T.C. Memo. 2010-52
UNITED STATES TAX COURT
MAYER INVESTMENT COMPANY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3844-08L. Filed March 18, 2010.
Harry Anthony Tipping, for petitioner.
Anita A. Gill and Dennis G. Driscoll, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Pursuant to section 6330(d),1 petitioner
seeks review of respondent’s determination to proceed with
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
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collection of its unpaid 2003 additions to tax. The issue for
decision is whether the Internal Revenue Service (IRS) Appeals
Office abused its discretion in sustaining the IRS’s proposed
levy action against petitioner and denying petitioner’s offer-in-
compromise (OIC) based on doubt as to collectibility with special
circumstances.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the supplemental stipulation of
facts, together with the attached exhibits, are incorporated
herein by this reference. At the time petitioner filed its
petition, petitioner was incorporated in Ohio.
I. Mayer Investment Co.
Petitioner’s sole shareholders in 2003 were Charles W.
Mayer, Jr., the 89-year-old founder of the company, and his
nephew, Keith Barton. Petitioner’s primary assets in 2003 were
an 85-year-old building in Akron, Ohio, and two adjoining parking
lots. Petitioner leased space in the building to commercial
tenants.
Mr. Mayer served as the president of petitioner and was
responsible for the company’s day-to-day operations until March
2005, when he was confined to a nursing home and his sons, Rory
and Jeffrey, assumed control of petitioner. Mr. Mayer failed to
make petitioner’s 2003 estimated tax payments or timely file
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petitioner’s 2003 Form 1120, U.S. Corporation Income Tax Return.
However, Mr. Mayer paid every other bill that came due for
petitioner in 2003.
Petitioner engaged in several major financial transactions
in 2003. In March petitioner received $66,806 from Union Central
Life Insurance Co. for the cash surrender value of a life
insurance policy on Mr. Mayer and promptly transferred these
funds to Mr. Mayer. Throughout the year petitioner transferred a
total of $43,400 to Charles Mayer Studios, Inc., a struggling
commercial photography business owned by Mr. Mayer.
Petitioner also found itself in the middle of a real estate
dispute in 2003. During the first half of 2003 petitioner sold a
parking lot for $300,000 and deposited $205,347 of the proceeds
into its checking account. In July petitioner wrote two checks
to Mr. Mayer from the proceeds in the total amount of $146,803.
In November petitioner placed $90,000 from the proceeds into an
escrow account because of a civil complaint filed against the
company by Mr. Barton (Barton litigation). The funds were not
released from escrow until early 2005.
On April 11, 2005, petitioner filed and paid the tax shown
on its 2003 Form 1120, which contained Mr. Mayer’s signature.
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II. Collection Action
A. Abatement
On May 30, 2005, respondent assessed section 6651 and
section 6655 additions to tax against petitioner in the total
amount of $21,936 for tax year 2003. On July 7, 2005, petitioner
filed a Form 843, Claim for Refund and Request for Abatement, in
which petitioner stated that reasonable cause existed to remove
the additions to tax because petitioner lacked the funds to
timely pay the 2003 additions to tax. The reason given was the
restriction on access to the $90,000 placed in escrow on account
of the Barton litigation. Petitioner also stated that payment of
the additions to tax would impose an extreme hardship on
petitioner. On October 4, 2005, the IRS denied petitioner’s
request for abatement.
On October 21, 2005, petitioner sent the IRS a letter
appealing the denial of its abatement request. In its letter
petitioner reiterated the financial distress arguments it had
asserted in its Form 843. On July 10, 2006, petitioner sent the
IRS an additional letter which stated that Mr. Mayer was
suffering from Alzheimer’s disease and dementia in 2003. On July
18, 2006, the Appeals Office responded by noting that petitioner
made no attempt to provide supporting documentation for its
contention that Mr. Mayer suffered from Alzheimer’s disease.
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B. Telephone Hearings
On October 22, 2005, respondent issued to petitioner a
Notice of Intent to Levy and Notice of Your Right to a Hearing
for 2003. On October 28, 2005, petitioner requested a section
6330 hearing. Telephone conferences with the Appeals Office were
held on August 16, 2006, February 21, 2007, and November 6, 2007.
At one or more of these scheduled conferences, petitioner
informed the Appeals Office that Mr. Mayer was in a nursing home
on account of his poor health.
C. Offer-in-Compromise
On February 9, 2007, petitioner submitted an offer-in-
compromise (OIC) of $4,000 based on doubt as to liability and
doubt as to collectibility with special circumstances.
Petitioner’s OIC reiterated the financial distress arguments
presented in its Form 843. On June 20, 2007, in support of the
OIC, petitioner submitted a Form 433-B, Collection Information
Statement for Businesses, signed by its vice president, Jeffrey
W. Mayer. Petitioner’s Form 433-B indicated that petitioner had
the following assets: (1) Notes receivable of $354,600 from
Charles Mayer Studios, Inc.; (2) notes receivable of $164,860
from Mr. Mayer; (3) two parcels of unencumbered real property
consisting of a commercial building and parking lot valued at
$468,630 and $42,880, respectively; (4) $8,104 in cash in a First
Merit Bank checking account; and (5) net monthly income of
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$1,825. The total value of the assets listed on petitioner’s
Form 433-B was $1,039,074.
On July 17, 2007, the IRS offer examiner sent petitioner an
OIC analysis which determined that petitioner had a reasonable
collection potential of $620,314. On July 27, 2007, petitioner
sent the IRS a letter disagreeing with the offer examiner’s
analysis. Petitioner’s letter explained that the building
required extensive repairs and that the accounts receivable were
unlikely to be collected.
On November 26, 2007, the Appeals Office sent petitioner a
letter rejecting petitioner’s OIC. The letter stated that the
Appeals Office rejected petitioner’s doubt as to liability claim
because the petitioner had failed to show reasonable cause and
rejected petitioner’s doubt as to collectibility claim because
petitioner had sufficient assets to pay the additions to tax.
The letter concluded by offering petitioner an installment
agreement of $800 to $1,000 per month. Petitioner did not
respond to the Appeals Office’s offer. On January 18, 2008,
respondent issued a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 to petitioner.
III. Tax Court Petition
On February 13, 2008, petitioner filed a petition with this
Court. The petition raised the issue of doubt as to liability by
disputing the Appeals Office’s rejection of petitioner’s request
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for a reasonable cause reduction in the additions to tax. The
parties subsequently agreed that the issue for decision is
whether the Appeals Office abused its discretion by denying
petitioner’s OIC based on doubt as to collectibility with special
circumstances.2
On May 29, 2009, respondent filed a motion in limine
requesting the Court to limit the testimony of Jeffrey Mayer,
Rory Mayer, and petitioner’s employee Dan Reimenschneider to
conversations they had had with the Appeals Office and to the
explanation of documents that were prepared and provided to the
Appeals Office. The motion also requested that the Court limit
all exhibits to documents that were provided to the Appeals
Office and that were not expert testimony. Petitioner objected
to the motion.
On June 3, 2009, trial was held in Cleveland, Ohio. At the
conclusion of trial, we granted petitioner’s unopposed oral
motion to amend the pleadings to conform to proof.
2
Petitioner’s original petition did not raise the issue of
abuse of discretion due to the Appeals Office’s denial of
petitioner’s OIC based on doubt as to collectibility. However,
on Feb. 12, 2009, respondent consented to trial of the doubt as
to collectibility issue under Rule 41(b)(1) by raising it in a
motion for summary judgment. On Mar. 13, 2009, petitioner
conceded the doubt as to liability issue in a memorandum in
opposition to respondent’s motion.
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OPINION
I. Procedural Issues
At trial, petitioner submitted documents and offered witness
testimony regarding Mr. Mayer’s medical condition and
petitioner’s financial situation that were not part of the
administrative record of the Appeals Office. Respondent argues
in his motion in limine that we should not consider any evidence
in a case brought under section 6330 that was not part of the
administrative record. We need not address the issue raised by
respondent’s motion in limine because respondent prevails on the
merits even if we consider the testimony and documents to which
respondent objects.
II. Abuse of Discretion
Petitioner argues that respondent abused his discretion by
rejecting petitioner’s OIC based on doubt as to collectibility
with special circumstances. Petitioner contends the Appeals
Office (1) overvalued petitioner’s building and outstanding
accounts payable in calculating petitioner’s reasonable
collection potential, (2) failed to consider Mr. Mayer’s dementia
and Alzheimer’s disease, and (3) failed to consider pending
litigation that encumbered petitioner’s assets. Respondent
argues that the Appeals Office did not abuse its discretion when
calculating petitioner’s reasonable collection potential and gave
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proper consideration to petitioner’s unique situation on the
basis of information petitioner provided.
Section 7122(a) provides that “The Secretary may compromise
any civil * * * case arising under the internal revenue laws”.
Whether to accept an OIC is left to the Secretary’s discretion.
Fargo v. Commissioner, 447 F.3d 706, 712 (9th Cir. 2006), affg.
T.C. Memo. 2004-13; sec. 301.7122-1(c)(1), Proced. & Admin. Regs.
The regulations under section 7122(a) set forth three
grounds for the compromise of a tax liability: (1) Doubt as to
liability; (2) doubt as to collectibility; or (3) promotion of
effective tax administration. Sec. 301.7122-1(b), Proced. &
Admin. Regs.
The Commissioner may compromise a tax liability based on
doubt as to collectibility where the taxpayer’s assets and income
are less than the full amount of the assessed liability. Sec.
301.7122-1(b)(2), Proced. & Admin. Regs. Generally, under the
Commissioner’s administrative pronouncements an OIC based on
doubt as to collectibility will be acceptable only if it reflects
the taxpayer’s reasonable collection potential. Rev. Proc. 2003-
71, sec. 4.02(2), 2003-2 C.B. 517, 517. In some cases the
Commissioner will accept an OIC of less than the reasonable
collection potential if there are “special circumstances”. Id.
Special circumstances are: (1) Circumstances demonstrating that
the taxpayer would suffer economic hardship if the IRS were to
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collect from him an amount equal to the reasonable collection
potential; or (2) circumstances justifying acceptance of an
amount less than the reasonable collection potential based on
public policy or equity considerations. See Internal Revenue
Manual (IRM) pt. 5.8.4.3(4) (Sept. 1, 2005). However, in
accordance with the Commissioner’s guidelines, an OIC based on
doubt as to collectibility with special circumstances should not
be accepted, even when economic hardship or considerations of
public policy or equity circumstances are identified, if the
taxpayer does not offer an acceptable amount. See IRM pt.
5.8.11.2.1(11), 5.8.11.2.2(12) (Sept. 1, 2005).
Because the underlying tax liability is not at issue, our
review under section 6330 is for abuse of discretion. See Sego
v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner,
114 T.C. 176, 182 (2000). This standard does not ask us to
decide whether in our opinion petitioner’s OIC should have been
accepted, but whether the Appeals Office’s rejection of the OIC
was arbitrary, capricious, or without sound basis in fact or law.
See Woodral v. Commissioner, 112 T.C. 19, 23 (1999); Keller v.
Commissioner, T.C. Memo. 2006-166, affd. in part and vacated in
part 568 F.3d 710 (9th Cir. 2009); Fowler v. Commissioner, T.C.
Memo. 2004-163.
The record indicates that the Appeals Office gave adequate
consideration to the special factors petitioner raised. The
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Appeals Office’s letter rejecting petitioner’s OIC indicates that
Mr. Mayer’s medical condition was a factor examined by the
Appeals Office:
Also, you stated that the president of the corporation
is currently in a nursing home due to his health.
However, the business is still operating and generating
some income. Therefore, it is reasonable for the
Service to be of the opinion that the tax can be
collected over time.
In its Appeals case memorandum, the Appeals Office also
considered petitioner’s claim that petitioner’s accounts
receivable will never be paid and that petitioner is operating at
a loss:
The Offer Specialist determined that the taxpayer has a
monthly surplus of $1,825, which yields a future income
potential in excess of $87,600. The [taxpayer], on the
other hand, argued that the taxpayer is actually
operating at a deficit * * * I reviewed the Offer
Specialist’s income and expense analysis and concur
with her findings. Neither the taxpayer nor his
representative presented any information to warrant a
change * * *
The record provides adequate justification for the Appeals
Office’s determination. Petitioner’s assets, although eroded,
are worth many times the amount at issue in the collection
action, and the record does not indicate that petitioner would
experience severe hardship from payment. Despite the Barton
litigation and the restriction on the $90,000, petitioner was
able to transfer large sums of money in 2003 to support Mr.
Mayer’s other business interests. Finally, although the record
indicates Mr. Mayer experienced symptoms of Alzheimer’s disease
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in 2003, petitioner was able to satisfy most of its outstanding
obligations in 2003 and engage in new business transactions.
Unlike taxpayers in other cases where we have found abuse of
discretion on account of the ill health of taxpayers, Mr. Mayer
was not bedridden or completely unable to manage his financial
affairs in 2003. See Sullivan v. Commissioner, T.C. Memo. 2009-
4; sec. 301.7122-1(b)(3)(ii) and (c)(3)(iv), Proced. & Admin.
Regs.
Petitioner cites Blosser v. Commissioner, T.C. Memo. 2007-
323, for the proposition that the Commissioner has an affirmative
duty to investigate possible special circumstances raised by a
taxpayer in a section 6330 hearing and that the Appeals Office
erred by failing to ask petitioner for additional documentation
regarding Mr. Mayer’s illness and petitioner’s financial
troubles. Petitioner reads Blosser too broadly. In Blosser, we
determined that the Commissioner abused his discretion in denying
a taxpayer’s proposed collection alternative because the Appeals
Office refused to consider the changes in the taxpayer’s
financial information from the time she completed a collection
information statement (CIS).3 The Appeals Office also failed to
consider the taxpayer’s excuse, raised at the taxpayer’s section
6330 hearing, for not filing a more recent statement or complying
3
The taxpayer in Blosser v. Commissioner, T.C. Memo 2007-
323, had lost her job after filing her CIS.
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with the Appeals Office’s request to file returns for prior
years.4 Blosser does not stand for the proposition that the
Appeals Office has an open-ended duty to inquire, but rather that
it must make its determination after giving adequate
consideration to all meritorious issues a taxpayer raises during
a section 6330 hearing.
Petitioner’s situation is distinguishable from the facts in
Blosser. Petitioner has not shown that any substantial changes
in its financial viability took place from the time that it
supplied the IRS with its Form 433-B to the time the Appeals
Office rejected the OIC. Moreover, the Appeals Office gave
consideration to both Mr. Mayer’s illness and petitioner’s
financial health.
The Appeals Office reviewed petitioner’s financial
information, and considered whether special circumstances
existed, at the section 6330 hearing and determined that an OIC
was not appropriate. We received as exhibits the financial
information presented to the IRS and find that the Appeals Office
could have reasonably concluded that there are sufficient income
and assets to satisfy the tax liabilities. We also received
medical records and heard testimony regarding the special
4
The taxpayer stated in her sec. 6330 hearing that she had
been unable to complete a new CIS on account of a family tragedy
and did not have to file returns for past years because she had
been incarcerated.
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circumstances petitioner raised at the hearing and find that the
Appeals Office’s conclusion that the circumstances did not
justify acceptance of an amount less than the reasonable
collection potential of petitioner was not arbitrary or
capricious. Accordingly, we find that the Appeals Office did not
abuse its discretion in determining to reject petitioner’s OIC
and proceed with the collection action.
In reaching our holdings, 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.