T.C. Memo. 2008-227
UNITED STATES TAX COURT
JAMES R. RUTHERFORD AND LINDA L. RUTHERFORD, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25729-06L. Filed October 8, 2008.
Christopher A. Colvert, for petitioners.
Marilyn Ames, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: This action was commenced in response to a
Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330 (notice of determination) with respect
to petitioners’ 1992, 1993, and 1994 Federal income tax
liabilities. The issue for decision is whether it was an abuse
of discretion to send a notice of determination without extending
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the time for petitioners to submit financial information. Unless
otherwise indicated, all section references are to the Internal
Revenue Code, as amended.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Texas at the time that their petition was
filed.
Petitioners jointly filed Forms 1040, U.S. Individual Income
Tax Return, for 1992, 1993, and 1994 reporting taxes due in the
amounts of $8,834, $6,966, and $4,121, respectively. Petitioners
failed to pay the reported liabilities.
The Internal Revenue Service (IRS) assessed the liabilities
shown on petitioners’ income tax returns for 1992, 1993, and
1994, on August 13, 1994, May 1, 1995, and May 8, 1995,
respectively.
On October 27, 1995, the IRS accepted an offer-in-compromise
with respect to petitioners’ liabilities for 1986 through 1991
and the taxes shown on the returns filed by petitioners for 1992,
1993, and 1994. Under the terms of the compromise, petitioners
were required to pay a total of $41,668 plus interest.
Petitioners failed to make the payments. On August 14, 1996, the
IRS declared the offer-in-compromise in default.
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On December 12, 1997, the IRS filed notices of Federal tax
liens for the then-outstanding tax liabilities of petitioners.
Petitioners paid the liabilities, and the liens were released on
January 20, 1999.
On December 2, 1997, a notice of deficiency was sent to
petitioners for 1992, 1993, and 1994, determining deficiencies in
tax totaling $293,057 and penalties and additions to tax totaling
$130,179 under sections 6651(a)(1) and 6662(a).
Petitioners filed a petition with this Court in response to
the December 2, 1997, notice of deficiency. On December 7, 2000,
the Court entered a decision, pursuant to the agreement of the
parties, determining that petitioners owed: (1) Deficiencies in
income taxes for the taxable years 1992, 1993, and 1994 in the
amounts of $123,063, $161,648, and $8,346, respectively; (2)
additions to tax for the taxable years 1992 and 1993, under the
provisions of section 6651(a)(1) in the amounts of $30,979 and
$40,579, respectively; and (3) penalties for the taxable years
1992, 1993, and 1994 under the provisions of section 6662 in the
amounts of $24,613, $32,330, and $1,669, respectively. On
February 6, 2001, the liabilities reflected in the Tax Court
decision were assessed.
On June 16, 2006, the IRS filed a notice of Federal tax lien
for petitioners’ 1992, 1993, and 1994 tax liabilities and sent
petitioners a Notice of Federal Tax Lien Filing and Your Right to
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a Hearing Under IRC 6320. On June 22, 2006, the IRS sent
petitioners a Notice of Intent to Levy and Notice of Your Right
to a Hearing with respect to their liabilities for 1992, 1993,
and 1994.
Petitioners timely requested a hearing under section 6330.
In a letter dated September 18, 2006, the hearing process was
explained to them. The hearing was held on October 31, 2006.
Petitioner James Rutherford (petitioner) appeared at the hearing
with experienced tax counsel. During the hearing, petitioner
raised a defense based on the previous offer-in-compromise. The
Appeals settlement officer refused to discuss the underlying
liabilities because of the prior opportunity to dispute them.
The Appeals settlement officer requested that petitioner submit a
completed Form 433-A, Collection Information Statement for Wage
Earners and Self-Employed Individuals, in order to evaluate his
financial situation and consider collection alternatives.
Petitioner was not prepared to discuss collection alternatives.
Petitioner, acting on advice of counsel, had not presented
financial information. His counsel told petitioner:
We’re not going to present any paperwork, we’re not
going to do nothing, we’re just going to get through
this process, through this step, and then we’re going
to go file a petition and go to federal court and fight
the merits and fight the entire case at federal court,
not at this level, so at this time we just need to go
and do the process and get it past here and get to the
federal court.
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The Appeals settlement officer told petitioner that he had
to provide the financial information that same day as part of the
hearing.
On November 9, 2006, the Appeals Office sent the notice of
determination to petitioners. The notice summarized the issues
raised by the taxpayers and the conclusion reached as follows:
IRC § 6330(c) allows the taxpayer to raise any
relevant issues relating to the unpaid tax at the
hearing. In the request for a hearing the taxpayer
states “Taxes were extinguished by accepted and paid
offer in compromise. Taxpayers qualify for alternative
collection method.”
* * * * * * *
During the face-to-face hearing the taxpayer
raised the issue of the accepted offer in compromise.
He stated the IRS had accepted the offer, filed a tax
lien on the amount of the accepted offer when he was
unable to comply with its terms, and released the tax
lien when the balance was paid. Once the lien was
released, the IRS had no right to assess additional
taxes.
* * * * * * *
The taxpayer stated he was not prepared to discuss
collection alternatives at the hearing. His issue was
the assessment of the additional tax liabilities, which
he continues to believe was unfair. He stated he is
currently unable to pay the balance due in full and
would consider other options. One option he will
consider is the filing of an Offer in Compromise. The
taxpayer was advised of the new requirements for the
processing fee and payment requirements. Another
option he will consider is the filing of bankruptcy.
This option was not discussed.
The taxpayer raised no other issues during the
hearing.
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BALANCING THE NEED FOR EFFICIENT COLLECTION WITH THE
TAXPAYER’S CONCERN THAT COLLECTION ACTION BE NO MORE
INTRUSIVE THAN NECESSARY
IRC Section § 6333(c)(3)(C) [6330(c)(3)(C)]
requires that the Settlement Officer determine if the
proposed levy action and the filed Notice of Federal
Tax Lien balances the need for efficient collection of
the taxes with the legitimate concern of the taxpayer
that any collection action be no more intrusive than
necessary. The tax liabilities are legally due and
owing. No financial documents were provided.
Therefore, the Settlement Officer had insufficient
information to determine if the taxpayer qualified for
a collection alternative such as an installment
agreement or offer in compromise. Therefore, it is my
determination that the levy and the lien balance the
need for efficient tax collection with the taxpayer’s
concern that such action be no more intrusive than
necessary. The proposed levy action and the filing of
the Notice of Federal Tax Lien are sustained.
OPINION
Petitioners argue that it was an abuse of discretion for the
Appeals settlement officer not to recognize that petitioners were
receiving ineffective assistance of counsel and not to allow
petitioners additional time to submit the required financial
information. Petitioners assert:
The record in this case demonstrates that this
controversy has been dragging on for over 10 years
prior to the CDP hearing. It is manifestly
unreasonable and arbitrary and capricious and an abuse
of discretion not to allow taxpayers even 1 additional
day in which to present the information necessary to
resolve this case.
Respondent argues that: (1) It is unreasonable to expect
the Appeals settlement officer to assess the adequacy of
counsel’s advice to a taxpayer; (2) based on their prior
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experience, petitioners were well aware of the requirement of
providing financial information for consideration of an offer-in-
compromise; and (3) petitioners failed to provide the information
after the deadline passed.
We cannot conclude on this record that petitioners were not
adequately advised by counsel. Petitioner’s testimony suggests
that there were strategic reasons for not producing the financial
information at the hearing, and the decision not to produce
“paperwork” was a deliberate one. We will not speculate as to
the reasons for counsel’s advice, and the Appeals settlement
officer was certainly not in a position to inquire into the
reasons for counsel’s advice to petitioners. Neither reason nor
authority supports petitioners’ arguments based on alleged
ineffectiveness of counsel.
Petitioners have invoked our jurisdiction under section
6330(d) to review the notice of determination sent to them with
respect to the notice of tax lien filing and the proposed levies
to collect their long-outstanding tax liabilities. Petitioners
cite relevant authorities, but those authorities do not support
their position. As petitioners acknowledge, the notice of
determination is reviewed by this Court for abuse of discretion,
which is defined as action that was arbitrary, capricious, or
without sound basis in fact or law. Woodral v. Commissioner, 112
T.C. 19, 23 (1999). Under section 6320(b)(2), taxpayers are
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entitled to only one hearing with respect to taxable years in
dispute. See sec. 301.6320-1(b)(1) and (2), Proced. & Admin.
Regs. Petitioners had sufficient time to prepare for the
hearing, were advised by experienced tax counsel, and had
experience with respect to the financial information required to
support an offer-in-compromise. They appeared at the hearing
unprepared and unwilling to discuss collection alternatives. The
only argument raised at the hearing was that the prior offer-in-
compromise somehow affected the underlying tax liabilities.
Petitioners have now abandoned that argument, which appears to
have no merit.
Petitioners are seeking an opportunity to reverse course,
abandon the strategy that they and their counsel adopted in
relation to the hearing, and further delay collection of the
liabilities that, as petitioners acknowledge, had accrued over a
period in excess of 10 years. Through the time of trial
petitioners had not presented the financial information necessary
to resolve their tax liabilities without enforced collection. It
was not unreasonable for the Appeals settlement officer to set a
deadline, and not continuing the hearing cannot be characterized
as arbitrary, capricious, or without sound basis in fact or law.
In Roman v. Commissioner, T.C. Memo. 2004-20, we stated:
No statutory or regulatory provision requires that
taxpayers be afforded an unlimited opportunity to
supplement the administrative record. * * * The
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statute only requires that a taxpayer be given a
reasonable chance to be heard prior to the issuance of
a notice of determination.
Petitioners had that chance. To reflect the foregoing,
Decision will be entered for
respondent.