’s bankruptcy proceeding was treated as
a no-asset bankruptcy.
In 2004, petitioner married Mike Beenken, to whom petitioner
is still married and with whom petitioner’s financial situation
over the recent years has significantly improved.
On May 26, 2004, in an attempt to ward off respondent’s
proposed tax lien filing, petitioner submitted to respondent the
OIC that is in issue. Petitioner offered to pay to respondent,
in monthly installments of $100, a total of $2,400 in compromise
- 4 -
of her cumulative total $44,383 outstanding Federal income tax
liabilities for 1996, 2000, 2001, 2002, and 2003. With her OIC
petitioner submitted to respondent a Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed
Individuals, and a Form 433-B, Collection Information Statement
for Businesses. Petitioner did not include any information about
several assets––specifically, she submitted no information about
the Michigan property.
On August 21, 2004, petitioner sold a 1996 Pontiac Firebird
to a third party for $5,250.
On February 22, 2005, respondent filed with Washington
County, Oregon, a notice of Federal tax lien relating to
petitioner’s outstanding 1996, 2000, 2001, 2002, and 2003 Federal
income tax liabilities.
On March 3, 2005, respondent mailed to petitioner a notice
of Federal tax lien filing in which petitioner’s appeal rights
under section 6320 were explained.
On April 3, 2005, petitioner filed with respondent a
Form 12153, Request for a Collection Due Process Hearing.
During the Appeals Office collection hearing that ensued
under section 6320 among petitioner, petitioner’s
representatives, and respondent’s Appeals officer, respondent’s
Appeals officer reviewed additional documentation which was
submitted relating to petitioner’s financial condition.
- 5 -
Respondent’s Appeals officer specifically requested additional
information to establish whether petitioner had received an
ownership interest in the Michigan property under the 2001
divorce decree. Respondent’s Appeals officer considered
documents submitted on petitioner’s behalf, including financial
information, made an extensive analysis of petitioner’s finances
and provided a copy thereof to petitioner.
At the conclusion of the Appeals Office collection hearing,
respondent’s Appeals officer determined that petitioner had the
ability to pay in full her total cumulative $44,383 outstanding
1996, 2000, 2001, 2002, and 2003 Federal income tax liabilities
within the balance of the 10-year collection period of
limitations. In particular, respondent’s Appeals officer
concluded that petitioner in her 2001 divorce proceeding had
received an ownership interest in the Michigan property with a
value of $25,000. This interest constituted, for purposes of
respondent’s consideration of petitioner’s OIC, a dissipated
asset that should have been included in the financial information
submitted to respondent on petitioner’s behalf in connection with
petitioner’s OIC. Accordingly, respondent’s Appeals officer
concluded that a minimally acceptable OIC from petitioner would
have to include the $25,000 value of petitioner’s interest in the
Michigan property.
- 6 -
On April 7, 2006, respondent’s Appeals Office issued its
notice of determination sustaining respondent’s notice of tax
lien filing and rejecting petitioner’s OIC.
Discussion
Section 6330(c)(2)(A)(iii) permits a taxpayer to propose
collection alternatives to the filing of a Federal tax lien.
Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517, provides
that an OIC based on doubt as to collectibility will be treated
as an acceptable collection alternative only where the OIC
reflects the reasonable collection potential from the taxpayer.
Where a taxpayer has dissipated assets in disregard of the
taxpayer’s outstanding Federal income taxes, the dissipated
assets may be included in the calculation of the minimum amount
that is to be paid under an acceptable OIC. Internal Revenue
Manual (IRM) 5.8.5.4(5).
A dissipated asset is defined as any asset (liquid or not
liquid) that has been sold, transferred, or spent on nonpriority
items and/or debts and is no longer available to pay the tax
liability. Samuel v. Commissioner, T.C. Memo. 2007-312; IRM
5.8.5.4(1).
Our review of respondent’s adverse determination relating to
petitioner’s proposed OIC focuses on whether respondent abused
his discretion in rejecting petitioner’s OIC. Sego v.
Commissioner, 114 T.C. 604, 610 (2000).
- 7 -
The evidence herein is conflicting as to ownership of the
Michigan property, and petitioner never provided to respondent’s
Appeals Office an adequate explanation as to why, in the 2001
divorce proceeding, petitioner claimed and was awarded an
interest in the Michigan property with a stated value of $25,000.
In spite of the 1992 sale of the Michigan property to a relative,
clearly petitioner must have retained some interest therein
through the time of her 2001 divorce proceeding. Petitioner
failed to explain to respondent’s Appeals officer what happened
to this interest. Further, the 2004 sale of the Michigan
property to a third party without any acknowledgment, in the
related closing documents, of petitioner’s interest therein does
not explain adequately what happened to petitioner’s $25,000
interest.
At a May 7, 2007, hearing in this case, petitioner’s counsel
acknowledged that petitioner’s current financial condition has
improved significantly, but petitioner’s counsel declined on
petitioner’s behalf to have this matter remanded to respondent’s
Appeals Office for consideration of petitioner’s OIC in light of
petitioner’s current financial condition.
On the basis of the inconsistent and inconclusive evidence
presented, respondent’s Appeals officer properly concluded that
the $25,000 that was awarded to petitioner in the 2001 divorce
proceeding relating to the Michigan property constituted a
- 8 -
dissipated asset that should have been included in petitioner’s
OIC.
We sustain respondent’s determination rejecting petitioner’s
$2,400 OIC.
An appropriate decision
will be entered.