T.C. Memo. 2010-90
UNITED STATES TAX COURT
JOHN J. AND DEBRA M. CANEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21691-08L. Filed April 27, 2010.
Ronald F. Hood, for petitioners.
Daniel P. Ryan, for respondent.
MEMORANDUM OPINION
HALPERN, Judge: This case is before us to review a Notice
of Determination Concerning Collection Action(s) Under Section
6320 and/or 6330 (the notice of determination) issued by
respondent’s Appeals Office (Appeals). That notice concerns
petitioners’ 2004 and 2005 Federal income tax liabilities, and it
sustains an Appeals officer’s determination that a notice of
- 2 -
intent to levy (the levy notice) and a notice of Federal tax lien
(the lien notice) for those years should stand. We review the
notice of determination under sections 6320(c) and 6330(d)(1).1
Respondent has moved for summary judgment (the motion).
Petitioners object (the response). We shall grant the motion.
We may grant summary judgment “if the pleadings, answers to
interrogatories, depositions, admissions, and any other
acceptable materials, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that a
decision may be rendered as a matter of law.” Rule 121(b). In
pertinent part, Rule 121(d) provides: “When a motion for summary
judgment is made and supported * * *, an adverse party may not
rest upon the mere allegations or denials of such party’s
pleading, but such party’s response * * * must set forth specific
facts showing that there is a genuine issue for trial.”
In support of the motion, respondent relies on the
pleadings, the declaration of Appeals Officer Lisa S. Boudreau,
the Appeals official assigned to petitioners’ appeal under
sections 6320 and 6330, and the relevant documents in
respondent’s administrative file from petitioners’ collection due
process hearing. Respondent has moved for summary judgment, and
so we infer facts in a manner most favorable to petitioners.
1
Unless otherwise stated, section references are to the
Internal Revenue Code, and Rule references are to the Tax Court
Rules of Practice and Procedure.
- 3 -
See, e.g., Anonymous v. Commissioner, 134 T.C. ___, ___ (2010)
(slip op. at 3-4) (citing Dahlstrom v. Commissioner, 85 T.C. 812,
821 (1985)).
Background
Petitioners filed joint Federal income tax returns for their
taxable (calendar) years 2004 and 2005. Both returns showed
amounts due to respondent that remain unpaid.2 In October 2007,
respondent issued petitioners the levy notice. In December 2007,
respondent issued petitioners the lien notice. Petitioners
timely requested collection due process hearings regarding both
the levy notice and the lien notice, and they indicated that they
intended to propose collection alternatives in the form of an
offer-in-compromise and, in response to the levy notice, an
installment agreement.3 Petitioners also requested that
respondent withdraw the lien. Petitioners timely requested face-
to-face hearings instead of telephone conferences. Petitioners’
levy hearing was assigned to Ms. Boudreau.4 In April 2008, Ms.
Boudreau had a telephone conference with petitioners’ counsel,
Ronald F. Hood, during which Mr. Hood verified that the telephone
2
Although petitioners concede that fact, the levy notice
seems to contradict it. For 2005, the levy notice lists an
assessed balance, accrued interest, and a late payment penalty,
but, for 2004, it lists only a late payment penalty.
3
Petitioners did not pursue the installment agreement
because they judged the installment payments to be too great.
4
We discuss the lien hearing in sec. IV. of this report.
- 4 -
conference would be sufficient and that petitioners no longer
requested a face-to-face hearing.
Soon thereafter, petitioners filed an offer-in-compromise of
$27,000 (offering that amount in compromise of total liabilities,
determined from respondent’s Offer In Compromise Financial
Analysis Report, of $96,693), which respondent ultimately
rejected on the ground that, because of expected future income,
they could pay their liabilities in full. After that, Appeals
issued the notice of determination sustaining both the levy
notice and the lien notice. The notice of determination was
signed by Appeals Team Manager Matthew N. McLaughlin but is based
on Ms. Boudreau’s determination to sustain the collection
actions. Ms. Boudreau made that determination because she
believed that petitioners had the ability to pay fully their
outstanding liabilities through an installment agreement or the
combination of an installment agreement and the liquidation of
assets. In response to the notice of determination, petitioners
timely filed the petition. When they filed the petition,
petitioners lived in Massachusetts.
Discussion
I. Introduction
Petitioners raise several objections to the motion.
Nonetheless, petitioners fail to show that there is any genuine
issue as to any material fact. See Rule 121(b).
- 5 -
Petitioners do not challenge their underlying liabilities.
Accordingly, we must decide only whether Ms. Boudreau abused her
discretion when she rejected petitioners’ offer-in-compromise and
determined that the levy notice and the lien notice should stand.
See, e.g., Sego v. Commissioner, 114 T.C. 604, 610 (2000). That
is, we must decide whether her determination was arbitrary,
capricious, or without sound basis in fact or law. See, e.g.,
Giamelli v. Commissioner, 129 T.C. 107, 111 (2007). We find that
Ms. Boudreau did not abuse her discretion. We address
petitioners’ arguments to the contrary below.
II. The Timeliness of the Motion
Petitioners argue that the motion “is premature because
formal discovery is still ongoing”. Petitioners cite Rule
121(b), which states that we may grant summary judgment “if the
pleadings, answers to interrogatories, depositions, admissions,
and any other acceptable materials, together with the affidavits,
if any, show that there is no genuine issue as to any material
fact and that a decision may be rendered as a matter of law.”
Petitioners assert that, while formal discovery is ongoing, we
cannot determine “whether there are additional genuine issues of
material facts”.
Petitioners, however, have failed to read Rule 121 in its
entirety. In pertinent part, Rule 121(e) provides that, if the
affidavits of the party opposing the motion for summary judgment
- 6 -
show that the party cannot present facts essential to justify
that party’s opposition, then the Court may deny the motion.
Petitioners, however, fail to show that further discovery would
likely yield any fact essential to their opposition to the
motion. See Countryside Ltd. Pship. v. Commissioner, T.C. Memo.
2008-3. Thus, summary judgment is not inappropriate simply
because discovery is ongoing.
III. The Rejection of the Offer-in-Compromise
Section 7122(a) authorizes the Secretary to compromise a
taxpayer’s Federal income tax liability. The grounds for
compromise of a tax liability include doubt as to collectibility.
Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Doubt as to
collectibility exists in any case in which the taxpayer’s assets
and income are less than the full amount of the liability. Id.
Generally, under the Commissioner’s administrative guidelines,
Appeals will accept an offer-in-compromise because of doubt as to
collectibility only if the offer reflects the reasonable
collection potential; that is, the amount the Commissioner could
reasonably collect through other means, including administrative
and judicial collection remedies. See Internal Revenue Manual
(IRM) pt. 5.8.4.4(2) (Sept. 1, 2005); see also Rev. Proc. 2003-
71, sec. 4.02(2), 2003-2 C.B. 517, 517. When the Appeals officer
has followed the Commissioner’s administrative guidelines to
ascertain a taxpayer’s reasonable collection potential and has
- 7 -
rejected the taxpayer’s offer-in-compromise on that ground, we
generally have found no abuse of discretion. See McClanahan v.
Commissioner, T.C. Memo. 2008-161; Lemann v. Commissioner, T.C.
Memo. 2006-37.
A. Petitioners’ Reasonable Collection Potential
Petitioners argue that Ms. Boudreau, in calculating their
reasonable collection potential, abused her discretion by
incorrectly calculating their income, their living expenses, and
their assets. For purposes of deciding the motion, we shall use
petitioners’ valuations of their assets.5 We find that Ms.
Boudreau did not abuse her discretion in calculating either
petitioners’ income or petitioners’ expenses. Either of those
findings is sufficient to justify a rejection of petitioners’
offer-in-compromise. The two findings are in the alternative.6
5
Specifically, we assume that petitioners’ net realizable
equity in assets is not $50,185, but is $29,965. We note that
petitioners have thus conceded that their assets are worth more
than their offer-in-compromise ($27,000).
6
The reason is that, if we find that Ms. Boudreau
appropriately calculated petitioners’ income, then, even if we
allow petitioners all their claimed expenses, petitioners would
nonetheless have enough additional income to pay their
liabilities in full. Likewise, if we find that Ms. Boudreau
appropriately calculated petitioners’ expenses, then, even if we
use petitioners’ numbers to estimate their future income,
petitioners would nonetheless have enough additional income to
pay their liabilities in full.
- 8 -
1. Petitioners’ Total Income
Petitioners argue that Ms. Boudreau abused her discretion by
inappropriately calculating Mrs. Caney’s income. Mrs. Caney is a
commissioned real estate agent whose income varies from year to
year. According to the Commissioner’s administrative guidelines,
an Appeals officer may average the income of a commissioned sales
person to calculate income. IRM pt. 5.8.5.5(6) (Sept. 1, 2005).
Ms. Boudreau thus calculated Mrs. Caney’s income by averaging her
income from 2005 ($99,669), 2006 ($121,749), 2007 ($36,083), and
the first 6 months of 2008 ($21,216).7 Petitioners argue that,
in the light of the downturn in the real estate market, Ms.
Boudreau abused her discretion by using Mrs. Caney’s income from
2005 and “the halcyon days of 2006”. Petitioners argue that Ms.
Boudreau herself was uncertain whether averaging 2005, 2006, and
2007 was “appropriate given the market” and that she acknowledged
that averaging all 3 years would be “bad” for petitioners. (At
petitioners’ request, Ms. Boudreau included the first 6 months of
2008 in her final calculation.) At most, petitioners show that
Ms. Boudreau recognized that she faced a difficult decision, one
that required her to exercise discretion. Petitioners, however,
fail to allege any facts that show that for her to use 2005,
7
Those amounts yield an average monthly income of $6,636.
Not surprisingly, petitioners do not argue that $6,452, the
average monthly income Ms. Boudreau calculated, is incorrect.
- 9 -
2006, 2007, and the first 6 months of 2008 was arbitrary,
capricious, or without sound basis in fact or law.
2. Petitioners’ Necessary Living Expenses
a. The Commissioner’s Administrative Guidelines
Although they do not dispute that Ms. Boudreau correctly
applied the Commissioner’s administrative guidelines to determine
their necessary living expenses, petitioners argue that those
guidelines are contrary to the “literal and plain meaning” of the
statute, sec. 7122, and the regulations, sec. 301.7122-1, Proced.
& Admin. Regs. Petitioners assert that the statute and the
regulations require respondent to permit them “to retain
sufficient funds to pay basic living expenses” and that
respondent must evaluate petitioners’ “individual facts and
circumstances” to determine the “amount of such basic living
expenses”. See sec. 301.7122-1(c)(2)(i), Proced. & Admin. Regs.
What petitioners assert is true, but what they conclude is
false. They have failed to show that any provision of the
Commissioner’s administrative guidelines is contrary to the plain
and literal meaning of the statute or regulations. Petitioners
cite no authority that every documented expense is, for that
reason alone, a “basic living expense” under the statute and
regulations. Petitioners have failed to show any conflict
between the Commissioner’s administrative guidelines and the
- 10 -
statute or the regulations.8 Again, when an Appeals officer has
followed the Commissioner’s administrative guidelines to
ascertain a taxpayer’s reasonable collection potential and has
rejected the taxpayer’s offer-in-compromise on that ground, we
generally have found no abuse of discretion. See McClanahan v.
Commissioner, T.C. Memo. 2008-161; Lemann v. Commissioner, T.C.
Memo. 2006-37.
b. The Local Standards for Housing and Utilities
Although petitioners accept “the authority of the Secretary
to issue national and local guidelines” “by county for each
state”,9 petitioners argue that those standards constitute an
expert opinion. For that reason, petitioners demand that
respondent provide the “underlying data”, which petitioners
accuse respondent of “manipulating”.
8
In particular, petitioners assert that neither the statute
nor any regulation states that a taxpayer’s monthly payment for
loans taken to finance a child’s college education is not a
necessary and basic living expense. See generally IRM pt.
5.8.5.5.3(6) (Sept. 1, 2005) (allowing education expenses only
for the taxpayer and only if required as a condition of present
employment). Petitioners are correct, yet their point is
irrelevant. The question is whether the administrative guideline
is a reasonable interpretation of the silent statute and
regulations. Petitioners have failed to offer any argument to
that effect. Ms. Boudreau thus did not abuse her discretion by
disallowing their monthly payments with respect to their child’s
student loans.
9
We presume that petitioners make that seemingly superfluous
concession because, in Dean v. Commissioner, T.C. Memo. 2009-269,
petitioners’ counsel questioned exactly that authority. The
Court quickly rejected that argument. Id.
- 11 -
Petitioners are wrong. The national and local standards do
not constitute an expert opinion. Respondent does not use them
to prove any fact (i.e., that a certain allowance for monthly
housing and utilities expenses is correct). See Fed. R. Evid.
702. Rather, the standard allowances are guidelines designed to
protect taxpayers, see sec. 7122(d)(2)(A), and from which an
Appeals officer may deviate, see sec. 7122(d)(2)(B). We have
sustained the use of the national and local allowances as
guidelines for basic monthly living expenses in evaluating the
adequacy of proposed installment agreements and offers-in-
compromise. See, e.g., Speltz v. Commissioner, 124 T.C. 165, 179
(2005), affd. 434 F.3d 782 (8th Cir. 2006); Fernandez v.
Commissioner, T.C. Memo. 2008-210. Generally, we have found no
abuse of discretion when an Appeals officer has used the local
standard allowances for housing and utilities rather than the
taxpayer’s actual expenses. See, e.g., McDonough v.
Commissioner, T.C. Memo. 2006-234, affd. sub nom. Keller v.
Commissioner, 568 F.3d 710 (9th Cir. 2009). In any event, we are
not convinced that the derivation of the standard allowances is
relevant in the absence of any assertion of specific facts
showing that applying the standard allowance would leave
petitioners without the resources to meet basic living expenses--
facts within their knowledge and as to which they need no
discovery from respondent. See Marks v. Commissioner, T.C. Memo.
- 12 -
2008-226. Petitioners show only their actual living expenses.
They fail to allege any facts showing that their basic living
expenses exceed what Ms. Boudreau allowed them.
Petitioners make a final argument almost identical to an
argument that petitioners’ counsel made in Dean v. Commissioner,
T.C. Memo. 2009-269. Petitioners assert that respondent has
violated their “fundamental constitutional rights of procedural
due process” and that we must require him to present expert
testimony about the derivation of the local standard allowances.
Cf. id. As we stated in Dean, petitioners’ right to a
precollection hearing and right to compromise their undisputed
tax liability are privileges created by Congress, subject to
conditions established by Congress. Their right to precollection
procedures is statutory, and they have no constitutional right to
avoid payment of their admitted tax liabilities. Their attempt
to raise the dispute to constitutional levels is unconvincing.
Cf. id.
3. Conclusion
We find that Ms. Boudreau did not abuse her discretion by
averaging Mrs. Caney’s income over 2005, 2006, 2007, and the
first 6 months of 2008 to calculate her expected income. In the
alternative, we find that Ms. Boudreau did not abuse her
discretion in calculating petitioners’ necessary living expenses.
- 13 -
Thus, we find that Ms. Boudreau did not abuse her discretion in
calculating petitioners’ reasonable collection potential.
B. Conclusion
Petitioners have failed to allege facts suggesting that Ms.
Boudreau did not properly apply the provisions of the Internal
Revenue Code, the regulations, or the Commissioner’s
administrative guidelines in calculating petitioners’ reasonable
collection potential, which exceeds their offer-in-compromise and
their total liabilities. Thus, Ms. Boudreau did not abuse her
discretion by rejecting petitioners’ offer-in-compromise.
IV. The Lien Hearing
Petitioners assert that they never received a hearing with
respect to the lien notice. Petitioners, however, fail to allege
any harm they suffered as a result. First, they do not suggest
that they would have raised any new arguments. Second, they do
not argue that they have satisfied the statutory requirements for
the release of the lien. Section 6325(a) lists the two
circumstances in which the Secretary will release a lien; that
is, (1) when the liability is satisfied or has become
unenforceable, or (2) when the Secretary has accepted a bond that
is conditioned upon payment of the amount assessed. Petitioners
do not allege that the liability is satisfied or unenforceable
and do not allege that they have even offered to post a bond.
Petitioners have failed to allege facts showing that a lien
- 14 -
hearing would have resulted in the release of the lien.
Petitioners thus have not alleged that a lien hearing would have
made any difference with respect to either Ms. Boudreau’s
rejection of their offer-in-compromise or the lien itself.
V. The Appeals Office Impartiality Requirement
Petitioners assert that Mr. McLaughlin, the Appeals team
manager who signed the notice of determination, was not
impartial. That allegation springs from Dean v. Commissioner,
supra. In that case, Mr. Hood, as counsel for the taxpayers, had
sent a letter to the Appeals officer during their negotiations.
That letter, which we described in Dean as “intemperate and * * *
reasonably perceived as possibly threatening”, prompted Mr.
McLaughlin, also the Appeals team manager in that case, to refer
Mr. Hood to the Internal Revenue Service Office of Professional
Responsibility. In response, Mr. Hood referred Mr. McLaughlin
and the Appeals officer to the Treasury Inspector General for Tax
Administration less than a month before the notice of
determination was issued in this case.
Petitioners argue, as did the taxpayers in Dean, that Mr.
McLaughlin’s involvement in their case was “inherently
prejudicial”. (Petitioners fail, however, to allege that a new
hearing with a different Appeals officer and Appeals team manager
would yield a different result.) For purposes of section
6330(b)(3), an “impartial” officer is one “who has had no prior
- 15 -
involvement with respect to the unpaid tax specified in
subsection (a)(3)(A) before the first hearing under this section
or section 6320.” See Perez v. Commissioner, T.C. Memo.
2002-274. Petitioners have not alleged that either Ms. Boudreau
or Mr. McLaughlin was involved in their case before their levy
hearing. We conclude that the section 6330(b)(3) impartiality
requirement was satisfied. Cf. Dean v. Commissioner, supra.
VI. Conclusion
We find that Ms. Boudreau did not abuse her discretion by
rejecting petitioners’ offer-in-compromise and in sustaining the
levy notice and the lien notice. Petitioners have alleged no
facts showing that she failed to follow applicable procedures or
that her rejection of the offer-in-compromise was arbitrary,
capricious, or without sound basis in fact or law. Summary
judgment is therefore appropriate.
An appropriate order and
decision will be entered for
respondent.