Ranuio v. Comm'r

T.C. Memo. 2010-178

UNITED STATES TAX COURT

MARK RANUIO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4185-08L. Filed August 9, 2010.

Steven A. Malcoun, for petitioner.

Jeremy L. McPherson, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: Pursuant to section 6330(d),1 petitioner

seeks review of respondent’s determination to sustain a levy to

collect petitioner’s unpaid 2005 Federal income tax liability.

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.
 - 2 -

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of

facts is incorporated herein by this reference. Petitioner

resided in California when he filed his petition.

Petitioner filed his 2005 Form 1040, U.S. Individual Income

Tax Return, on October 16, 2006.2 On the 2005 return petitioner

claimed a filing status of “Married filing separately” and

reported total tax due of $316,055. Petitioner made no estimated

tax payments for 2005, had no Federal income tax withheld in

2005, and did not include payment with the 2005 return.

On March 19, 2007, respondent sent a Final Notice, Notice of

Intent to Levy and Notice of Your Right to a Hearing (NIL), to

petitioner with respect to petitioner’s 2005 Federal income tax

liability. On March 23, 2007, respondent received from

petitioner a Form 12153, Request for a Collection Due Process or

Equivalent Hearing, with respect to petitioner’s 2005 liability.

Petitioner stated on the Form 12153 that he wished to submit an

offer-in-compromise (OIC) with respect to his 2005 Federal income

tax liability and was requesting a hearing because: “I am not

employed and have no job or business. The tax liability arose

from a forced liquidation of a prior business.” Petitioner’s

request for a collection due process hearing was assigned to

2
It is not clear from the record whether petitioner’s 2005
Form 1040 was timely filed.
 - 3 -

Kimberly A. Martin (Ms. Martin), a settlement officer in

respondent’s Office of Appeals.

On April 3, 2007, respondent recorded a notice of Federal

tax lien with respect to petitioner’s 2005 Federal income tax

liability with the county recorder in San Joaquin County in

Stockton, California. Also on April 3, 2007, respondent mailed

to petitioner a Notice of Federal Tax Lien Filing and Your Right

to a Hearing Under IRC 6320 (NFTL) with respect to petitioner’s

2005 tax liability. There is no evidence in the record that

petitioner ever requested a hearing with respect to the NFTL, and

the NFTL is not at issue in this proceeding.

On September 20, 2007, Ms. Martin sent a letter to

petitioner’s counsel, Steven A. Malcoun (Mr. Malcoun), in which

she acknowledged receipt of petitioner’s Form 12153. Ms. Martin

noted that petitioner had not made estimated tax payments for

2006 or 2007, and she advised petitioner that she could not

consider an OIC with respect to 2005 unless he was in compliance

with his tax obligations for 2006 and 2007.

On September 28, 2007, petitioner mailed to the Appeals

Office an OIC with related documents offering to pay $25,000,

payable within 15 months of respondent’s acceptance of the OIC,

in compromise of his 2005 liability. Petitioner’s OIC package

consisted of a Form 656, Offer in Compromise, a Form 433-A,

Collection Information Statement for Wage Earners and Self-
 - 4 -

Employed Individuals, a cashier’s check for $5,150,3 and an

accountant’s report and statement of financial condition. The

accountant’s report and statement of financial condition was

prepared by Kemper C.P.A. Group, LLP, and included the following

disclaimer:

[Petitioner] has elected to omit substantially all of
the disclosures required by generally accepted
accounting principles. If the omitted disclosures were
included in the statement of financial condition, they
might influence the user’s conclusions about the
financial condition of * * * [petitioner].

Petitioner checked the box on Form 656 indicating the OIC

was justified by reason of doubt as to collectibility. An

attachment to Form 656 explained that petitioner had been in the

trucking business but was forced to shut down his business in

2004 after his largest customer did not renew petitioner’s

contract. As a result, petitioner was forced to sell all

corporate assets to pay off corporate debts. Further, because

some of the corporate debts were secured by his personal

guaranty, petitioner was required to sell some of his real estate

holdings to satisfy the debts. The Form 433-A indicated

petitioner was unemployed, had no source of income, had less than

3
Petitioner’s $5,150 payment consisted of a 20-percent
downpayment on petitioner’s $25,000 OIC and a $150 application
fee. See sec. 7122(c).
 - 5 -

$12,000 in gross assets,4 and had monthly expenses of $800. On

October 10, 2007, respondent’s Appeals Office sent a letter to

Mr. Malcoun acknowledging receipt of petitioner’s OIC package and

informing petitioner that the OIC met the Appeals Office’s

standards for processing.

On October 11, 2007, Mr. Malcoun mailed a copy of

petitioner’s 2006 return to Ms. Martin.5 Petitioner made no

estimated tax payments for 2006 and had no Federal income tax

withheld in 2006. On the 2006 return petitioner reported total

tax due of $163,420 and a penalty under section 6654 of $7,733

for failure to pay estimated tax. Petitioner’s 2006 Federal

income tax liability is not at issue. See infra p. 17.

On October 17, 2007, Ms. Martin sent a letter to Mr. Malcoun

acknowledging receipt of petitioner’s 2006 Federal income tax

return. Ms. Martin noted that petitioner was not in compliance

with his current Federal income tax obligations because he had an

unpaid liability for 2006. She also noted that the financial

disclosures petitioner submitted with his OIC were incomplete

because they did not include information about his wife, Paulette

4
Petitioner reported on the Form 433-A that he had the
following assets: $195 in a bank account, $900 in cash, $10,000
worth of jewelry, and $500 worth of clothing.
5
It is not clear whether petitioner had already filed his
2006 return when he mailed a copy to Ms. Martin, nor is it clear
whether petitioner’s 2006 return was timely filed.
 - 6 -

Ranuio (Mrs. Ranuio).6 Consequently, Ms. Martin explained she

could not consider petitioner’s OIC. On October 18, 2007, Mr.

Malcoun responded that Mrs. Ranuio’s assets and income were not

relevant because petitioner’s filing status was married filing

separately.

On October 22, 2007, Ms. Martin sent a letter to Mr. Malcoun

explaining that Mrs. Ranuio’s income and assets were relevant

because petitioner resided in a community property State, Mrs.

Ranuio held title to the couple’s residence, and Mrs. Ranuio

worked for petitioner’s company.7 Ms. Martin informed petitioner

that if he wished to proceed with consideration of his OIC, he

would have to submit the following documents and information by

November 5, 2007:

C An amended Form 656 including petitioner’s 2006 liabilities;

C a new Form 433-A including Mrs. Ranuio’s assets and income;

C an accounting of all funds petitioner received from sales of

real estate and business property;

C bank statements from all accounts--including accounts in

Mrs. Ranuio’s name--from February 1, 2005, through October

22, 2007;

6
Mrs. Ranuio was the settlor of the Chanel 2007 Irrevocable
Trust dated Jan. 30, 2007.
7
It is not clear how Ms. Martin concluded that Mrs. Ranuio
worked for petitioner’s company. The record reflects that
petitioner and Mrs. Ranuio were partners in at least three
business partnerships in 2005 and 2006.
 - 7 -

C copies of all transfer deeds and deeds of trust for

petitioner and Mrs. Ranuio’s residence,8 as well as evidence

that petitioner and Mrs. Ranuio had paid the mortgage,

homeowner’s insurance premiums, and property taxes;

C a copy of the purchase agreement for petitioner and Mrs.

Ranuio’s residence, as well as a copy of the mortgage for

the residence showing the current balance and the source of

any downpayment;

C copies of all canceled checks from all of petitioner’s and

Mrs. Ranuio’s accounts, including accounts in Mrs. Ranuio’s

name or jointly held with Mrs. Ranuio, for the past 6

months;

C copies of all brokerage and retirement account statements,

including those in Mrs. Ranuio’s name, for the past 12

months;

C copies of any trust documents in which petitioner was the

beneficiary or in which petitioner had an interest;

C copies of all registration records, purchase agreements, and

loan statements for all vehicles petitioner or Mrs. Ranuio

owned or operated;

8
Residence refers to the home in which petitioner and Mrs.
Ranuio live and to which Mrs. Ranuio apparently holds title.
 - 8 -

C an accounting of the disposition of any trucks or trailers

sold in the dissolution of petitioner’s business interests

from 2005 through 2007;

C copies of Forms 1065, U.S. Return of Partnership Income, for

Vito Transfer, LLC, Ultra Express Truck Wash, LLC, and Two

Vee Partners for 2005 and 2006; and

C a statement of how petitioner and Mrs. Ranuio were meeting

their basic living expenses and, if petitioner or Mrs.

Ranuio had taxable income in 2007, evidence of sufficient

withholding or estimated tax payments.

Ms. Martin closed her letter by repeating that if petitioner did

not submit the requested documents by November 5, 2007, she would

have no choice but to terminate petitioner’s hearing and reject

his offer.

On October 26, 2007, Mr. Malcoun agreed to amend

petitioner’s Form 656 to include 2006. Mr. Malcoun also agreed

to provide documents relating to whether the assets that

generated petitioner’s taxable income in 2005 and 2006 were

community property or separate property under California law.

Mr. Malcoun maintained, however, that any assets determined to be

Mrs. Ranuio’s separate property were not relevant to respondent’s

decision whether to accept or reject petitioner’s OIC. On

November 5, 2007, Ms. Martin sent a letter to Mr. Malcoun

stating, in relevant part:
 - 9 -

I do not intend to try and collect from the separate
property of a non-liable spouse however you will need
to provide evidence to support your claim of separate
property. I will need to investigate how the property
was characterized at the time of acquisition and if the
character of the property has been changed or
transmuted into community property.

Ms. Martin asked petitioner to provide all the documents

requested in her October 22, 2007, letter no later than November

12, 2007. On November 6, 2007, Mr. Malcoun asked for an

additional week; i.e., until November 19, 2007, to provide the

documents. Ms. Martin granted the extension.

On November 19, 2007, Mr. Malcoun sent a letter to Ms.

Martin that included nearly 200 pages of real estate, business,

and personal records. Specifically, Mr. Malcoun’s correspondence

included: (1) A chain of title guaranty with respect to real

property petitioner owned in Modesto, California (Modesto real

property); (2) petitioner and Mrs. Ranuio’s marriage license; (3)

various grant deeds and deeds of trust relating to the Modesto

real property; (4) a partnership agreement showing that

petitioner and Mrs. Ranuio formed a California partnership known

as Two Vee Partners and that each partner’s interest in Two Vee

Partners was his or her separate property; and (5) Two Vee

Partners’ 2005 Form 1065. The records show that petitioner

transferred the Modesto real property to Two Vee Partners on

February 3, 2005, and Two Vee Partners sold the property the same

day for $2,425,000. Two Vee Partners allocated 100 percent of
 - 10 -

the Modesto real property’s built-in gain to petitioner and

issued a Schedule K-1, Partner’s Share of Income, Deductions,

Credits, etc., for 2005 that reported a distribution to

petitioner of $1,109,617.9

Mr. Malcoun added that he was still putting together an

accounting regarding petitioner’s sales of real estate and

equipment used in his business and was gathering information with

respect to petitioner and Mrs. Ranuio’s residence and other real

property in Charter Way and Fresno, California. Mr. Malcoun

stated that all canceled checks, trust documents, and vehicle

information Ms. Martin requested would be included in the

accounting. Mr. Malcoun’s November 19, 2007, correspondence also

included an amended OIC with respect to 2005 and 2006, offering

to settle petitioner’s 2005 liability for $25,000 and

petitioner’s 2006 liability for $10,000, and a cashier’s check

for $2,150.

On November 20, 2007, Mr. Malcoun mailed to Ms. Martin

copies of the 2005 and 2006 Forms 1065 for Vito Transfer, LLC,

and Ultra Express Truck Wash, LLC. The Forms 1065 show that

petitioner and Mrs. Ranuio were each 50-percent partners in Vito

Transfer, LLC, and Ultra Express Truck Wash, LLC. Vito Transfer,

LLC, issued to petitioner a Schedule K-1 for 2005 that showed

9
The character of the distributed property is not clear, and
petitioner has supplied no further information about the
distribution.
 - 11 -

petitioner received withdrawals and distributions totaling

$42,778.10 Ultra Express Truck Wash, LLC, issued to petitioner a

Schedule K-1 for 2005 that showed no withdrawals by or

distributions to petitioner.

On November 28, 2007, Ms. Martin informed Mr. Malcoun that

she had processed petitioner’s Form 656 for 2006. She noted,

however, that petitioner still had not provided most of the

information she requested in her October 22, 2007,

correspondence. With respect to petitioner’s real property

sales, Ms. Martin wrote:

The closing statements from the sale of the 5
properties show cash to the taxpayer in the amounts of
$250,087.51, $219,418.75, $340.59, $111,007.54 and
$70,399.47 * * *. These amounts exceed the amount of
the tax liability and normally would be considered a
dissipated asset for purposes of evaluating the offer.
If this is the case then the offer would not be
acceptable.

Ms. Martin attached the closing statements to her correspondence11

and asked petitioner to provide an accounting of the disposition

of funds he received from the sales of all real estate and

business property. Ms. Martin stated she would reject

petitioner’s OIC unless he provided the remainder of the

requested information by December 10, 2007.

10
The character of the distributed property is not clear.
11
It is not clear how Ms. Martin obtained copies of the
closing statements. Petitioner does not dispute the authenticity
or accuracy of the closing statements.
 - 12 -

On December 4, 2007, Mr. Malcoun informed Ms. Martin that he

was still attempting to obtain the requested information from

banks and title companies. Mr. Malcoun explained that he had

planned to assemble the information shortly after Thanksgiving

but was out of the office from November 25 through December 2

attending to his daughter, who was hospitalized with an emergency

medical condition. Mr. Malcoun enclosed copies of (1) transfer

deeds and deeds of trust relating to petitioner and Mrs. Ranuio’s

residence; (2) deeds relating to the sale of a 2-acre property;

(3) a trust in which petitioner was a contingent beneficiary; (4)

records relating to petitioner’s sales of equipment and his use

of the sale proceeds; (5) copies of the first and second mortgage

agreements for petitioner and Mrs. Ranuio’s residence; (6) copies

of all canceled checks for August, September, and October 2007

for the first mortgage on petitioner and Mrs. Ranuio’s residence;

and (7) copies of petitioner’s vehicle registration. Mr. Malcoun

acknowledged he had yet to provide (1) a complete accounting of

the proceeds petitioner received from sales of real estate and

business assets, (2) bank statements for petitioner and Mrs.

Ranuio from February 1, 2005, through the present, (3) evidence

of homeowner’s insurance, (4) canceled checks from petitioner’s

and Mrs. Ranuio’s accounts for the preceding 6 months, (5) copies

of petitioner’s and Mrs. Ranuio’s brokerage and retirement

account statements, (6) a statement of how petitioner was meeting
 - 13 -

his living expenses, as well as a statement that petitioner and

Mrs. Ranuio were in compliance with their 2007 tax obligations,

and (7) a new Form 433-A. Mr. Malcoun wrote that he expected to

provide the missing information by December 10, 2007, provided he

received cooperation from third parties and his daughter’s

illness did not require further absences from his office. Mr.

Malcoun did not explain why petitioner could not provide at least

some, if not all, of the missing information using information

presumably in his possession, custody, and control, including his

personal knowledge.

The documents Mr. Malcoun provided regarding petitioner and

Mrs. Ranuio’s residence appear to show the following: Petitioner

acquired the residence as his sole and separate property on or

about August 12, 1993; petitioner conveyed his interest in the

residence to himself and Mrs. Ranuio, as husband and wife, on or

about August 30, 1993; and petitioner and Mrs. Ranuio conveyed

their interest in the residence to Mrs. Ranuio, as her sole and

separate property, on January 18, 2005. The record does not

explain the reasons for the property transfers. Mr. Malcoun

informed Ms. Martin that he could not find a copy of the purchase

agreement for the residence but that the document was irrelevant

because the deed showed the property was acquired as petitioner’s

separate property.
 - 14 -

The documents relating to petitioner’s equipment sales show

that petitioner sold trailer equipment for $247,000 and received

a check in that amount on January 20, 2005. The documents do not

indicate how petitioner used the proceeds. The documents also

show that petitioner sold 87 used trailers for $540,000 on

February 3, 2005.12 The buyer made the check payable to Pacific

State Bank, and the payment satisfied petitioner’s loan from

Pacific State Bank. Finally, on April 28, 2005, Vito Transfer,

LLC, sold 120 sets of “tomato tubs” for $156,856. The record

does not indicate whether the buyer paid petitioner or Vito

Transfer, LLC.

On December 10, 2007, Mr. Malcoun mailed to Ms. Martin

copies of all deeds relating to petitioner’s ownership of real

property in Charter Way and Fresno, California, and stated that

he was putting together an accounting of petitioner’s use of the

sale proceeds and hoped to forward the accounting to Ms. Martin

the following week. Many of the enclosed documents related to

property transfers that occurred as early as 1991, and some were

only loosely related to petitioner’s sales of property (e.g.,

petitioner included a certificate of lot line adjustment relating

to one property and easements relating to another). None of the

documents indicated how petitioner used the sale proceeds. Mr.

12
It is unclear whether this sale was related to Two Vee
Partners’ sale of the Modesto real property, which also took
place on Feb. 3, 2005.
 - 15 -

Malcoun also informed Ms. Martin that his daughter remained

gravely ill and he would be in and out of his office over the

coming weeks. Ms. Martin made no further attempts to contact Mr.

Malcoun. Ms. Martin reviewed the information and made the

following notation on December 10, 2007, in her case activity

record: “[Petitioner] sent me 2 packages of info I did not

request with title history of property that was sold. I asked

for disposition of [the] cash proceeds paid to * * * [petitioner]

from these sales. Much of [the] info I have asked for has not

been provided”.

On December 20, 2007, having heard nothing from Mr. Malcoun

for more than a week, Ms. Martin closed petitioner’s file and

recommended that petitioner’s OIC be rejected and respondent’s

proposed collection action be sustained. In her case activity

record Ms. Martin noted that she had given petitioner several

extensions to provide information, petitioner had provided

information she had not requested, and he had been evasive in

what he did provide.

Also on December 20, 2007, Mr. Malcoun mailed a document to

Ms. Martin relating to petitioner’s loan from Pacific State Bank.

The document showed that petitioner made principal payments to

Pacific State Bank of $247,000 and $523,200, on January 25 and

February 8, 2005, respectively. These payments, together with

interest payments and late payment penalties, brought
 - 16 -

petitioner’s loan balance to zero as of February 15, 2005. Mr.

Malcoun stated in an accompanying letter that he was still

waiting for additional bank records to complete his accounting.

Ms. Martin never received Mr. Malcoun’s December 20, 2007,

correspondence.

On January 18, 2008, respondent’s Appeals Office issued a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 (notice of determination) sustaining

respondent’s proposed levy. In an attached memorandum the

Appeals Office summarized the facts of the case13 and concluded

that the NIL was issued in accordance with all statutory and

procedural requirements and appropriately balanced the need for

efficient collection of taxes with petitioner’s concern that

collection be no more intrusive than necessary. With respect to

petitioner’s OIC, the memorandum stated that the Appeals Office

cannot consider the offer since * * * [the Appeals
Office] [does] not have complete information and full
financial disclosure. There is also concern whether
the taxpayer is in full compliance for 2007 which was
never verified. It is recommended that the offer be
rejected due to lack of financial information and the
collection actions sustained.

13
The memorandum stated incorrectly that petitioner’s
amended OIC lowered his offer to $10,000 with respect to 2005.
In fact, petitioner’s amended OIC offered to settle his 2005
liability for $25,000 and his 2006 liability for $10,000; i.e., a
total of $35,000. However, because petitioner’s OIC was not
rejected on this basis, the error does not affect our resolution
of this case.
 - 17 -

On the date she closed petitioner’s file and recommended

rejection of his OIC Ms. Martin had received only a fraction of

the information requested in her October 22, 2007, letter. Much

of the information petitioner provided was beyond the scope of

Ms. Martin’s request, and petitioner failed to provide basic

information that was within his control, e.g., a new Form 433-A,

a statement explaining how he had used the proceeds from his real

estate and equipment sales, financial information about Mrs.

Ranuio, and an explanation of how he was meeting his basic

monthly living expenses and whether he or Mrs. Ranuio expected to

have income in 2007.

On February 19, 2008, petitioner filed a petition in this

Court seeking review of respondent’s notice of determination.

Petitioner sought review of respondent’s determinations with

respect to 2005 and 2006. Respondent moved to dismiss for lack

of jurisdiction and to strike as to 2006 on the ground that he

had not issued a notice of determination under section 6320 or

6330 to petitioner with respect to 2006. We granted respondent’s

motion. Accordingly, the only year at issue in this proceeding

is 2005.
 - 18 -

OPINION

I. Preliminary Matter: Petitioner’s Request for Judicial
Notice

Petitioner requests that we take judicial notice that he has

requested a collection due process hearing for 2006 and 2007 but

that as of July 28, 2009 (the date petitioner filed his request),

he had not received a hearing. Rule 201 of the Federal Rules of

Evidence allows a court to take judicial notice of adjudicative

facts that are “(1) generally known within the territorial

jurisdiction of the trial court or (2) capable of accurate and

ready determination by resort to sources whose accuracy cannot

reasonably be questioned.” Respondent concedes that petitioner

requested a hearing with respect to 2006 and 2007 and that as of

July 28, 2009, no hearing had been held. Nevertheless,

respondent urges us to deny petitioner’s request as irrelevant.

We agree with respondent.

The only year before the Court is 2005. We fail to see how

our taking notice that petitioner has requested but not yet

received a hearing with respect to 2006 and 2007 is in any way

relevant to the issues we must decide. Accordingly, we decline

to take judicial notice that petitioner has requested a hearing

with respect to 2006 and 2007.
 - 19 -

II. Applicable Legal Principles

A. Sections 6330 and 6331

If any person liable for any tax neglects or refuses to pay

the tax within 10 days after notice and demand, the Secretary14

may collect the tax by levy on all property and rights to

property belonging to the taxpayer. Sec. 6331(a); Murphy v.

Commissioner, 125 T.C. 301, 307 (2005), affd. 469 F.3d 27 (1st

Cir. 2006). The Secretary must notify the taxpayer in writing of

his intent to levy, sec. 6331(d), and of the taxpayer’s right to

a hearing, and such notice must be given at least 30 days before

the levy may begin, sec. 6330(a).

If the taxpayer timely requests a hearing, the hearing shall

be conducted by an impartial officer or employee of respondent’s

Office of Appeals. Sec. 6330(b)(1), (3). At the hearing the

taxpayer may raise any relevant issue relating to the proposed

levy, including (1) appropriate spousal defenses, (2) challenges

to the appropriateness of collection actions, and (3) offers of

collection alternatives. Sec. 6330(c)(2)(A); Sego v.

Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114

T.C. 176, 180 (2000). The taxpayer may also challenge the

existence or amount of the underlying liability, but only if he

or she did not receive a notice of deficiency or did not

14
The term “Secretary” means the Secretary of the Treasury
or his delegate. Sec. 7701(a)(11)(B).
 - 20 -

otherwise have an opportunity to dispute the liability. Sec.

6330(c)(2)(B).

Following the hearing, the Appeals Office must issue a

notice of determination regarding the proposed collection action.

In making the determination the Appeals Office must take into

consideration: (1) Verification presented by the Commissioner

that the requirements of applicable law and administrative

procedure have been met; (2) any relevant issue raised by the

taxpayer; and (3) whether the proposed collection action

appropriately balances the need for efficient collection of taxes

with the taxpayer’s legitimate concerns regarding the

intrusiveness of the proposed collection action. Sec.

6330(c)(3).

We have jurisdiction to review a notice of determination.

Sec. 6330(d)(1). Where the validity of the underlying tax

liability is properly at issue, we review the determination

regarding liability de novo. Sego v. Commissioner, supra at 610;

Goza v. Commissioner, supra at 181-182. Where the validity of

the underlying tax liability is not properly at issue, we review

the determination for abuse of discretion. Sego v. Commissioner,

supra at 610; Goza v. Commissioner, supra at 182. A

determination will not constitute an abuse of discretion unless

it is arbitrary, capricious, or without sound basis in fact or

law. Freije v. Commissioner, 125 T.C. 14, 23 (2005); see also
 - 21 -

Swanson v. Commissioner, 121 T.C. 111, 119 (2003) (determination

based on erroneous legal interpretation may be set aside as abuse

of discretion); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

B. Section 7122: Offers-in-Compromise

The Secretary may compromise any civil or criminal case

arising under the internal revenue laws. Sec. 7122(a); Murphy v.

Commissioner, supra at 308. Section 7122(d) provides that the

Secretary “shall prescribe guidelines for officers and employees

of the Internal Revenue Service to determine whether an offer-in-

compromise is adequate and should be accepted to resolve a

dispute.” The regulations issued pursuant to section 7122(d) set

forth three grounds for an OIC: (1) Doubt as to collectibility,

(2) doubt as to liability, and (3) to promote effective tax

administration. Sec. 301.7122-1(b), Proced. & Admin. Regs. The

only ground that is relevant is doubt as to collectibility.

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. Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. A

determination of doubt as to collectibility includes a

determination of the taxpayer’s ability to pay the liability,

taking into account the taxpayer’s basic living expenses. Sec.

301.7122-1(c)(2), Proced. & Admin. Regs. The Secretary’s

evaluation of a taxpayer’s basic living expenses takes into

account not only the Secretary’s published guidelines on national
 - 22 -

and local living expense standards but also the taxpayer’s

individual facts and circumstances. Id. An OIC based on doubt

as to collectibility generally is acceptable only if the offer

reflects the taxpayer’s reasonable collection potential; i.e.,

the amount the Commissioner could collect through administrative

and judicial collection proceedings. Murphy v. Commissioner,

supra at 309 (citing Rev. Proc. 2003-71, sec. 4.02(2), 2003-2

C.B. 517, 517).

Rev. Proc. 2003-71, supra at 517, which sets forth the

procedures applicable to the submission and processing of offers

to compromise a tax liability under section 7122, provides that

an offer “should provide enough information for the * * *

[Commissioner] to determine whether the offer fits within its

acceptance policies.” Id. sec. 4.02. The Internal Revenue

Manual (IRM) provides that “An offer may be returned at any time

during processing if the taxpayer fails to provide information

necessary to determine whether it should be accepted.” 1

Administration, IRM (CCH), pt. 5.8.7.2.2.2(1) (Sept. 1, 2005).

Where a taxpayer fails to timely provide requested financial

information, it is well settled that the Appeals Office may

reject the taxpayer’s OIC and sustain the Commissioner’s proposed

collection action. See infra pp. 27-28.
 - 23 -

III. Analysis

A. Standard of Review

Petitioner concedes that the existence or amount of his 2005

Federal income tax liability is not at issue. Accordingly, we

review respondent’s determination for abuse of discretion. See

Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114

T.C. at 182.

B. Petitioner’s Arguments

Petitioner argues respondent abused his discretion in three

distinct ways: (1) By requiring petitioner to provide financial

information about Mrs. Ranuio; (2) by prematurely terminating

petitioner’s hearing when Ms. Martin knew Mr. Malcoun’s daughter

was gravely ill; and (3) by refusing to consider petitioner’s OIC

on the ground that petitioner was not in compliance with his 2007

tax obligations. Petitioner has the burden of proof with respect

to each issue. See Rule 142(a).15 For the reasons that follow,

we conclude that petitioner’s arguments are unavailing.

1. Respondent’s Request for Information About Mrs.
Ranuio Was Not an Abuse of Discretion

Where a taxpayer offers to compromise a liability for which

the taxpayer’s spouse has no liability, e.g., where the taxpayer

did not file a joint Federal income tax return with his or her

15
Petitioner does not dispute the Appeals Office’s
determination that the requirements of applicable law and
administrative procedure have been met. See sec. 6330(c)(3).
 - 24 -

spouse, the Commissioner generally will not consider the

nonliable spouse’s assets and income in determining the amount of

an acceptable OIC. Sec. 301.7122-1(c)(2)(ii)(A), Proced. &

Admin. Regs. However, a nonliable spouse’s assets and income may

be considered to investigate whether (1) property has been

transferred from the taxpayer to the nonliable spouse under

circumstances that would allow the Commissioner to collect the

liability from the property, e.g., property conveyed in fraud of

creditors; (2) property has been transferred from the taxpayer to

the nonliable spouse for the purpose of removing the property

from consideration by the Commissioner in evaluating the

taxpayer’s OIC; or (3) collection of the taxpayer’s liability

from the assets and income of the nonliable spouse is permitted

under applicable State law, e.g., State community property law.

Sec. 301.7122-1(c)(2)(ii)(A) and (B), Proced. & Admin. Regs. The

Commissioner may also request information regarding the assets

and income of a nonliable spouse for the purpose of verifying the

amount of and responsibility for expenses claimed by the

taxpayer. Sec. 301.7122-1(c)(2)(ii)(A), Proced. & Admin. Regs.

In arguing that the Appeals Office abused its discretion by

requesting financial information about Mrs. Ranuio, petitioner

relies on the general rule set forth in the regulations; i.e.,

the Commissioner will not consider a nonliable spouse’s assets

and income in determining the amount of an acceptable offer, but
 - 25 -

ignores the exceptions, several of which are applicable. First,

it is possible that petitioner transferred his interest in his

residence to Mrs. Ranuio in order to prevent respondent from

considering the property in determining the amount of an

acceptable offer. See id. As respondent points out, the

transfer may have been accomplished when petitioner knew that he

had incurred, or was about to incur, a tax liability he would be

unable to pay from his remaining assets. Petitioner has not

explained why he transferred his interest in the residence to

Mrs. Ranuio as her sole and separate property, nor has he

explained when in 2005 he earned the income that generated his

tax liability. Second, collection of petitioner’s tax liability

from the assets and income of Mrs. Ranuio is permitted under

California community property law to the extent such assets and

income are community property. In California married taxpayers’

community property is liable not only for a couple’s joint

liabilities but also for either spouse’s separate liabilities.

Cal. Fam. Code sec. 910 (West 2004); Ordlock v. Commissioner, 533

F.3d 1136, 1138 (9th Cir. 2008), affg. 126 T.C. 47 (2006). Under

California law “all property, real or personal, wherever

situated, acquired by a married person during the marriage while

domiciled in * * * [California] is community property.” Cal.

Fam. Code sec. 760 (West 2004); see also Hanf v. Summers, 332

F.3d 1240, 1242-1243 (9th Cir. 2003) (“‘there is a general
 - 26 -

presumption that property acquired during marriage by either

spouse other than by gift or inheritance is community property

unless traceable to a separate property source’” (quoting Haines

v. Haines, 39 Cal. Rptr. 2d 673, 681 (Cal. Ct. App. 1995))).

Petitioner observes that California allows married taxpayers

to own separate property, which includes property owned by each

spouse before marriage, Cal. Fam. Code sec. 770 (West 2004), and

that married taxpayers may by written agreement transmute

community property to the separate property of either spouse,

with or without consideration,16 Cal. Fam. Code sec. 850 (West

2004). Petitioner argues the residence he shared with Mrs.

Ranuio is her separate property because he transmuted the

property to her in January 2005. However, as mentioned above,

petitioner has not explained the circumstances surrounding the

transmutation, and Ms. Martin was not required to accept his

assertion at face value. In any event, we need not decide

whether the residence was community property or separate property

under California law. It is enough to note that the character of

the residence was unclear, and the deeds petitioner provided did

not resolve the uncertainty to Ms. Martin’s satisfaction.17

16
A transmutation is subject to the laws governing
fraudulent transfer. Cal. Fam. Code sec. 851 (West 2004).
17
Petitioner’s narrow focus on the residence is misplaced.
Even if the residence was Mrs. Ranuio’s separate property, any
other assets Mrs. Ranuio acquired during her marriage to
(continued...)
 - 27 -

Finally, the Commissioner may request financial information

regarding a nonliable spouse for the purpose of verifying the

amount of and responsibility for the expenses claimed by the

taxpayer. Sec. 301.7122-1(c)(2)(ii)(A), Proced. & Admin. Regs.

That is precisely what happened: Petitioner submitted an

incomplete Form 433-A that showed he had no income, negligible

assets, and monthly living expenses of $800. Upon reviewing the

Form 433-A, Ms. Martin requested financial information about Mrs.

Ranuio in part to determine how petitioner was meeting his

monthly living expenses.

We conclude that Ms. Martin’s requests for information were

reasonable and not an abuse of her discretion.

2. Respondent’s Decision To Terminate Petitioner’s
Hearing Was Not an Abuse of Discretion

It is ordinarily not an abuse of discretion for an Appeals

officer to reject an OIC and sustain the Commissioner’s proposed

collection action where the taxpayer has failed to submit

requested financial information in a timely fashion. See, e.g.,

Shanley v. Commissioner, T.C. Memo. 2009-17 (citing Prater v.

Commissioner, T.C. Memo. 2007-241, Chandler v. Commissioner, T.C.

Memo. 2005-99, and Roman v. Commissioner, T.C. Memo. 2004-20)).

17
(...continued)
petitioner are presumptively community property. See Cal. Fam.
Code sec. 760 (West 2004); Hanf v. Summers, 332 F.3d 1240, 1242-
1243 (9th Cir. 2003). Thus, it was not unreasonable for Ms.
Martin to request financial information about Mrs. Ranuio.
 - 28 -

In Shanley v. Commissioner, supra, we held that an Appeals

officer did not abuse his discretion when he denied the

taxpayer’s request for more time to submit requested information,

where the taxpayer did not provide any reason for his request.

We acknowledged, however, that

There might be reasons related to the season * * *, or
reasons related to the information-gathering process
(such as difficulty in getting information from third
parties), or reasons personal to the taxpayer (such as
sickness) that could make this a closer question * * *

Id. Petitioner argues that this case “falls squarely within the

parameters where additional time should have been granted.” We

disagree.

First, contrary to petitioner’s assertion, many of the

documents Ms. Martin requested were within petitioner’s control,

and much of the information was within his personal knowledge.

For example, petitioner failed to provide a completed Form 433-A,

failed to explain how he was meeting his monthly living expenses,

failed to account for the proceeds from his sales of real estate

and equipment, and refused to provide financial information about

Mrs. Ranuio, despite repeated warnings that failure to provide

such information would result in rejection of his OIC. Moreover,

Ms. Martin gave petitioner more than 2 months to obtain any

necessary information from third parties and to provide the

requested documents. Even allowing for the fact that Ms.

Martin’s request was extensive and that some of the requested
 - 29 -

information may have required the cooperation of third parties,

petitioner did not offer any credible reason why he failed to

produce information that should have been readily accessible to

him during the period allowed by Ms. Martin.

Second, we reject petitioner’s suggestion that Ms. Martin

unreasonably terminated petitioner’s hearing knowing that Mr.

Malcoun’s daughter was gravely ill. We think the argument needs

to be considered in its proper context. The record shows that

Ms. Martin had been seeking documents and information from

petitioner for more than a month when she first learned of Mr.

Malcoun’s daughter’s illness. After learning Mr. Malcoun’s

daughter was hospitalized, Ms. Martin allowed petitioner an

additional 2 weeks to submit the requested information. In all,

Ms. Martin gave petitioner more than 2 months to supply the

requested information before she closed his file. On the date

she closed petitioner’s file Ms. Martin had received only a

fraction of the information she had requested. Petitioner had

refused to provide information about Mrs. Ranuio, and Ms. Martin

had little reason to believe the information would be

forthcoming. Moreover, petitioner had failed to provide such

basic information as a completed Form 433-A, a statement of how

he was meeting his basic monthly living expenses and whether he

had income in 2007 and an explanation of what he did with the

proceeds--more than $650,000, according to the closing statements
 - 30 -

Ms. Martin obtained--from his sales of real property and

equipment in 2005 and 2006. Instead of disclosing the

information, petitioner provided Ms. Martin with hundreds of

pages of documents she had not requested, some of which related

to property transactions that occurred as early as 1991, leading

her to suspect petitioner was being evasive.

Petitioner might have preferred more time to provide the

information, particularly in the light of Mr. Malcoun’s

daughter’s illness. The problem with petitioner’s argument is

that Ms. Martin’s decision can hardly be described as arbitrary,

capricious, or without sound basis in fact or law. See Roman v.

Commissioner, supra. Moreover, to the extent petitioner implies

Mr. Malcoun’s daughter’s illness falls within the parameters

discussed in Shanley v. Commissioner, supra, we note that the

illness in question was not personal to petitioner or a member of

his family and did not prevent petitioner from gathering the

information readily available to him.18

3. Petitioner’s Compliance or Lack of Compliance in
2007 Is Not Determinative

Finally, although the parties dispute whether petitioner

complied with his 2007 tax obligations, we do not need to resolve

18
We are not without sympathy for Mr. Malcoun. But Mr.
Malcoun’s daughter’s illness does not excuse petitioner’s failure
to timely provide requested documents, nor does it explain
petitioner’s failure to timely provide information that was
presumably within his personal knowledge.
 - 31 -

this dispute. The memorandum makes clear that petitioner’s OIC

was rejected because he failed to timely provide requested

financial information and not because he failed to comply with

his 2007 tax obligations. In other words, even if the Appeals

Office had been satisfied that petitioner was in compliance for

2007, the Appeals Office still would have rejected his OIC

because of inadequate financial disclosures. Petitioner’s

compliance or lack of compliance with his 2007 tax obligations

simply was not a significant factor, let alone the decisive

factor, in the Appeals Office’s decision to reject petitioner’s

OIC.19

IV. Conclusion

In summary, the Appeals Office allowed petitioner more than

2 months to provide the information necessary to evaluate his

OIC. The Appeals Office warned petitioner that failure to

19
Even if petitioner’s OIC had been rejected in whole or in
part because of his alleged lack of compliance with 2007 tax
obligations, we would still conclude the Appeals Office did not
abuse its discretion. A taxpayer’s history of noncompliance is a
valid basis for rejection of an OIC. Martino v. Commissioner,
T.C. Memo. 2009-43 (citing Londono v. Commissioner, T.C. Memo.
2003-99). Ms. Martin asked petitioner on at least four occasions
to provide information about his compliance with estimated tax
obligations for 2007. Although Mr. Malcoun asserted that
petitioner would not have any income in 2007 and was not required
to make estimated tax payments, he did not provide any evidence
to corroborate his assertion. The record demonstrates that Mr.
Malcoun’s assertion was incorrect. Petitioner’s 2007 Federal
income tax return reported adjusted gross income of $91,442, and
there is no evidence petitioner made any estimated tax payments
for 2007.
 - 32 -

provide such information in a timely fashion would result in

rejection of his OIC. Despite these warnings, petitioner failed

to provide a completed Form 433-A, failed to explain how he was

meeting his basic monthly living expenses, failed to account for

the proceeds from his real property and equipment sales, refused

to provide information about his wife’s finances, and failed to

provide other requested information. Instead, petitioner

provided reams of information the Appeals Office had not

requested, a gesture Ms. Martin considered evasive. Taking into

account all of these facts and circumstances, we hold that the

Appeals Office did not abuse its discretion by rejecting

petitioner’s OIC, terminating petitioner’s hearing, and

sustaining the proposed levy.

We have considered the remaining arguments of both parties

for results contrary to those discussed herein, and to the extent

not discussed above, conclude those arguments are irrelevant,

moot, or without merit.

To reflect the foregoing,

Decision will be entered for

respondent.