T.C. Memo. 2016-3
UNITED STATES TAX COURT
WAYNE REBUCK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 844-14L. Filed January 5, 2016.
Giovanni V. Alberotanza and Margaret L. Kessler, for petitioner.
Michael A. Raiken and Nancy M. Gilmore, for respondent.
MEMORANDUM OPINION
RUWE, Judge: Pursuant to section 6330(d)(1),1 petitioner seeks review of
respondent’s determination to proceed with collection by levy of his unpaid
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for all relevant years, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
-2-
[*2] Federal income tax liabilities for the taxable years 1998, 1999, 2000, 2001,
and 2002. Petitioner does not contest the existence or amounts of his underlying
tax liabilities, and the only issue for decision is whether respondent abused his
discretion by sustaining the proposed levy action.
Background
The parties submitted this case fully stipulated pursuant to Rule 122. The
stipulation of facts and the attached exhibits are incorporated herein by this
reference.
Petitioner resided in Pennsylvania at the time he filed his petition.
Criminal Judgment and Restitution
On or about November 28, 2006, a grand jury in the Eastern District of
Pennsylvania filed an indictment against petitioner along with 10 codefendants on
one count of conspiring to defraud the United States pursuant to 18 U.S.C. sec.
371. The grand jury charged that petitioner and 10 codefendants were involved in
an organization that conducted sales seminars throughout the United States and
solicited clients for fraudulent offshore and domestic trust packages by falsely
representing that taxpayers could lawfully avoid paying Federal income tax by
placing income and assets into the organization’s trust packages. Count 1 of the
indictment encompasses activity occurring from “at least January 2000 through at
-3-
[*3] least July 2003”. On July 15, 2008, the U.S. District Court for the Eastern
District of Pennsylvania (District Court) entered a criminal judgment against
petitioner. Petitioner was found guilty on count 1 of the indictment and was
ordered to pay restitution to the Internal Revenue Service (IRS) of $16,339,199 as
a joint and several liability with 10 codefendants.
Civil Penalties and 1996 Tax Liability
On October 5, 2009, respondent assessed civil penalties against petitioner
for promoting an abusive tax shelter pursuant to section 6700, as follows:
Penalty
Year sec. 6700
1999 $30,000
2000 27,000
2001 12,000
2002 49,000
2003 9,000
On or about February 19, 2010, petitioner requested a collection due process
(CDP) hearing concerning the assessment of the above-listed civil penalties (2010
CDP hearing).
On or about November 15, 2010, petitioner filed a Form 1040, U.S.
Individual Income Tax Return, for his 1996 tax year, and on January 10, 2011,
respondent assessed an income tax liability of $13,809 plus penalties and interest.
-4-
[*4] On April 25, 2011, respondent issued a notice of intent to levy to petitioner
indicating that respondent intended to collect petitioner’s unpaid 1996 income tax
liability. On May 6, 2011, respondent filed a notice of Federal tax lien regarding
petitioner’s unpaid tax liability for 1996. Petitioner did not request a CDP hearing
concerning his 1996 income tax liability.
As a result of the 2010 CDP hearing regarding the section 6700 civil
penalties, on May 11, 2011, petitioner entered into an installment agreement for
his outstanding section 6700 civil penalties and his 1996 income tax liability
(2011 installment agreement).
Taxable Years 1998-2002
On or about October 14, 2010, petitioner filed Forms 1040 for the taxable
years 1998, 1999, 2000, 2001, and 2002. On May 14, 2012, respondent assessed
income tax, penalties, and interest for these years based upon petitioner’s returns.
Respondent sent to petitioner, in care of petitioner’s representative, a Letter 1058,
Final Notice of Intent to Levy and Notice of Your Right to a Hearing, dated
August 14, 2012, advising petitioner that respondent intended to levy to collect his
unpaid income tax liabilities for the taxable years 1998-2002. On August 16,
2012, petitioner’s representative timely submitted a Form 12153, Request for a
Collection Due Process or Equivalent Hearing, concerning petitioner’s 1998-2002
-5-
[*5] income tax liabilities, checking the boxes for “Installment Agreement”,
“Offer in Compromise”, and “I Cannot Pay Balance”. A typewritten statement
was attached to the CDP hearing request indicating petitioner’s desire to amend
his 2011 installment agreement (which concerned his income tax liability for 1996
and his section 6700 civil penalties for 1999-2003) to include his income tax
liabilities for 1998-2002. The typewritten statement further explained that the
proposed levy “would cause * * * [petitioner] extreme economic hardship.”
On August 29, 2012, petitioner’s CDP hearing request was referred to the
IRS Office of Appeals (Appeals), and on September 7, 2012, Appeals sent
petitioner a letter acknowledging receipt of his CDP hearing request. On or about
September 10, 2012, Settlement Officer Jeffrey Chambers (SO Chambers) was
assigned to petitioner’s case. SO Chambers had no prior involvement with
petitioner or petitioner’s tax liabilities.
On October 31, 2012, petitioner’s representative submitted to SO Chambers
a Form 656, Offer in Compromise, for petitioner’s unpaid income tax liabilities for
the taxable years 1996, 1997,2 1998, 1999, 2000, 2001, and 2002 and for
petitioner’s section 6700 civil penalties for the years 1999-2003. Petitioner’s
2
On brief respondent acknowledges that petitioner does not have an
outstanding tax liability for 1997.
-6-
[*6] offer-in-compromise (OIC) was for $59,045 and was based on doubt as to
collectibility. Petitioner submitted two checks with his OIC: one for a $150
application fee and the other for the required 20% downpayment of $11,809.
On November 5, 2012, petitioner’s 2011 installment agreement was
reversed because of default.
On November 6, 2012, SO Chambers forwarded petitioner’s OIC to
respondent’s Centralized Offer in Compromise Unit (COIC Unit) for
consideration. On April 2, 2013, SO Chambers received petitioner’s OIC from
respondent’s COIC Unit stating that the offer did not meet COIC Unit criteria
because petitioner was still paying restitution to the IRS.
On or about April 25, 2013, petitioner’s case was assigned to Settlement
Officer Stephen McCarrick (SO McCarrick) of respondent’s Philadelphia,
Pennsylvania, field office. SO McCarrick had no prior involvement with
petitioner or petitioner’s tax liabilities.
On June 25, 2013, SO McCarrick computed petitioner’s reasonable
collection potential (RCP) and determined the RCP to be higher than the amount
offered in petitioner’s OIC. SO McCarrick and petitioner’s representative held a
telephone conference on June 26, 2013, and discussed petitioner’s OIC and SO
McCarrick’s calculation of petitioner’s RCP. Petitioner’s representative agreed to
-7-
[*7] provide SO McCarrick with an updated Form 433-A, Collection Information
Statement for Wage Earners and Self-Employed Individuals, to show that
petitioner’s monthly income had decreased. On August 12, 2013, SO McCarrick
reviewed the updated financial information that petitioner’s representative
provided and determined that petitioner’s RCP was higher than that calculated by
petitioner’s representative.
On October 24, 2013, after discussing petitioner’s OIC with his Appeals
team manager (ATM) and conducting independent research of the Internal
Revenue Manual (IRM), SO McCarrick concluded that petitioner’s OIC could be
considered only if petitioner paid or will pay as part of the OIC the full amount of
restitution. In early November 2013 petitioner’s representative requested a
conference with SO McCarrick’s ATM to discuss SO McCarrick’s determination
concerning the payment of restitution in relation to the OIC. On November 18,
2013, SO McCarrick’s ATM spoke with petitioner’s representative and explained
that he concurred with SO McCarrick’s determination regarding petitioner’s
restitution and OIC; however, the ATM explained that a partial payment
installment agreement (PPIA) of $540 per month was a viable payment
-8-
[*8] alternative.3 On December 4, 2013, petitioner’s representative informed SO
McCarrick that she disagreed that the payment of restitution was necessary to the
OIC and that petitioner was unable to enter into the proposed PPIA for $540 per
month.
On December 16, 2013, respondent issued to petitioner a Notice of
Determination Concerning Collection Action(s) Under Section 6320 and/or 6330,
sustaining the proposed levy.
Discussion
Petitioner invokes our jurisdiction under section 6330(d)(1) to review the
notice of determination issued to him with respect to the proposed levy on his
property. Petitioner contends that respondent abused his discretion in sustaining
the proposed levy by “refusing to consider * * * [his] offer in compromise unless
it provided for full payment of $16,339,199 in joint and several restitution.”4
Petitioner further contends that respondent abused his discretion by not
considering a PPIA amount lower than $540 per month because of petitioner’s
3
Although it is not clear from the record, it appears that the proposed $540
per month PPIA was for petitioner’s 1996, 1998, 1999, 2000, 2001, and 2002
income tax liabilities and 1999-2003 sec. 6700 civil penalties.
4
On brief petitioner suggests that substantial payments have been made
towards the joint and several criminal restitution. However, petitioner does not
claim that the full amount of the restitution has been satisfied.
-9-
[*9] medical condition and impending retirement. Respondent contends that SO
McCarrick did not abuse his discretion in sustaining the proposed levy because he
followed guidelines set forth in the IRM and carefully calculated the PPIA using
financial information that petitioner provided.
Section 6330(a)(1) provides that the Secretary may not levy on any property
or right to property of a person unless the Secretary first notifies the person in
writing of the right to a hearing before Appeals. The Appeals officer must verify
at the hearing that the requirements of any applicable law or administrative
procedure have been met. Sec. 6330(c)(1). At the hearing the person may raise
any relevant issue relating to the unpaid tax or the proposed levy, including
appropriate spousal defenses, challenges to the appropriateness of the collection
action, and collection alternatives. Sec. 6330(c)(2)(A). The person is entitled to
raise issues regarding the underlying tax liability “if the person did not receive any
statutory notice of deficiency for such tax liability”. Sec. 6330(c)(2)(B).
Taxpayers are expected to provide all relevant information requested by Appeals,
including financial statements, for its consideration of the facts and issues
involved in the hearing. Sec. 301.6330-1(e)(1), Proced. & Admin. Regs.
Following the hearing Appeals must determine whether proceeding with the
proposed levy action is appropriate. In making that determination, Appeals is
- 10 -
[*10] required to take into consideration: (1) verification presented by the
Secretary during the hearing process that the requirements of applicable law and
administrative procedure have been met; (2) relevant issues raised by the taxpayer;
and (3) whether the proposed levy action balances the need for efficient collection
of taxes with the taxpayer’s concern regarding the intrusiveness of the proposed
collection action. Sec. 6330(c)(3).
In the instant case, the notice of determination sets forth the IRS’
verification of compliance with applicable law and administrative procedure, and
petitioner does not challenge this verification. Petitioner does not dispute his
underlying tax liabilities for the taxable years 1998, 1999, 2000, 2001, and 2002.
The issues raised in the petition pertain only to collection alternatives. These
issues were considered by SO McCarrick, who determined that the proposed
collection action balanced the need for the efficient collection of taxes with the
legitimate concern of petitioner that any collection be no more intrusive than
necessary.
Where a taxpayer’s underlying liability is not in dispute, the Court reviews
the Appeals officer’s determination for abuse of discretion. See Sego v.
Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,
181-182 (2000). Under the abuse of discretion standard, we decide whether the
- 11 -
[*11] determination of the Appeals officer was arbitrary, capricious, or without a
sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005),
aff’d, 469 F.3d 27 (1st Cir. 2006). In reviewing for abuse of discretion, we
generally consider only the arguments, issues, and other matters that were raised at
the CDP hearing or otherwise brought to the attention of Appeals. Giamelli v.
Commissioner, 129 T.C. 107, 115 (2007).
Petitioner has raised two issues in this case: (1) whether the Appeals officer
abused his discretion in rejecting petitioner’s OIC because it did not include full
payment of petitioner’s criminal restitution and (2) whether the Appeals officer
abused his discretion in proposing to petitioner a PPIA of $540 per month. We
address each of these contentions in turn.
1. Offer in Compromise
At the time of petitioner’s CDP hearing, guidelines governing OICs where a
taxpayer has outstanding criminal restitution were contained in IRM pt. 5.1.5.24.5
(Aug. 3, 2009). SO McCarrick relied on this IRM section in sustaining the
proposed levy action. IRM pt. 5.1.5.24.5 states, in relevant part:
(3) There may be situations where the IRS has assessed civil
tax liabilities, interest and penalties in excess of the amount that was
awarded as restitution. In this situation, the IRS may consider an
offer in compromise to pay the additional taxes, penalties, and interest
for the same tax periods for which restitution was ordered only if the
- 12 -
[*12] defendant has paid or will pay as part of the offer the full amount of
the restitution. Example: The court orders payment of restitution to
the IRS for the 2000 tax year in the amount of $50,000. The IRS
assesses civil tax liabilities, interest, and penalties in the amount of
$80,000 for the same tax year. The IRS may compromise the
additional amount assessed as civil tax liabilities ($30,000), only if
the defendant has paid or will pay the full amount of the restitution
($50,000).
(4) The IRS also will not consider an offer based on Doubt as
to Collectibility (DATC) or Effective Tax Administration (ETA) for
“nonrestitution” taxes or years because those offers must include a
compromise of all unpaid taxes. Example: The court awards
restitution payable to the IRS in the amount of $50,000 for the tax
years 2000 and 2001. The IRS assesses civil tax liabilities in the
amount of $25,000 for tax year 2002. The IRS may not compromise
the civil tax liability for the 2002 tax year based on doubt as to
collectibility or effective tax administration because the offer would
have to include tax years for which restitution was ordered payable to
the IRS.
(5) If an offer in compromise is submitted by a taxpayer that
includes tax periods for which criminal restitution was ordered
payable to the IRS, the offer should be not be [sic] considered unless
it provides for full payment of the amount of restitution. Taxpayers
submitting such offers should be informed that only the district court
that entered the restitution order can modify it.
The fundamental problem with petitioner’s OIC is that it did not address his
outstanding court-ordered restitution. Petitioner’s OIC sought to compromise
(1) Federal income tax liabilities for the taxable years 1996, 1998, 1999, 2000,
2001, and 2002 and (2) section 6700 civil penalties for 1999-2003. However,
- 13 -
[*13] petitioner’s OIC did not address his outstanding criminal restitution.5 When
a taxpayer owing restitution submits an OIC to the IRS, IRM pt. 5.1.5.24.5
requires that the offer provide for the full payment of the restitution amount.
Petitioner’s OIC did not address his outstanding criminal restitution as required by
the IRM. Generally, an Appeals officer does not abuse his or her discretion in
rejecting an OIC when following guidelines set forth in the IRM. Veneziano v.
Commissioner, T.C. Memo. 2011-160, 2011 Tax Ct. Memo LEXIS 157, at *11.
Pursuant to the IRM, when a taxpayer seeks to compromise taxes, penalties,
and interest for the same tax periods for which restitution was ordered, the offer
must provide for full payment of the restitution amount. Petitioner submitted his
OIC based on doubt as to collectibility6 for his 1996, 1998, 1999, 2000, 2001, and
2002 income tax liabilities and his section 6700 civil penalties for 1999-2003.
Petitioner’s joint and several criminal restitution of $16,339,199 resulted from
criminal activities during tax periods 2000, 2001, 2002, and 2003. IRM pt.
5
Petitioner did not alternatively contend that his criminal restitution was
satisfied.
6
In his opening brief petitioner contends that respondent should have
alternatively determined that the OIC promoted effective tax administration.
However, petitioner did not raise or argue effective tax administration during his
CDP hearing, and therefore it cannot be raised on judicial review. See Giamelli v.
Commissioner, 129 T.C. 107, 115 (2007).
- 14 -
[*14] 5.1.5.24.5(3) states: “[t]he IRS may consider an offer in compromise to pay
the additional taxes, penalties, and interest for the same tax periods for which
restitution was ordered only if the defendant has paid or will pay as part of the
offer the full amount of the restitution.” Petitioner sought to compromise income
tax, civil penalties, and interest for some of the same periods covered by his court-
ordered restitution (i.e., 2000, 2001, 2002, and 2003). The IRM requires a
taxpayer in petitioner’s position to pay--or pay as part of the OIC--the full amount
of outstanding restitution, which petitioner did not do.7 SO McCarrick conducted
independent research and consulted his ATM before ultimately concluding that
petitioner’s OIC must include provision for full payment of his joint and several
restitution. SO McCarrick’s refusal to consider petitioner’s OIC unless it met the
IRM requirement that criminal restitution be satisfied as part of an OIC does not
constitute an abuse of discretion. Indeed, it appears reasonable for the
Commissioner to decline an OIC made by a taxpayer who has committed a crime
related to Federal tax but who fails to satisfy a restitution order by a District Court
in the criminal case. Additionally, SO McCarrick provided petitioner with the
opportunity to provide legal authority contrary to this interpretation of the IRM,
7
Internal Revenue Manual pt. 5.1.5.24.5(4) (Aug. 3, 2009), and the example
therein state that a doubt as to collectibility OIC for “nonrestitution” years cannot
be considered unless it includes years for which restitution is payable to the IRS.
- 15 -
[*15] which petitioner did not do. Accordingly, we hold that SO McCarrick’s
rejection of petitioner’s OIC based on the provisions of IRM pt. 5.1.5.24.5 was not
arbitrary, capricious, or without sound basis in fact or law.
2. Installment Agreement
Section 6159 authorizes the Commissioner to enter into written agreements
allowing taxpayers to pay tax in installment payments if he deems that the
“agreement will facilitate full or partial collection of such liability.” Thompson v.
Commissioner, 140 T.C. 173, 179 (2013). The decision to accept or reject an
installment agreement lies within the discretion of the Commissioner. Sec.
301.6159-1(a), (c)(1)(i), Proced. & Admin. Regs. If an Appeals officer follows all
statutory and administrative guidelines and provides a reasoned and balanced
decision, the Court will not reweigh the equities. Lipson v. Commissioner, T.C.
Memo. 2012-252, at *9.
Petitioner argues that SO McCarrick abused his discretion by determining
that petitioner had disposable income for a PPIA of $540 per month. Petitioner
also argues that SO McCarrick abused his discretion by not considering
petitioner’s medical condition and how it would affect his ability to earn future
income. Respondent argues that SO McCarrick carefully evaluated petitioner’s
- 16 -
[*16] monthly income and expenses before proposing a PPIA based upon
petitioner’s RCP.
As a threshold matter, it is not an abuse of discretion for an Appeals officer
to decline to consider a collection alternative where the taxpayer does not place a
specific proposal on the table. See Busche v. Commissioner, T.C. Memo. 2011-
285, 2011 Tax Ct. Memo LEXIS 277, at *35; see also Kendricks v. Commissioner,
124 T.C. 69, 79 (2005). Stated otherwise, it is the obligation of the taxpayer, not
of the reviewing officer, to start negotiations regarding a collection alternative by
making a specific proposal.
Although petitioner indicated his interest in an installment agreement, he
never proposed a specific amount or set forth a payment schedule. On November
4, 2013, petitioner’s representative requested that SO McCarrick propose a PPIA
based on petitioner’s income and expenses. Although he was not required to do
so, on November 12, 2013, SO McCarrick proposed a PPIA under which
petitioner would pay $540 per month. Petitioner, through his representative,
rejected this offer. Despite arguing before this Court that SO McCarrick did not
consider his medical condition and decreasing future earnings, petitioner did not
make a counteroffer to the $540-per-month proposal. Moreover, petitioner did not
present any other persuasive evidence or arguments demonstrating that SO
- 17 -
[*17] McCarrick abused his discretion. Accordingly, we find that SO McCarrick
did not abuse his discretion in sustaining the proposed levy after proposing a PPIA
of $540 per month.
We hold that the determination to proceed with collection was not an abuse
of SO McCarrick’s discretion, and the proposed collection action is sustained.
To reflect the foregoing,
Decision will be entered
for respondent.