T.C. Memo. 2018-184
UNITED STATES TAX COURT
W.T. SNIPES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27902-15L. Filed November 1, 2018.
P has Federal income tax liabilities of approximately $23.5
million for tax years 2001-06. These liabilities are largely a result of
P’s failure to file Federal income tax returns. R assessed these
deficiencies, filed a notice of Federal tax lien (NFTL), and issued
notice and demand for payment of the liabilities, and, when P did not
pay, issued to P a notice of the filing. P timely requested a collection
due process hearing under I.R.C. sec. 6330(d) and stated that he
wanted a collection alternative–i.e., an offer-in-compromise (OIC) or
currently not collectible status–and wanted the NFTL withdrawn. P
did not challenge his underlying tax liabilities. P made a cash OIC of
$842,061, less than 4% of his total underlying liability. R issued P a
notice of determination rejecting his OIC and sustaining the NFTL. P
filed a petition in this Court.
Held: In view of P’s failure to provide bona fide
documentation to prove his assets and financial condition, as well as
the disparity in his OIC versus his reasonable collection potential as
determined by R, the settlement officer did not abuse her discretion
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by rejecting P’s OIC, refusing to conduct an expedited transferee
investigation, or sustaining the filing of the NFTL.
Vivian D. Hoard and Robert B. Gardner III, for petitioner.
Joel D. McMahan and Ashley Y. Smith, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: The petition in this case was filed in response to a
Notice of Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 (notice of determination) dated October 6, 2015, that was issued by
the Internal Revenue Service (IRS or respondent) Office of Appeals. The notice
of determination sustained the filing of the notice of Federal tax lien (NFTL)
regarding petitioner’s unpaid income tax liabilities for 2001, 2002, 2003, 2004,
2005, and 2006 (years in issue).1 The issue for consideration is whether the
determination to proceed with the NFTL in lieu of a proposed collection
alternative was an abuse of discretion.
1The 2002 liability was paid in full before the trial of this case and is no
longer at issue.
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[*3] Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times. We round all monetary amounts to
the nearest dollar.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated facts and exhibits
are incorporated in our findings by this reference. Petitioner resided in New
Jersey when he timely filed his petition.
On August 27, 2013, respondent filed an NFTL against petitioner’s
property. At the time of the filing of the NFTL petitioner’s assessed income tax
liabilities (underlying liabilities) for the years in issue were the following:
Year Underlying liability
The liabilities totaled approximately $23.5 million.
On September 4, 2013, petitioner filed a Form 12153, Request for a
Collection Due Process or Equivalent Hearing (CDP request). In the CDP request
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[*4] petitioner requested an installment agreement or an offer-in-compromise
(OIC) as collection alternatives. In April 2014 petitioner made a cash OIC of less
than 4% of his total underlying liability, $842,061, on the basis of doubt as to
On June 18, 2014, petitioner’s CDP hearing was held. In an effort to verify
petitioner’s income and assets to determine petitioner’s reasonable collection
potential (RCP), the settlement officer issued an investigatory request to
respondent’s Compliance Division. Petitioner had numerous assets and real
estate holdings, which were held in multiple entities. In reviewing the
information collected from both petitioner and the Compliance Division, the
settlement officer spent considerable time and effort endeavoring to determine
petitioner’s income and assets, as well as the amount of equity he held in his
assets, trusts, and businesses.
The settlement officer was unable to definitively determine that petitioner
no longer owned certain properties petitioner claimed to have lost or transferred,
and petitioner could not provide bona fide documentation of these properties’
dissipation. The settlement officer determined that petitioner’s RCP was
$17,482,152. Petitioner did not increase his OIC. On October 6, 2015,
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[*5] respondent issued to petitioner a notice of determination rejecting his OIC
and sustaining the NFTL.
Before trial both parties filed motions for summary judgment. By order
dated October 6, 2016, the Court rejected the parties’ motions for summary
judgment and remanded petitioner’s case to respondent’s Appeals Office. The
Court ordered the remand for the Appeals Office to conduct additional
proceedings to supplement the record and to consider petitioner’s RCP in the
light of his current circumstances.
On remand the settlement officer conducted supplemental CDP
proceedings. The settlement officer issued additional Appeals Referral
Investigations requests to respondent’s Compliance Division in an effort to
investigate the disposition of petitioner’s real estate holdings. Petitioner
maintained his original OIC.
Petitioner contended during both CDP proceedings that his financial
adviser, W. Johnson, had taken out loans and disposed of assets and income on
his behalf, diverting the funds without petitioner’s knowledge or benefit.
Petitioner provided respondent with affidavits from Mr. Johnson regarding his
misconduct and misuse of petitioner’s assets and income. However, petitioner
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[*6] did not provide any definitive or otherwise bona fide documentation showing
the dissipation or diversion of his assets or income.
Petitioner requested that respondent conduct a transferee investigation of
Mr. Johnson. Petitioner requested that his OIC be accepted with the condition of
proving Mr. Johnson’s transferee liability via the transferee investigation or that
his case be labeled “currently not collectible” during the investigation’s
pendency. The settlement officer requested permission from her manager to
conduct an expedited transferee investigation of Mr. Johnson. The settlement
officer’s manager explained that the CDP hearing could not be held open for a
transferee investigation, nor could the IRS accept an OIC with conditions
imposed on it.
Following review of petitioner’s case the settlement officer reduced
petitioner’s RCP to $9,581,027 in an effort to compromise for settlement
purposes. Petitioner maintained his original OIC of $842,061. The settlement
officer ultimately concluded that it was not in the best interest of the Government
to accept petitioner’s OIC. The settlement officer’s manager reviewed the
settlement officer’s actions regarding petitioner’s case and her rejection of
petitioner’s OIC. On December 29, 2017, respondent issued petitioner a
supplemental notice of determination sustaining the NFTL and again rejecting
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[*7] petitioner’s OIC. The supplemental notice of determination was signed by
the settlement officer’s manager.
Section 6320(a)(1) requires the Secretary to provide written notice to a
taxpayer when the Secretary has filed an NFTL against the taxpayer’s property
and property rights. See secs. 6321, 6323. The Secretary must also notify the
taxpayer of his right to a CDP hearing before the IRS Appeals Office. Sec.
6320(a)(3). The taxpayer can raise challenges to the underlying tax liability
giving rise to the lien in a CDP case only if he did not receive a statutory notice of
deficiency for the tax liability or did not otherwise have an opportunity to dispute
it. Secs. 6320(c), 6330(c)(2)(B). No liability challenge is raised in this case.
Following a hearing the Appeals Office shall make a determination taking
into account all issues properly raised by the taxpayer and “whether any proposed
collection action balances the need for the efficient collection of taxes with the
legitimate concern of the person that any collection action be no more intrusive
than necessary.” Sec. 6330(c)(3). We note that the settlement officer properly
based her determination on the factors specified by section 6330(c)(3).
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[*8] I. Standard of Review
Where the validity of the underlying tax liability is properly at issue, this
Court reviews the liability determination de novo. Sego v. Commissioner, 114
T.C. 604, 610 (2000). The Court reviews administrative determinations made by
the Appeals Office regarding nonliability issues for abuse of discretion. Goza v.
Commissioner, 114 T.C. 176, 182 (2000). The validity of petitioner’s underlying
tax liabilities is not at issue here. Accordingly, we review for abuse of discretion.
In determining whether there has been an abuse of discretion, we consider
whether the determination by the Appeals Office was arbitrary, capricious, or
without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125 T.C.
301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006); Woodral v. Commissioner,
112 T.C. 19, 23 (1999). The Court does not conduct an independent review of
what would be an acceptable OIC. Murphy v. Commissioner, 125 T.C. at 320. If
the settlement officer follows all statutory and administrative guidelines and
provides a reasoned, balanced decision, the Court will not reweigh the equities.
Link v. Commissioner, T.C. Memo. 2013-53, at *12.
II. Abuse of Discretion
The Court has previously held that it is not required to apply a limited
scope of review and may accept evidence outside the administrative record in
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[*9] CDP cases. See Robinette v. Commissioner, 123 T.C. 85, 101 (2004), rev’d,
439 F.3d 455 (8th Cir. 2006); see also Murphy v. Commissioner, 125 T.C. at
313.2 The Court of Appeals for the Third Circuit has not specifically addressed
this issue in a precedential opinion. Our review will not be limited to the
Petitioner contends that the settlement officer abused her discretion in
refusing his OIC by failing to (1) calculate petitioner’s exact RCP, (2) exclude
dissipated assets, (3) conduct an expedited transferee investigation into Mr.
Johnson, (4) consider whether the NFTL would cause petitioner economic
hardship, and (5) satisfy the review obligations of section 7122(e)(1).3
III. Petitioner’s OIC
Section 7122(a) authorizes the IRS to compromise an outstanding tax
liability. The regulations set forth three grounds for compromise: (1) doubt as to
2The broad scope of review in Robinette is not controlling in the Court of
Appeals for the First, Eighth, and Ninth Circuits. See Dalton v. Commissioner,
682 F.3d 149 (1st Cir. 2012), rev’g 135 T.C. 393 (2010), and T.C. Memo. 2011-
136; Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part as to
this issue T.C. Memo. 2006-166 and aff’g in part, vacating in part decisions in
related cases; Robinette v. Commissioner, 123 T.C. 85, 101 (2004), rev’d, 439
F.3d 455 (8th Cir. 2006).
3Petitioner repeatedly references a proposed levy throughout his
Simultaneous Opening Brief and Simultaneous Answering Brief. There is no levy
at issue in this case; accordingly, we will not address it.
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[*10] liability, (2) doubt as to collectibility, or (3) promotion of effective tax
administration. Sec. 301.7122-1(b), Proced. & Admin. Regs. At petitioner’s
initial and supplemental hearings he based his OIC on doubt as to collectibility.
The Secretary may compromise a tax liability on the basis of doubt as to
collectibility where the taxpayer’s assets and income render full collection
unlikely. Id. subpara. (2). Conversely, the IRS may reject an OIC when the
taxpayer’s RCP exceeds the amount he proposes to pay. See Johnson v.
Commissioner, 136 T.C. 475, 486 (2011), aff’d, 502 F. App’x 1 (D.C. Cir. 2013).
Generally, settlement officers are directed to reject offers substantially below the
taxpayer’s RCP unless “special circumstances” justify acceptance of such an
offer. See Fairlamb v. Commissioner, T.C. Memo. 2010-22, slip op. at 11; Rev.
Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517.
Our review is limited to ascertaining whether the decision to reject that
offer was arbitrary, capricious, or without sound basis in fact or law. Murphy v.
Commissioner, 125 T.C. at 320. We do not substitute our judgment for the
settlement officer’s as to the acceptability of any particular offer. See, e.g.,
Johnson v. Commissioner, 136 T.C. at 488.
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[*11] A. Petitioner’s RCP
The settlement officer did not abuse her discretion by failing to determine
petitioner’s exact RCP. As part of the RCP determination, the settlement officer
considered petitioner’s transfers of real property before and during his first CDP
hearing through his trusts and entities. The settlement officer spent considerable
time and effort in her endeavor to determine petitioner’s income and assets, as
well as his equity in his assets, trusts, and businesses. Petitioner objected
generally to the amount of the RCP and asserted that he did not own properties
that were being attributed to him. The settlement officer was unable to
definitively determine that petitioner no longer owned certain properties, and
petitioner could not provide bona fide documentation of these properties’
While the Internal Revenue Manual (IRM) directs the Appeals Office to
calculate an RCP to evaluate doubt as to collectibility offers, it does not require
the level of precision suggested by petitioner. See, e.g., IRM pt. 220.127.116.11(2) (July
18, 2017), 18.104.22.168.1 (Apr. 30, 2015), 22.214.171.124 (May 10, 2013), 126.96.36.199(1) (Oct. 22,
2010). Given the disparity between petitioner’s $842,061 OIC and the settlement
officer’s calculation of $9,581,027 as his RCP, as well as petitioner’s inability to
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[*12] credibly document his assets, the settlement officer and her manager had
ample justification to reject the offer.
B. Dissipated Assets
The settlement officer did not abuse her discretion by considering
potentially dissipated assets of petitioner. The IRM establishes that dissipated
assets should generally not be used to calculate RCP except in certain
circumstances. IRM pt. 188.8.131.52(1) (Sept. 30, 2013). However, the IRM also
establishes that if it is determined that transferee assessment should be pursued by
the Appeals Office during the investigation of an OIC, the Appeals Office should
either secure a withdrawal letter from the taxpayer for the OIC or, if the OIC is
not withdrawn, the Appeals Office should reject the OIC and then include the
value of the transferee amount in the RCP. See IRM pt. 184.108.40.206 (Sept. 27, 2011).
Even though the settlement officer included potentially dissipated assets in
petitioner’s RCP, she did not abuse her discretion. She was properly following
published guidance that directs settlement officers to reject an OIC where issues
of transferee liability are present unless the taxpayer includes the transferee
amount in his offer. See id. Petitioner had multiple entities in which his multiple
assets, particularly his real estate properties, were held. The settlement officer
could not determine petitioner’s assets clearly. Moreover, petitioner did not
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[*13] provide bona fide or definitive documentation showing that he no longer
owned the assets in question or to what extent, if any, he had benefited from their
dissipation. He provided only affidavits by Mr. Johnson. The settlement officer
was justified in her calculation of petitioner’s RCP.
C. Transferee Investigation
The settlement officer did not abuse her discretion by failing to conduct an
expedited transferee investigation of Mr. Johnson. Petitioner was informed that
an expedited transferee investigation by the IRS field division could not be
completed during his CDP proceedings. Petitioner provided no support for his
contention that a taxpayer in a CDP proceeding has the authority or right to
compel the IRS to conduct an expedited transferee liability investigation of a
Further, the structure of the Appeals Office is not designed for a settlement
officer to conduct indepth investigations, nor does it authorize the settlement
officer or the Appeals Office to direct taxpayer examinations. See Dalton v.
Commissioner, 682 F.3d 149, 155 (1st Cir. 2012) (“The CDP process neither
allows for discovery, nor does it bring before the IRS all of the parties in
interest[.]”), rev’g 135 T.C. 393 (2010), and T.C. Memo. 2011-136. The Appeals
Office is a separate office, independent of the IRS field division and its functions.
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[*14] See IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206, sec.
1001(a)(4), 112 Stat. at 689. Under this structure settlement officers review the
actions of the IRS field division, but they cannot perform the investigative
functions of the field division, and they remain independent. See, e.g., IRM pt.
220.127.116.11(1) (Sept. 27, 2011) (providing information on how a transferee
investigation will be initiated and conducted); IRM pt. 18.104.22.168(7) (Sept. 30, 2013)
(“It is not necessary to actually seek or obtain any specific legal remedy in order
to address * * * [transferee/nominee/alter ego] issues in an offer. However, the
offer file must be clearly documented with the basis for including the value of a
transferred asset in the RCP. Care should be taken so that the determination to
include assets held by others is reasonable.”).
D. Economic Hardship
The settlement officer did not abuse her discretion in determining that
petitioner would not suffer economic hardship as a result of the collection of a
liability equal to the RCP. Economic hardship is considered a “special
circumstance” under which a settlement officer can accept an OIC that is
considered significantly below a taxpayer’s RCP. See Murphy v. Commissioner,
125 T.C. at 309; McClanahan v. Commissioner, T.C. Memo. 2008-161, slip op. at
7-8; IRM pt. 22.214.171.124(4) (May 10, 2013).
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[*15] Factors indicating “economic hardship” include: (1) a long-term illness,
medical condition, or disability that renders the taxpayer incapable of earning a
living, where it is “reasonably foreseeable that taxpayer’s financial resources will
be exhausted providing for care and support during the course of the condition”;
(2) a situation where the taxpayer’s monthly income is exhausted by providing for
care of dependents without other means of support; and (3) a situation where,
although the taxpayer has certain assets, the taxpayer is unable to borrow against
the equity in those assets and the liquidation of the assets would render the
taxpayer unable to meet basic living expenses. Sec. 301.7122-1(c)(3)(i), Proced.
& Admin. Regs.; IRM pt. 126.96.36.199.1(6) (Aug. 5, 2015).
Petitioner does not contend that he had a long-term illness, a medical
condition, or a disability. Nor does he claim that he exhausts his monthly income
providing for the care of dependents with no other means of support. Petitioner
contends that payment of his RCP as calculated by the IRS would render him
unable to meet basic living expenses.
The taxpayer must submit complete and current financial documentation to
the Commissioner to prove economic hardship. See Vinatieri v. Commissioner,
133 T.C. 392, 398-399 (2009). Petitioner has not submitted complete and current
financial data to respondent, as he did not provide definitive or bona fide
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[*16] documentation of his assets. Accordingly, petitioner’s settlement officer
could not determine that he could not borrow against the equity of his real
property interests or other assets, or that the liquidation of these interests would
render him unable to meet basic living expenses. Petitioner did not make a
showing of economic hardship necessary to qualify for special circumstances.
Absent a showing of special circumstances, settlement officers are directed
to reject offers substantially below the taxpayer’s RCP where the OIC is premised
on doubt as to collectibility. See Clifford v. Commissioner, T.C. Memo. 2014-
248, at *8-*9; see also Rev. Proc. 2003-71, sec. 4.02(2). Thus, the settlement
officer did not abuse her discretion when she rejected petitioner’s OIC and closed
the case. We only decide whether there was an abuse of discretion and do not
recalculate a different amount for an acceptable installment agreement or OIC.
Murphy v. Commissioner, 125 T.C. at 320; Speltz v. Commissioner, 124 T.C.
165, 179-180 (2005), aff’d, 454 F.3d 782 (8th Cir. 2006).
E. Review Obligations of Section 7122(e)(1)
Petitioner contends that respondent failed to meet the independent
administrative review requirement of section 7122(e)(1). Section 7122(e)(1) and
its corresponding regulations require that the Secretary establish procedures for
an independent administrative review of OIC rejections. See sec. 301.7122-1(f),
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[*17] Proced. & Admin. Regs. Petitioner asserts that review by respondent’s
Appeals Office manager, who reviewed the settlement officer’s determination to
reject petitioner’s OIC, does not qualify as an “independent” reviewer under the
above statute and regulation.
In the context of a collection hearing before the Appeals Office, the
prescribed independent administrative review of the proposed rejection of an
offer is typically done by an Appeals Office manager. See Londono v.
Commissioner, T.C. Memo. 2003-99. Generally, where a settlement officer’s
proposed rejection of an offer was reviewed and approved by her Appeals Office
manager, the independent review requirement has been met. See id.; see also
IRM pt. 188.8.131.52.3.1(4) (Aug. 9, 2017). In this case the settlement officer’s
manager reviewed her rejection of petitioner’s OIC.
Petitioner has failed to establish that the settlement officer did not properly
determine that the requirements of any applicable law or administrative procedure
had been met. We find that the settlement officer properly based her
determination on the required factors. Accordingly, we conclude that the
settlement officer did not abuse her discretion in determining that acceptance of
petitioner’s OIC was not in the best interest of the United States.
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[*18] We have considered all other arguments made and facts presented in
reaching our decision, and to the extent not discussed above, we conclude that
they are moot, irrelevant, or without merit.
For the foregoing reasons, the supplemental notice of determination will be
Decision will be entered for