T.C. Memo. 2009-159
UNITED STATES TAX COURT
MICHAEL WILLIAMS AND SHERYL WILLIAMS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21031-07L. Filed June 30, 2009.
Steven R. Mather and Elliott H. Kajan, for petitioners.
Linette B. Angelastro, 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’ 1996 Federal income tax liability. The remaining
issue for decision is whether the settlement officer abused his
discretion in declining to postpone his determination so that
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petitioners’ could submit an offer-in-compromise. Unless
otherwise indicated, all section references are to the Internal
Revenue Code.
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 California at the time their petition was
filed.
From about 1971 through 1998 Walter J. Hoyt III and other
members of the Hoyt family organized, promoted, and operated
numerous cattle and sheep-breeding partnerships (Hoyt
partnerships), as most recently described in Keller v.
Commissioner, __F.3d__ (9th Cir. June 3, 2009). In 1996,
petitioners participated in Shorthorn Genetic Engineering 1982-1
(SGE), a Hoyt partnership that owned partnership interests in
operating-tier Hoyt partnerships. Petitioners filed their 1996
joint Federal income tax return on July 30, 1997, with an
attached Schedule E, Supplemental Income and Loss, reporting a
partnership loss of $216,497 from SGE. The Internal Revenue
Service (IRS), however, determined that SGE was subject to
provisions of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, and disallowed the
partnership’s claimed loss for 1996.
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On September 27, 2006, after partnership-level proceedings
were completed, the IRS assessed tax of $22,102 and interest of
$20,478.82 for petitioners’ taxable year 1996 as a result of a
partnership-tier adjustment before the TEFRA assessments of
docket No. 25205-07. The assessment was followed with a Notice
and Demand bill for the 1996 tax liability, which petitioners
failed to pay. On February 17, 2007, the IRS sent to petitioners
a Letter 1058, Final Notice of Intent to Levy and Notice of Your
Right to a Hearing.
Petitioners submitted a Form 12153, Request for a Collection
Due Process Hearing (section 6330 hearing), to review the levy
action. In their request petitioners asserted that a levy would
be improper because of equity and hardship concerns and that an
offer-in-compromise was warranted. Petitioners’ primary concern
was that they were “unwitting victims” of the Hoyt abusive tax
shelters and therefore should not be subject to penalties and
interest that resulted primarily from the “longstanding” nature
of the Hoyt partnership cases.
A settlement officer sent a letter informing petitioners
that a telephonic Appeals conference was scheduled for June 11,
2007, at which time petitioners could discuss their disagreement
with the levy and/or alternatives to the collection action. The
letter also requested petitioners to provide, before the
conference, a completed Form 433-A, Collection Information
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Statement for Wage Earners and Self-Employed Individuals, all
supporting documentation for Form 433-A, and, if it was their
intent, a Form 656, Offer in Compromise. The letter reemphasized
that collection alternatives could not be considered at the
conference unless the requested information was sent before the
conference date.
Petitioners, through their counsel, informed the settlement
officer that they had additional TEFRA-related assessments that
involved Hoyt partnerships pending for other years as a result of
Court proceedings. They proposed that an offer-in-compromise
encompassing all their assessments would be an appropriate
resolution. The settlement officer requested details on the
TEFRA matters along with the Form 433-A and related documents,
reasoning that an offer-in-compromise could be determined while
awaiting the assessments but cautioning that he would not hold
the case indefinitely. The settlement officer received and
reviewed the requested documents.
On June 11, 2007, the settlement officer and petitioners’
counsel had a telephone conference. During the conference, the
settlement officer again explained that he could not hold
petitioners’ case indefinitely and suggested that, after the
issuance of a notice of determination, he could grant an
extension of 120 days before any collection action, thus
providing petitioners with 150 days free from levy during which
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the additional tax liabilities could be assessed and an offer-in-
compromise filed. The telephone conference ended with the
settlement officer agreeing to wait until July 6, 2007, to follow
up; but if at that time the assessments were not imminent, he
would issue the notice of determination. Petitioner’s counsel
agreed.
On July 2, 2007, an agent of petitioners’ counsel (the
agent) called the settlement officer asking him to postpone any
decision for another month to further allow the assessments to be
made. In checking respondent’s Integrated Data Retrieval System
(IDRS), the settlement officer saw no pending assessments and
reiterated his agreement with petitioners’ counsel from the prior
telephone conference.
In a followup telephone conversation with the agent, the
settlement officer agreed to hold petitioners’ case until August
3, 2007. If no additional assessments were pending at that time,
however, he would issue the notice of determination along with
the 120-day extension to pay. The agent agreed.
On August 7, 2007, the agent called the settlement officer
requesting more time for Appeals to hold the case and to await
the assessments. The settlement officer checked IDRS and still
saw no pending assessments. The settlement officer, determining
that there was no doubt as to collectibility of the assessed 1996
tax liability and that he was unable to determine collectibility
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of the assessments that had not yet been made, decided to close
the case as planned.
The Appeals Office sent to petitioners a notice of
determination, dated August 20, 2007, upon which this case is
based. The notice of determination stated that petitioners owed
tax liabilities for 1993, 1994, and 1995 that were not formally a
part of their section 6330 hearing but would be included in any
collection alternative offered by Appeals for a total tax
liability of approximately $70,000. A review of their financial
documents showed that petitioners had the ability to pay in full
this tax liability. The notice of determination also indicated
that petitioners’ case had been held by the Appeals Office for
over 2 months.
The notice of determination concluded that the pending levy
was not an appropriate measure and was not sustained. The
Appeals Office granted petitioners a 120-day extension to pay
under Internal Revenue Manual (IRM) pt. 5.14.5.1 (Mar. 30, 2002).
If full payment was not received after that time, however, it was
determined that the IRS might levy without any further contact
with petitioners.
For trial purposes only, this case was consolidated with
another case involving petitioners--docket No. 25205-07. In that
case, the timeliness of assessments for 1990-1995 is disputed.
See T.C. Memo. 2009-158, filed this date.
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OPINION
Petitioners argue that respondent insists on tax liabilities
being assessed before those liabilities can be considered in an
offer-in-compromise. Petitioners claim, however, that respondent
delayed making assessments of the liabilities related to
petitioners’ case, and, thus, these pending assessments were
effectively excluded from being considered in any offer-in-
compromise that petitioners could have proposed. Petitioners
ultimately contend that the settlement officer refused to hold
open the section 6330 hearing until the other tax years’
liabilities had been assessed and that he abused his discretion
by not considering an offer-in-compromise that included those
liabilities.
Respondent maintains that: (1) Petitioners proposed no
collection alternatives that the settlement officer could act on;
(2) petitioners could fully pay the tax in issue; and (3) the
settlement officer gave proper consideration to petitioners’
concerns.
Section 6330 generally provides that the Commissioner cannot
proceed with levy on a taxpayer’s property until the taxpayer has
been given notice of and the opportunity for a section 6330
hearing and, if dissatisfied, with judicial review of the
administrative determination. Because the underlying liability
is not in issue here, we review the Appeals determination for
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abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610
(2000). To demonstrate that there was an abuse of discretion,
petitioners must show that the settlement officer’s determination
was arbitrary, capricious, or without sound basis in fact or law.
See Giamelli v. Commissioner, 129 T.C. 107, 111 (2007).
Petitioners have not done so.
Petitioners argue that the settlement officer abused his
discretion in not holding their case open until the pending
liabilities from other years were assessed. Petitioners,
however, present neither evidence nor authority that supports
their view. To the contrary, the Appeals Office shall “attempt
to conduct a * * * [section 6330] hearing and issue a Notice of
Determination as expeditiously as possible under the
circumstances.” Sec. 301.6330-1(e)(3), Q&A-E9, Proced. & Admin.
Regs.; see Murphy v. Commissioner, 125 T.C. 301, 322 (2005)
(citing Clawson v. Commissioner, T.C. Memo. 2004-106), affd. 469
F.3d 27 (1st Cir. 2006). The settlement officer held
petitioners’ Appeals case open for over 2 months in a cooperative
effort regarding the tax liabilities outside of the section 6330
hearing. The settlement officer did not abuse his discretion by
declining to delay further his determination.
Petitioners assert that they should have been allowed to
make an offer-in-compromise within the Appeals process but that
the settlement officer “made it clear” that no offer was going to
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be accepted where there are pending assessments, thus leaving
petitioners with no alternatives. While the settlement officer
testified that an offer-in-compromise cannot be accepted with
respect to pending assessments, he also stated that such an offer
can nevertheless be submitted and considered. The settlement
officer might have considered an offer-in-compromise that
included the pending assessments had petitioners timely submitted
one. Petitioners chose not to submit any offer-in-compromise at
any time during the Appeals process.
Petitioners’ agent testified that the settlement officer was
always “very reasonable”, that “in a very professional manner * *
* he recognized the difficulties that were being presented to * *
* [petitioners]”, and that he “pointed out * * * an alternative
[the IRS Compliance Division] for filing an offer-in-compromise”.
Petitioners’ agent and counsel, however, preferred consideration
by the Office of Appeals.
Section 7122(a) authorizes compromise of a taxpayer’s
Federal income tax liability. “The decision to entertain, accept
or reject an offer in compromise is squarely within the
discretion of the appeals officer and the IRS in general.”
Kindred v. Commissioner, 454 F.3d 688, 696 (7th Cir. 2006); see
sec. 7122; sec. 301.7122-1(c)(1), Proced. & Admin. Regs.; see
also Fargo v. Commissioner, 447 F.3d 706, 713 (9th Cir. 2006)
(recognizing that the IRM “contains numerous provisions that vest
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Appeals Officers with the discretion to accept or reject offers-
in-compromise”), affg. T.C. Memo. 2004-13. Accordingly, the
settlement officer did not abuse his discretion in failing to
consider an offer-in-compromise that petitioners never made. See
Kindred v. Commissioner, supra at 696 (stating that “Without an
actual offer in compromise to consider, it would be most
difficult for either the Tax Court or this court to conclude that
the appeals officer might have abused his discretion”); Kendricks
v. Commissioner, 124 T.C. 69, 79 (2005) (holding that because
“there was no offer in compromise before Appeals, there was no
abuse of discretion in Appeals’ failing to consider an offer in
compromise”).
Petitioners presented neither evidence nor argument showing
any unwarranted actions or reasoning used by the settlement
officer in reaching his determination.
To reflect the foregoing,
Decision will be entered
for respondent.