T.C. Memo. 2010-130
UNITED STATES TAX COURT
RONALD F. MARASCALCO AND REBECCA MARASCALCO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5631-08L. Filed June 15, 2010.
James G. McGee, Jr., for petitioners.
Horace Crump, for respondent.
MEMORANDUM OPINION
JACOBS, Judge: In this matter petitioners seek review of
respondent’s determination to proceed with the filing of a tax
lien to collect petitioners’ unpaid income taxes, additions to
tax, and interest. The case was submitted fully stipulated
pursuant to Rule 122.
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The issue for determination is whether respondent’s
settlement officer (the settlement officer) abused her discretion
in rejecting petitioners’ proposed installment agreement as a
collection alternative.
All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code (Code) as amended.
Background
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
their petition, petitioners resided in Mississippi.
Petitioner husband, a dermatologist, owns 100 percent of
Ronald F. Marascalco, MPAS, PAC, PLLC, a clinic offering
dermatology services. The record does not reveal the employment
status of petitioner wife.
The unpaid liabilities that give rise to this matter
resulted from Federal income taxes, additions to tax for failure
to file, additions to tax for failure to pay tax, additions to
tax for failure to make timely estimated payments relating to tax
returns filed by petitioners, and statutory interest for years
2003 to 2006. In addition to tax liabilities for the years at
issue, petitioners had unpaid tax liabilities for 2001 and 2002.
On September 4, 2007, respondent sent petitioners Letter
3172, Notice of Federal Tax Lien Filing and Your Right to a
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Hearing Under IRC 6320, with respect to their unpaid Federal tax
liabilities for years 2003 to 2006. In response, on October 1,
2007, petitioners requested a collection due process (CDP)
hearing and proposed entering into an installment agreement as a
collection alternative.
While waiting for a reply from the settlement officer,
petitioners purchased a house on October 19, 2007. The house was
subject to a 30-year mortgage that extended until 2037.
Petitioners submitted Form 433-A, Collection Information
Statement for Wage Earners and Self-Employed Individuals, dated
January 2, 2008, and an undated Form 433-B, Collection
Information Statement for Businesses, with attachments, detailing
petitioners’ personal and business finances. On Form 433-A,
petitioners reported a monthly gross income of $22,433 from
petitioner husband’s business and the following living expenses:
Food, clothing, and misc. $1,123
Housing and utilities 1,175
Transportation 1,318
Health care 685
Taxes (income and FICA) 5,666
Total living expenses 9,967
Hence, petitioners calculated their disposable monthly income to
be $12,466 ($22,433 - $9,967).
The settlement officer reviewed petitioners’ financial
information and calculated petitioners’ gross monthly income to
be $20,356 and, pursuant to the Internal Revenue Manual (IRM),
calculated their living expenses to be as follows:
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Food, clothing, and misc. $925
Housing and utilities 1,115
Transportation 1,318
Health care 108
Taxes (income and FICA) 4,263
Total living expenses 7,729
Hence, the settlement officer calculated petitioners’ disposable
monthly income to be $12,627 ($20,356 - $7,729).1
On January 22, 2008, a telephone CDP hearing was held;
petitioners were represented by counsel. During the hearing the
settlement officer proposed that petitioners pay the Internal
Revenue Service (IRS) $7,700 per month over 4 years, producing
total payments of $369,466. Petitioners’ counsel made a
counteroffer pursuant to which petitioners would make monthly
payments to the IRS of $4,429 over 10 years, producing total
payments of $531,480. As part of the counteroffer, petitioners
agreed to sign a waiver extending the period of limitations as
provided in section 6502. The settlement officer refused
petitioners’ counteroffer.
The settlement officer’s proposal was based on national and
local standards issued by the Secretary; petitioners’
counteroffer was based on their actual living expenses.
1
It is unclear how the settlement officer determined
petitioners’ income. However, the settlement officer’s reduction
in petitioners’ income combined with her reduction in
petitioners’ expenses resulted in a monthly disposable income
approximately equal to that determined by petitioners.
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On February 4, 2008, a manager in respondent’s Appeals
Office sent petitioners a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330 regarding
liens for 2003-2006. Attached to that notice was a copy of the
settlement officer’s determination letter, which stated that (1)
the settlement officer verified that all legal and procedural
requirements with respect to the lien were met, (2) petitioners’
proposed collection alternative (i.e., petitioners’ counteroffer)
was rejected, and (3) the settlement officer determined that the
Federal tax lien balanced the Government’s need for efficient tax
collection with petitioners’ expectation that the collection
action be no more intrusive than necessary. In rejecting
petitioners’ counteroffer, the settlement officer stated:
Your * * * [representative] indicated that you were willing
to pay $4,429.00 a month for the next ten years with a
signed waiver extending the collection statue [sic]. The
Settlement Officer advised your * * * [representative] that
in accordance with IRM guidelines and the amount of your
disposable income, securing a waiver to extend the statue
[sic] is not warranted. The Settlement Officer advised your
* * * [representative] that the proposed monthly amount for
an installment agreement determined by the Appeals office
would be the monthly amount recommended for an installment
agreement.
On March 6, 2008, petitioners filed a petition requesting
this Court to review respondent’s collection determination.
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Discussion
A. Standard of Review
This case involves a review of respondent’s determination to
proceed with collection of petitioners’ unpaid tax liabilities
for 2003 through 2006. CDP hearings under section 6320
(regarding liens) are conducted in accordance with section
6330(c). Sec. 6320(c). After respondent issues his notice of
determination following an administrative hearing, a taxpayer has
the right to petition this Court for judicial review of the
determination. Secs. 6320(c), 6330(d)(1). Our review of
respondent’s determination is subject to the provisions of
section 6330.
The judicial review that we are required to conduct in
section 6320/6330 cases focuses on the determination made by
respondent. Because petitioners do not dispute the underlying
tax liabilities for the years at issue, we review respondent’s
determination for abuse of discretion. See Sego
v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner,
114 T.C. 176 (2000).
An abuse of discretion is defined as any action that is
unreasonable, arbitrary or capricious, clearly unlawful, or
lacking sound basis in fact or law. Thor Power Tool Co. v.
Commissioner, 439 U.S. 522, 532-533 (1979); Woodral v.
Commissioner, 112 T.C. 19, 23 (1999).
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The Code authorizes respondent to enter into installment
agreements with taxpayers.
SEC. 6159. AGREEMENTS FOR PAYMENT OF TAX LIABILITY IN
INSTALLMENTS.
(a) Authorization of Agreements.--The Secretary is
authorized to enter into written agreements with any
taxpayer under which such taxpayer is allowed to make
payment on any tax in installment payments if the Secretary
determines that such agreement will facilitate full or
partial collection of such liability.
Section 301.6159-1(b)(1)(I), Proced. & Admin. Regs., provides
that “The director [a district director or director of a service
or compliance center] has the discretion to accept or reject any
proposed installment agreement.” Because respondent’s acceptance
or rejection of an installment agreement is discretionary, we
give due deference to respondent’s determination and do not
decide whether in our opinion petitioners’ proposed installment
agreement should be accepted. See Woodral v. Commissioner, supra
at 23; Keller v. Commissioner, T.C. Memo. 2006-166, affd. in part
and vacated in part 568 F.3d 710 (9th Cir. 2009).
B. The Settlement Officer’s Use of the Collection Financial
Standards
Petitioners first argue that the settlement officer abused
her discretion by relying on collection financial standards to
calculate petitioners’ monthly expenses instead of using the
actual expenses petitioners reported on Form 433-A. We are
mindful that, (1) in general, respondent may rely on national and
local collection financial standards published by the Secretary,
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and (2) to deviate from these standards, the taxpayer is required
to demonstrate he would not have adequate means to provide for
his basic living expenses. See McDonough v. Commissioner, T.C.
Memo. 2006-234. The taxpayer is required to provide reasonable
substantiation and documentation with respect to such an
assertion. IRM pt. 5.8.11.2.1(4) (Sept. 23, 2008), 5.15.1.7(5)
(May 1, 2004).
The settlement officer’s calculation of petitioners’
disposable monthly income ($12,627), using the collection
financial standards, is but $161 per month greater than
petitioners’ calculation, using their actual monthly income and
expenses. Because the amounts of petitioners’ disposable monthly
income as calculated by petitioners and the settlement officer
are so nearly identical, we fail to understand why petitioners
are quarreling with the settlement officer’s use of the
collection financial standards. Moreover, even using
petitioners’ calculations of expenses, payment of $7,700 monthly
to the IRS, as the settlement officer advocates, would still
enable petitioners to provide for their basic living expenses.
We therefore cannot say that the settlement officer’s use of
national and local collection financial standards as published by
the Secretary is unreasonable, arbitrary, capricious, or without
sound basis in fact or law.
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C. Respondent’s Rejection of Petitioners’ Counteroffer
Petitioners next argue that their counteroffer was superior
to the settlement officer’s proposal in that petitioners would
pay more under their counteroffer than they would under the
settlement officer’s proposal. Consequently, petitioners assert
that their counteroffer better balances the need for the
efficient collection of taxes with their legitimate concern that
any collection action be no more intrusive than necessary, as
provided in section 6330(c)(3)(C). We disagree.
In his posttrial brief, respondent advances several cogent
reasons for rejecting petitioners’ proposed 10-year installment
plan (e.g., it was not in the best interest of the Government to
prolong the payoff period in view of petitioners’ history of
failing to pay their Federal taxes, and the settlement officer’s
4-year installment agreement proposal would significantly reduce
the amount of additional accruals should petitioners’ pattern of
failing to pay taxes continue). Hence, we hold that the
settlement officer did not act arbitrarily or capriciously in
rejecting the proposed 10-year installment plan. In sum we (1)
find that the settlement officer acted reasonably in insisting on
a shorter collection payment period, and (2) hold that respondent
did not abuse his discretion in rejecting petitioners’
counteroffer.
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D. Other Matters Considered at the CDP Hearing
Section 6330(c)(1) and (3) provides that the settlement
officer must verify that the requirements of applicable law and
administrative procedure have been met and consider whether any
proposed collection action balances the need for the efficient
collection of taxes with the legitimate concern of the taxpayer
that any collection be no more intrusive than necessary. The
notice of determination states that the settlement officer
verified that the requirements of all applicable law and
administrative procedure were met and determined that the filing
of the lien appropriately balanced the need for efficient
collection of taxes with petitioners’ concern that the collection
action be no more intrusive than necessary. We are satisfied
that the mandates of section 6330(c)(1) and (3) have been met.
We have considered all of petitioners’ arguments, and to the
extent not discussed herein, we find them to be without merit
and/or irrelevant.
To reflect the foregoing,
Decision will be entered
for respondent.