T.C. Memo. 2009-276
UNITED STATES TAX COURT
EDWARD L. ALDRIDGE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3468-08L. Filed November 30, 2009.
Mary M. Gillum, for petitioner.
Beth A. Nunnink and John Bampfield, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: This proceeding was commenced in response to
a Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330 with respect to petitioner’s Federal
income tax liabilities for 1993, 1994, 1995, 2001, 2002, 2003,
2004, and 2005. The issue for decision is whether the Internal
Revenue Service’s (IRS) Appeals Office abused its discretion by
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sustaining the filing of a Federal tax lien. 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.
Petitioner resided in Shelby County, Tennessee, at the time he
filed his petition.
Petitioner failed to file Federal income tax returns for
1993, 1994, 1995, 2002, and 2003. For 2001, 2004, and 2005,
petitioner filed income tax returns, but he failed to pay all of
the liabilities reported.
On October 5, 1999, the IRS sent petitioner three notices of
deficiency determining Federal income tax deficiencies and
additions to tax for 1993, 1994, and 1995, respectively.
Petitioner sent a Form 1040, U.S. Individual Income Tax Return,
signed October 25, 1999, for 1995 to the IRS.
On September 8, 2000, petitioner filed a petition pursuant
to chapter 13 of the Bankruptcy Code in the U.S. Bankruptcy Court
for the Western District of Tennessee. The IRS filed a proof of
claim regarding petitioner’s unpaid tax liabilities for 1993,
1994, and 1995. On May 3, 2001, the bankruptcy court entered an
order closing petitioner’s case. Petitioner filed another
chapter 13 bankruptcy petition in the U.S. Bankruptcy Court for
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the Western District of Tennessee on December 27, 2001. The IRS
again filed a proof of claim regarding petitioner’s unpaid tax
liabilities for 1993, 1994, and 1995. On May 26, 2006, the
second bankruptcy case was dismissed. Petitioner did not object
to the IRS’ proof of claim and did not receive a discharge in
either bankruptcy case.
On July 10, 2006, the IRS sent petitioner two notices of
deficiency determining Federal income tax deficiencies and
additions to tax for 2002 and 2003, respectively. The notices
were sent via certified mail to petitioner’s last known address.
The IRS sent petitioner a Notice of Federal Tax Lien Filing
and Your Right to a Hearing under Section 6320, dated July 26,
2007, regarding petitioner’s outstanding 1993, 1994, 1995, 2001,
2002, 2003, 2004, and 2005 income tax liabilities. Included with
the notice was a copy of the tax lien as filed in Shelby County,
Tennessee.
On August 3, 2007, the IRS received a Form 12153, Request
for a Collection Due Process or Equivalent Hearing, from
petitioner in response to the lien notice. On this form
petitioner requested withdrawal of the lien and indicated that he
wanted an installment agreement or offer-in-compromise (OIC) to
be considered. Petitioner indicated that the existence of the
lien would interfere with his ability to obtain a loan for which
he had applied.
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By letter dated August 16, 2007, sent from H&R Block
Mortgage Corp., petitioner was informed that his loan application
to refinance a property he had purchased in January 2007 was
denied. Included with the letter, the lender’s Statement of
Credit Denial, Termination, or Change form stated that the
principal reasons for denying the loan were (1) “Value, or
condition of collateral not sufficient” and (2) “Rate, terms,
conditions and/or programs requested are not offered at this
time”.
An IRS settlement officer sent a letter dated October 16,
2007, informing petitioner that a telephone conference for his
requested collection due process (CDP) hearing was scheduled for
November 29, 2007, and that during this hearing petitioner could
discuss his disagreement with the collection action and/or
discuss alternatives to the collection action. The settlement
officer’s letter noted:
For me to consider alternative collection methods
such as an installment agreement or offer in
compromise, you must provide any items listed below.
In addition, you must have filed all federal tax
returns required to be filed.
• A completed Collection Information Statement (Form
433-A for individuals) with all verifications.
• A completed Offer in Compromise request with all
payments required if you are interested in this
type of collection alternative.
Please send me the items requested above within 14 days
from the date of this letter. I cannot consider
collection alternatives at your conference without this
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information. I am enclosing the applicable forms for
your convenience.
On November 29, 2007, the settlement officer held a
telephonic section 6330 hearing with petitioner. During the
hearing petitioner told the settlement officer that he had
requested copies of his tax returns from the IRS for the
liability periods because he might be able to amend the returns
that were filed by the IRS to claim additional deductions.
Petitioner also voiced his desire to enter into an installment
agreement. The settlement officer informed petitioner that he
needed to submit a Form 433-A, Collection Information Statement
for Wage Earners and Self-Employed Individuals, with supporting
financial documents, for an installment agreement to be
considered. The settlement officer told petitioner that if he
forwarded the information by December 4, 2007, it would be
analyzed and another phone conference would be scheduled for
December 6, 2007.
Petitioner submitted a completed Form 433-A and additional
financial documentation to the settlement officer. Among other
things, on the Form 433-A petitioner reported that he worked as
an automobile salesman and his monthly wages were $5,900.
Petitioner also reported $100 monthly rental income for a
residential property on Ivan Road that he had owned since 1978
and included a copy of a lease entered into on August 1, 2007,
for a 1-year term. Petitioner identified two properties as real
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estate that he owned--the Ivan Road property and another property
purchased in January 2007 for $304,000 with a loan balance of
$290,000 and current value of $270,000. Petitioner claimed $800
for housing and utilities expenses on the form. Financial
documents that petitioner submitted with Form 433-A included a
monthly mortgage statement of $2,366 for the property purchased
in January 2007 and an invoice showing $227 for utilities
expenses. In addition, documents that petitioner submitted
identified monthly retirement contributions and a State of
Tennessee Department of Workforce and Network Development benefit
overpayment balance of $850.
On December 6, 2007, the settlement officer called
petitioner after analyzing the Form 433-A and accompanying
financial documents. The settlement officer proposed a monthly
installment agreement amount of $2,064, petitioner’s monthly
disposable income as calculated by the settlement officer. In
his calculations, the settlement officer used the IRS local
standard for housing and utilities expenses of $1,073 for a
family of one in Shelby County, Tennessee, for late 2007, instead
of either the $800 that petitioner claimed on Form 433-A or the
actual expenses. Petitioner stated he could not pay the proposed
$2,064 monthly installment agreement payments.
During the December 6, 2007, phone call the settlement
officer asked petitioner why he identified himself as married on
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the Form 433-A when he had filed his 2006 tax return as single.
Petitioner responded that he was married in November 2006.
On January 8, 2008, the IRS sent a notice of determination
to petitioner sustaining the lien filing. The notice of
determination contained a “Summary of Determination” concluding:
Our determination is not to grant you relief under
Internal Revenue Code (IRC) section 6320 from the
filing of the Notice of Federal Tax Lien (NFTL)
covering your 1993, 1994, 1995, 2001, 2002, 2003, 2004,
and 2005 liabilities. You have not met any conditions
for withdrawal of this Lien. Appeals’ [sic] believe
that the Notice of Federal Tax Lien is appropriate and
that it should remain in place until the requirements
for issuance of a release have been met.
OPINION
Section 6321 imposes a lien in favor of the United States on
all property and property rights of a taxpayer liable for taxes
after a demand for the payment of the taxes has been made and the
taxpayer fails to pay. The lien arises when the assessment is
made. Sec. 6322. The IRS files a notice of Federal tax lien to
preserve priority and put other creditors on notice. See sec.
6323. Section 6320(a) requires the Secretary to send written
notice to the taxpayer of the filing of a notice of lien and of
the taxpayer’s right to an administrative hearing on the matter.
The hearing generally shall be conducted consistent with
procedures set forth in section 6330(c), (d), (e), and (g). Sec.
6320(c). At the hearing a taxpayer may raise any relevant issue,
including challenges to the appropriateness of the collection
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action and possible collection alternatives. Sec. 6330(c)(2)(A).
A taxpayer may contest the validity of the underlying tax
liability, but only if the taxpayer did not receive a statutory
notice of deficiency or otherwise have an opportunity to dispute
the tax liability. See sec. 6330(c)(2)(B); see also Hoyle v.
Commissioner, 131 T.C. __, __ (2008) (slip op. at 5).
Petitioner asserts that the Appeals settlement officer
abused his discretion in failing to consider petitioner’s
liability issues and in denying petitioner’s request for an
installment agreement or an OIC. Petitioner contends that the
settlement officer acted inconsistently with the Internal Revenue
Manual (IRM).
Petitioner asserts that his underlying tax liabilities were
raised at the CDP hearing when he stated that he might be able to
file an amended return claiming additional expenses for the years
for which the IRS filed section 6020(b) substitutes for returns--
1993, 1994, 1995, 2002, and 2003.
Respondent contends that section 6330(c)(2)(B) precluded
petitioner from challenging his underlying tax liabilities at the
CDP hearing because he had prior opportunities to dispute his tax
liabilities. Respondent asserts that because petitioner did not
object to the proofs of claim filed for 1993, 1994, and 1995 in
each of petitioner’s two bankruptcy proceedings, he is precluded
from challenging the underlying tax liabilities for those years.
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See Kendricks v. Commissioner, 124 T.C. 69, 77-79 (2005). For
2002 and 2003, respondent contends that petitioner is precluded
from contesting the liabilities because statutory notices of
deficiency were sent to him for those years. See sec.
6330(c)(2)(B).
Petitioner argues that he did not receive the notices of
deficiency for 2002 and 2003 and thus may raise the underlying
tax liabilities. Petitioner did not identify any additional
expenses to the Appeals Office, and the only item presented at
trial was a copy of a 1995 tax return that petitioner sent to the
IRS in 1999, prior to the bankruptcy proceedings that provided
petitioner an opportunity to dispute his 1993, 1994, and 1995
liabilities. See Kendricks v. Commissioner, supra at 77-79.
Thus, even if he were allowed to challenge the liability, he
failed to show that the assessed amounts were incorrect.
Petitioner argues that the Appeals settlement officer should
have directed him to submit amended returns and permitted him to
contest his liabilities contemporaneous with the hearing, even if
he was otherwise precluded from judicial review of those
liabilities. Petitioner relies on section 301.6330-1(e)(3), Q&A-
E11, Proced. & Admin. Regs.
To establish an abuse of discretion, petitioner must show
that the decision complained of is arbitrary, capricious, or
without sound basis in fact or law. See Giamelli v.
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Commissioner, 129 T.C. 107, 111 (2007). Petitioner never
demonstrated any reasonable dispute as to liabilities that go
back more than 15 years, including multiple years for which he
filed no returns and 3 years for which he failed to pay the
liabilities reported on his returns. When the IRS prepares
substitutes for returns under section 6020, the returns are
generally based on income reported on third-party information
returns. Generally, the IRS has no way of knowing or estimating
a taxpayer’s deductions beyond the standard deduction and
exemption. Petitioner’s belated and vague references to
possible, but not identified, additional deductions were
insufficient to raise a bona fide dispute as to liability for the
years in issue. An obvious purpose of section 6330(c)(2)(B) is
to prevent stale claims raised as a dilatory tactic. The
settlement officer did not abuse his discretion in not addressing
the liability issues.
Petitioner argues that it was an abuse of discretion for the
settlement officer (1) to not consider an OIC and (2) to not
follow the IRM or consider all the relevant financial information
when calculating his monthly expenses to derive the installment
agreement amount.
In a collection hearing a taxpayer may raise offers of
collection alternatives, which may include an OIC or an
installment agreement. Secs. 6330(c)(2)(A)(iii), 6320(c).
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Section 7122(a) authorizes compromise of a taxpayer’s Federal
income tax liability. Taxpayers who wish to propose an OIC must
submit a Form 656, Offer in Compromise. See Godwin v.
Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th
Cir. 2005).
In his letter dated October 16, 2007, the settlement officer
informed petitioner that if he wanted an OIC to be considered, he
needed to submit a completed OIC request. Petitioner failed to
submit the appropriate Form 656 or required payments. This Court
has held that when “there was no offer in compromise before
Appeals, there was no abuse of discretion in Appeals’ failing to
consider an offer in compromise.” Kendricks v. Commissioner,
supra at 79. The settlement officer had no OIC to consider; thus
there was no abuse of discretion by the Appeals Office not
considering an OIC. See Nelson v. Commissioner, T.C. Memo. 2009-
108 (holding that the Appeals Office did not abuse its discretion
in sustaining a lien when a taxpayer requested an OIC generally
but had not prepared one).
Section 6159(a) gives the Secretary discretionary authority
to enter into installment agreements to satisfy tax liabilities
when it is determined that this will facilitate full or partial
collection. Generally, we have held that it is not an abuse of
discretion for purposes of section 6320 or 6330 when an Appeals
Office employee relies on guidelines published in the IRM to
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evaluate a proposed installment agreement. See, e.g., Orum v.
Commissioner, 123 T.C. 1, 13 (2004), affd. 412 F.3d 819 (7th Cir.
2005); Etkin v. Commissioner, T.C. Memo. 2005-245.
Eligibility for an installment agreement is based on the
taxpayer’s current financial condition. See generally IRM pt.
5.14.1.5 (July 12, 2005). According to the IRM, the installment
agreement payment amount should be equal to a taxpayer’s monthly
disposable income, which is the taxpayer’s monthly gross income
less allowable expenses. See IRM pt. 5.14.1.5.3 (July 12, 2005);
IRM pt. 5.15.1.2(1) (May 1, 2004).
Allowable expenses include those expenses that meet the
necessary expense test. See IRM pt. 5.15.1.7(1) (May 1, 2004).
Necessary expenses are those expenses necessary to provide for
the production of income and/or for the health and welfare of the
taxpayer and his family. Id. The sum of the necessary expenses
establishes the minimum amount the taxpayer needs to live. Id.
After reviewing petitioner’s submitted Form 433-A and other
financial documents, the settlement officer determined that
petitioner had $2,064 of monthly disposable income and proposed
an installment agreement with monthly payments of this amount.
Petitioner stated he would not be able to make the proposed
installment agreement payments.
Petitioner asserts that it was an abuse of discretion for
the settlement officer to not consider his (1) actual housing and
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utilities expenses, (2) expenses for a voluntary retirement fund,
and (3) expenses for an outstanding debt for overpaid
unemployment compensation in calculating his monthly disposable
income used for the proposed installment agreement.
Petitioner argues that his actual expenses for housing and
utilities should be allowed instead of the local allowances that
the settlement officer used when calculating his monthly
disposable income. Section 7122(d)(2)(A) provides that “the
Secretary shall develop and publish schedules of national and
local allowances designed to provide that taxpayers entering into
a compromise have an adequate means to provide for basic living
expenses.” Section 7122(d)(2)(B) provides that the national and
local allowances should not be used “to the extent such use would
result in the taxpayer not having adequate means to provide for
basic living expenses.”
This Court has sustained the Commissioner’s use of the IRS’
published national and local allowances as guidelines for basic
living expenses in evaluating the adequacy of proposed
installment agreements and OICs. See, e.g., Speltz v.
Commissioner, 124 T.C. 165, 179 (2005), affd. 454 F.3d 782 (8th
Cir. 2006); Dean v. Commissioner, T.C. Memo. 2009-269; Fernandez
v. Commissioner, T.C. Memo. 2008-210; Klein v. Commissioner, T.C.
Memo. 2007-325. Generally, this Court has found no abuse of
discretion where Appeals officers used the housing and utilities
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standard allowances rather than the taxpayer’s actual expenses.
See Marks v. Commissioner, T.C. Memo. 2008-226; Diffee v.
Commissioner, T.C. Memo. 2007-304.
The taxpayer has the burden of providing information to the
Appeals Office to justify a departure from the local standards.
See Lindley v. Commissioner, T.C. Memo. 2006-229 (no abuse of
discretion to use local standards when taxpayer does not make
showing that he will be unable to provide for basic living
expenses), affd. sub nom. Keller v. Commissioner, 568 F.3d 710
(9th Cir. 2009).
Petitioner submitted documentation showing his actual
expenses, but he did not present information to justify a
departure from the local standard allowance for housing and
utilities expenses. Further, petitioner purchased real property
and incurred the additional mortgage and utilities expenses at a
time when he owed a substantial tax liability. See, e.g.,
Steinberg v. Commissioner, T.C. Memo. 2006-217. Under the
circumstances, it was not arbitrary, unreasonable, or without
basis in fact to conclude that the Government’s interest
justified a lien on petitioner’s property.
Respondent suggests that petitioner probably did not pay all
of the actual expenses claimed because he is married and his wife
may also pay a portion of the expenses. Because petitioner did
not supply information about his wife, he was allowed expenses
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based on a single person. See IRM pt. 5.15.1.4 (May 1, 2004)
(providing guidelines that indicate generally a taxpayer is
allowed only the expenses that he or she is required to pay and
consideration must be given to any other income available to the
household and any expenses shared with a nonliable person.) We
conclude that the record does not show that the settlement
officer did not properly apply the provisions of the Code, the
regulations, or the IRM with respect to the local standard
allowance for monthly housing and utilities expenses.
Although petitioner did not claim retirement contributions
as an expense on his Form 433-A, he provided documents to the
settlement officer showing monthly retirement contributions.
Petitioner asserts that the settlement officer failed to follow
the IRM and allow the retirement contributions as a necessary
expense. According to the IRM, contributions to voluntary
retirement plans are not a necessary expense. IRM pt.
5.8.5.3.8(2) (Sept. 1, 2005). Petitioner argues that he is
nearing retirement age and has a small retirement account and
that the voluntary contributions are a necessary expense.
However, the settlement officer followed the IRM guidelines in
this regard.
Petitioner next argues that the settlement officer failed to
follow the IRM and consider his unemployment overpayment debt to
the Tennessee Department of Labor and Workforce Development
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because it was incurred for the production of income. Petitioner
did not claim this unsecured debt on his Form 433-A but submitted
a statement from the Tennessee Department of Labor and Workforce
Development showing an outstanding balance of $850.
To be considered a necessary expense, the expense must
provide for the health and welfare of the taxpayer and/or his
family or must be for the production of income. IRM pt.
5.15.1.10 (May 1, 2004). When reviewing an unsecured debt, if
the taxpayer substantiates and justifies the expense, the minimum
payment may be allowed. Id.
Petitioner testified that the debt arose from overpaid
unemployment compensation. Petitioner has not explained how
repayment of amounts wrongfully received is necessary for the
production of income. We conclude that the settlement officer
did not abuse his discretion by not including the overpaid
unemployment debt when calculating petitioner’s allowable monthly
expenses.
In summary, petitioner’s complaints amount to the argument
that the settlement officer should have reached a different
conclusion based on the financial information presented. Our
review, however, is limited to abuse of discretion. We do not
recalculate petitioner’s ability to pay and substitute our
judgment for that of the Appeals Office. See Speltz v.
Commissioner, supra at 179-180; Bergevin v. Commissioner, T.C.
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Memo. 2008-6. Even if the parties had executed an installment
agreement the lien would probably remain in place. It was not an
abuse of discretion to sustain the notice of lien filing. In
reaching our decision, we have considered all arguments made,
and, to the extent not mentioned, we conclude that they are moot,
irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.