T.C. Memo. 2011-113
UNITED STATES TAX COURT
JOHN R. CURRIER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8970-07L. Filed May 31, 2011.
Jon Noel Dowat, for petitioner.
Karen Lynne Baker, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
FOLEY, Judge: The issue for decision is whether respondent
abused his discretion in determining to proceed with collection
of petitioner’s income tax liabilities relating to 1994 through
2000.
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FINDINGS OF FACT
From 1995 through 2001, respondent assessed against
petitioner income tax deficiencies relating to 1994, 1995, 1996,
1997, 1998, 1999, and 2000 (years in issue). These deficiencies,
together with interest and penalties, totaled more than $160,000.
On March 2, 2005, respondent received from petitioner an offer-
in-compromise (OIC) of $11,500 ($11,500 OIC). On March 10, 2005,
respondent accepted the $11,500 OIC for processing. On October
4, 2005, respondent sent petitioner a letter rejecting the
$11,500 OIC (2005 rejection letter). The 2005 rejection letter
provided that if petitioner, within 30 days from the date of the
letter, submitted an executed Form 656, Offer in Compromise,
increasing his offer to $59,413, respondent would “recommend
acceptance” of the $59,413 OIC. Respondent filled out a Form 656
(i.e., typed in petitioner’s name and address, checked the
relevant boxes, identified the years in issue, and listed the
amount offered as $59,413) and enclosed it with the rejection
letter.
From October 7, 2005, to March 13, 2006, Lloyd S. Myster,
petitioner’s certified public accountant and attorney, sent
respondent multiple faxes in which Myster offered to increase the
OIC to $50,000 ($50,000 offer) and asked whether another Form 656
was necessary. On March 13, 2006, respondent sent petitioner a
Letter 1058, Final Notice of Intent to Levy and Notice of Your
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Right to a Hearing. In a fax sent March 29, 2006, respondent
explained that the $50,000 offer was not sufficient because it
was less than the acceptable $59,413 amount set forth in the 2005
rejection letter.
On April 10, 2006, petitioner timely sent respondent a
Request for a Collection Due Process Hearing (CDP request).
Petitioner attached to the CDP request a $60,000 cashier’s check.
In the CDP request, Myster wrote: “taxpayer has enclosed the
check for $60,000 for full settlement of the compromised periods”
and “attached is a check to full pay the taxpayers [sic] Offer in
Compromise.” Respondent applied the $60,000 payment to
petitioner’s unpaid income tax liabilities relating to the years
in issue.
On July 13, 2006, petitioner submitted a $60,000 OIC based
on doubt as to collectibility ($60,000 OIC) to the Holtsville,
New York, office. On August 11, 2006, respondent sent petitioner
a letter accepting the 2006 OIC for processing and stating that
the $60,000 OIC would be sent to the Appeals employee handling
his CDP request. In October 2006, petitioner’s CDP request was
transferred to respondent’s St. Paul, Minnesota, office. In
December 2006, petitioner’s tax liability, including interest and
penalties, had risen to more than $240,000. Respondent, on
December 21, 2006, sent Myster a fax explaining that the $60,000
check was applied to petitioner’s tax account because no OIC was
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pending and the check was not submitted with a Form 656. The fax
also included a rejection letter relating to the $60,000 OIC. In
the letter respondent stated that, based on petitioner’s
reasonable collection potential in 2006, $184,211 would be an
acceptable offer for an amended OIC.
On March 27, 2007, respondent issued petitioner a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 sustaining the proposed collection action relating to
the years in issue. On April 23, 2007, petitioner, while
residing in Minnesota, filed his petition with the Court.
OPINION
Petitioner does not dispute the underlying tax liabilities.
Where the validity of the liability is not at issue, the Court
reviews the Commissioner’s administrative determination for abuse
of discretion. Goza v. Commissioner, 114 T.C. 176, 182 (2000).
To establish that the Commissioner abused his discretion, the
taxpayer must show that the Commissioner’s actions were
arbitrary, capricious, or without sound basis in law or fact.
See Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral
v. Commissioner, 112 T.C. 19, 23 (1999). Section 6330(c)(3)1
provides that in making a determination, the Appeals officer must
verify that the requirements of applicable law and administrative
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
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procedure have been met, consider the issues raised by the
taxpayer, and consider whether the proposed collection action
balances the need for the efficient collection of taxes with the
taxpayer’s legitimate concern that any collection be no more
intrusive than necessary. Petitioner contends that respondent
abused his discretion by not treating the $60,000 payment either
as an acceptance of, or as a deposit relating to, petitioner’s
OIC.2
Section 7122 provides the exclusive method of effectuating
an OIC. Luxton v. United States, 340 F.3d 659, 663 (8th Cir.
2003) (citing Botany Worsted Mills v. United States, 278 U.S.
282, 288-289 (1929)). Payments submitted with, or during the
pendency of, an OIC are considered deposits and will not be
applied to the liability until the offer is accepted. Sec.
301.7122-1(h), Proced. & Admin. Regs. If an OIC is withdrawn or
deemed nonprocessable, any deposit will be returned to the
taxpayer. Id.
For the following reasons, respondent’s application of the
payment to petitioner’s outstanding income tax liabilities was
not an abuse of discretion. First, petitioner, through Myster,
2
Petitioner also contends that his right to due process was
violated when respondent knew that petitioner was represented by
counsel but called petitioner directly. Petitioner contends that
respondent violated subsec. (a)(2) of sec. 6304, Fair Tax
Collection Practices, and is subject to a sec. 7433 claim. We do
not have jurisdiction over such claims. See sec. 7433(a).
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did not follow the proper procedure for submitting the $60,000
payment. See sec. 301.7122-1(h), Proced. & Admin. Regs.; Rev.
Proc. 2002-26, 2002-1 C.B. 746. Respondent, in the 2005
rejection letter, stated that an amended OIC should be submitted
on a Form 656. To facilitate the process, respondent attached to
the letter an OIC of $59,413 for petitioner to simply sign, date,
and return. Petitioner failed to do so.3
Second, respondent and petitioner simply did not have an
agreement. See Dorchester Indus. Inc. v. Commissioner, 108 T.C.
320, 330 (1997) (stating that “‘A prerequisite to the formation
of a contract is an objective manifestation of mutual assent to
its essential terms’” (quoting Manko v. Commissioner, T.C. Memo.
1995-10)), affd. without published opinion 208 F.3d 205 (3d Cir.
2000). Petitioner’s $60,000 check did not constitute full
payment of his tax liabilities and petitioner did not enter into
a binding agreement with respondent to compromise his tax
liabilities relating to the years in issue. See Baltic v.
Commissioner, 129 T.C. 178, 179 n.3 (2007) (stating that “Cashing
a check does not mean that the IRS has accepted the offer.”)
3
Petitioner contends that respondent abused his discretion
by not responding to the $50,000 offer. We disagree.
Petitioner, through Myster, did not follow proper procedures for
submitting the $50,000 offer as an OIC, and respondent, in the
Mar. 29, 2006, fax, explained that the $50,000 offer was not
acceptable because it was less than the acceptable $59,413
amount. See sec. 301.7122-1(c)(1) and (2), (d)(1), Proced. &
Admin. Regs.; Rev. Proc. 2003-71, 2003-2 C.B. 517.
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(citing Colebank v. Commissioner, T.C. Memo. 1977-46, affd.
without published opinion 610 F.2d 999 (D.C. Cir. 1979), and
Howard v. Commissioner, T.C. Memo. 1956-219). Respondent’s 2005
rejection letter stated that an OIC of $59,413 would be
recommended for acceptance but did not obligate respondent to
accept a $59,413 or $60,000 OIC.
Third, the payment was not a deposit relating to an OIC
because the check was not submitted with, or during the pendency
of, an OIC. We note that Rev. Proc. 2002-26, supra, provides
that the Internal Revenue Service will, in certain circumstances,
follow a taxpayer’s specific written directions as to the
application of a voluntary payment. Respondent, however, could
not have followed petitioner’s instructions (i.e., “to full pay
petitioner’s OIC”) because no pending OIC existed at the time
respondent received the payment.
In sum, respondent did not abuse his discretion.
Contentions we have not addressed are irrelevant, moot, or
meritless.
To reflect the foregoing,
Decision will be entered
for respondent.