T.C. Memo. 2009-232
UNITED STATES TAX COURT
KENNETH EVERETT BLAIR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16510-07L. Filed October 8, 2009.
Kenneth Everett Blair, pro se.
Francis Mucciolo, for respondent.
MEMORANDUM OPINION
WELLS, Judge: Petitioner petitioned the Court pursuant to
section 6330(d)1 to review the determination of respondent’s
Office of Appeals (Appeals Office) sustaining a proposed levy to
collect petitioner’s Federal income tax liabilities for 2001
1
Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code.
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through 2003. Petitioner argues that the Appeals officer was
required to accept his offer of $24,000 to compromise his
$81,483.52 (inclusive of penalties and interest) in liabilities.
We decide whether the Appeals officer abused his discretion in
rejecting petitioner’s offer.
Background
The parties filed with the Court stipulations of fact and
accompanying exhibits. The stipulated facts are found
accordingly. When the petition was filed, petitioner resided in
Florida.
On October 20, 2006, respondent mailed to petitioner a
Letter 1058, Final Notice of Intent to Levy and Notice of Your
Right to a Hearing, regarding petitioner’s 2001, 2002, and 2003
income tax years. On October 27, 2006, respondent mailed to
petitioner a Letter 3172, Notice of Federal Tax Lien Filing and
Your Right to a Hearing Under IRC 6320, regarding petitioner’s
2001, 2002, and 2003 taxable years. In his request for a hearing
petitioner stated that the proposed levy would cause him
financial hardship.
Petitioner was granted a hearing by respondent’s Appeals
Office for both the notice of lien and the notice of levy. At
the hearing, petitioner made an offer-in-compromise of $24,000 as
a collection alternative. After reviewing petitioner’s financial
information, the settlement officer assigned to petitioner’s case
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(settlement officer) determined that petitioner’s reasonable
collection potential was $58,998. Petitioner did not agree to
that amount. The settlement officer offered petitioner an
installment agreement, which petitioner declined. Because the
settlement officer was presented with no other collection
alternatives, he made a determination upholding the collection
action.
The notice of determination states that: Petitioner failed
to file tax returns for 2001 and 2002; respondent prepared
substitutes for returns under section 6020(b) and assessed the
tax due; respondent made an additional tax assessment on
petitioner’s self-filed return for 2003; respondent’s records
show that the assessments were properly made; notice and demand
was sent to petitioner for each tax period as required by section
6303 and petitioner failed to pay the liabilities in full; there
was a balance due at the time that the collection notices were
sent as required by sections 6322 and 6331(a); Letter 3172 was
sent to petitioner on October 27, 2006; Letter 1058 was sent to
petitioner on October 20, 2006; and petitioner made a timely
request for a hearing on Form 12153, Request for a Collection Due
Process Hearing, that was received November 16, 2006.
During the hearing that was conducted via telephone on June
12, 2007, the settlement officer advised petitioner that, after
review of all the information petitioner had provided, it was
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determined that petitioner’s offer of $24,000 to compromise his
tax liabilities could not be accepted. The settlement officer
explained to petitioner that an amount larger than $24,000 could
be collected and that an offer could not be accepted under these
circumstances. The settlement officer determined that the
reasonable collection potential (RCP) was $58,998. The RCP was
calculated as follows:
Income/Expense Table
Allowed Per
Claimed by Taxpayer Settlement Officer
Monthly gross income $2,580 $2,580
Monthly necessary
living expenses:
Food, clothing, misc. 300 556
Housing & utilities 200 200
Transportation 350 350
Health care 270 270
Taxes 438 563
1
Child care 400 -0-
Life insurance 90 119
2
Unsecured loan 200 -0-
Total 2,248 2,058
Net monthly income 332 522
Future income (x 109) 56,898
1
The $400 in childcare expenses claimed by petitioner were
college expenses, and the record does not establish that those
expenses were a legal obligation of petitioner.
2
The record does not establish that petitioner is legally
obligated to repay the unsecured loan.
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Asset/Equity Table
Fair Market Quick Sale
Asset Value Value Encumbrance Equity
‘88 GMC $500 $400 -0- $400
‘93 Ford 1,500 1,200 -0- 1,200
Savings
acct. 500 500 -0- 500
Future
income 56,898 56,898 -0- 56,898
Total (RCP) 58,998
At the hearing with the settlement officer, petitioner
stated that he could not increase his offer to the amount of the
RCP. Petitioner did not raise any other issues, such as a
challenge to the tax liabilities.
Discussion
Petitioner contends that respondent’s settlement officer did
not consider his obligations to make payments out of his income.
Petitioner also argues that his health care costs have increased
and those costs were not included in the settlement officer’s
consideration. Petitioner further contends that his offer-in-
compromise was the amount he could reasonably expect to repay
“before I go on Social Security.”
Where the underlying tax liability is not in issue, we
review the determination of the Appeals Office for abuse of
discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000).
We reject the determination of the Appeals Office only if the
determination was arbitrary, capricious, or without sound basis
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in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 308,
320 (2005), affd. 469 F.3d 27 (1st Cir. 2006).
Where we decide the propriety of the Appeals Office’s
rejection of an offer-in-compromise, we review the reasoning
underlying that rejection to decide whether the rejection was
arbitrary, capricious, or without sound basis in fact or law. We
do not substitute our judgment for that of the Appeals Office,
and we do not decide independently the amount that we believe
would be an acceptable offer-in-compromise. See Murphy v.
Commissioner, supra at 320.
Section 6330(c)(2)(A)(iii) allows a taxpayer to offer to
compromise a Federal tax debt as a collection alternative to a
proposed levy. Section 7122(d) authorizes the Commissioner to
prescribe guidelines to determine when a taxpayer’s offer-in-
compromise should be accepted. Sec. 301.7122-1(b), Proced. &
Admin. Regs., lists grounds on which the Commissioner may accept
an offer-in-compromise of a Federal tax debt.
The settlement officer determined petitioner’s RCP to be
$58,998. Therefore, it is undisputed that petitioner cannot
fully pay his $81,483.52 tax liability. The Commissioner
evaluates economic hardship. See Internal Revenue Manual (IRM)
pt. 5.8.11.2.1 (Sept. 1, 2005). In accordance with the
Commissioner’s guidelines, an offer-in-compromise should not be
accepted even in a case of economic hardship if the taxpayer does
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not offer an acceptable amount. See IRM pt. 5.8.11.2.1(11)
(Sept. 1, 2005).
As we noted in Barnes v. Commissioner, T.C. Memo. 2006-150,
n.8, affd. in part and vacated in part sub nom. Keller v.
Commissioner, 568 F.3d 710 (9th Cir. 2009), IRM pt. 5.8.5.5
allows the calculation of future income using a 48-month factor
where the taxpayer offers to pay the compromise amount in cash
within 5 months. It appears that petitioner’s offer met the
criteria set forth in the IRM, and it is unclear why the
settlement officer used a 109-month factor instead of a 48-month
factor. The difference between petitioner’s offer of $24,000 and
the amount called for by applying a 48-month factor
(approximately $27,156) is only a few thousand dollars. It is
not clear to the Court from the record that the settlement
officer took into account the 48-month factor allowed in the IRM
as noted above. Consequently, we will remand this case to
respondent’s Appeals Office for reconsideration of petitioner’s
offer in the light of the 48-month factor.
To reflect the foregoing,
An appropriate order will
be issued.