Dalton, Jr. v. Commissioner of IRS , 682 F.3d 149 ( 2012 )

United States Court of Appeals
For the First Circuit
No. 11-2217
ARTHUR DALTON, JR., AND BEVERLY DALTON,
Petitioners, Appellees,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent, Appellant.
APPEAL FROM THE UNITED STATES TAX COURT
[Hon. Thomas B. Wells, Judge]
Before
Lynch, Chief Judge,
Selya and Boudin, Circuit Judges.
Bethany B. Hauser, Attorney, Tax Division, with whom Tamara W.
Ashford, Deputy Assistant Attorney General, and Thomas J. Clark,
Attorney, Tax Division, U.S. Department of Justice, were on brief,
for appellant.
John W. Geismar, with whom Daniel L. Cummings and Norman,
Hanson & DeTroy, LLC were on brief, for appellees.
June 20, 2012
SELYA, Circuit Judge. This appeal turns primarily on the
standard of review that courts should apply when examining
conclusions reached by the Internal Revenue Service (IRS) following
a collection due process (CDP) hearing. See 26 U.S.C. § 6330(b).
While courts generally have agreed that review in this context is
for abuse of discretion, no court has had the occasion to parse
that standard and analyze how it plays out with respect to
subsidiary factual and legal determinations made by the IRS during
the CDP process. We grapple with that issue today.
The issue arises in a case in which the taxpayers offered
to settle their tax liability for pennies on the dollar. The IRS
determined that the taxpayers could afford to pay more because they
owned valuable real estate and, therefore, rejected the offer in
compromise. In a first-tier appeal, the Tax Court reviewed the
IRS's underlying ownership determination de novo, found that the
taxpayers were not the owners of the real estate in question, and
directed the IRS to accept the offer in compromise. It later
ordered the IRS to pay attorneys' fees to the taxpayers as
prevailing parties.
We hold that the Tax Court employed an improper standard
of review with respect to the IRS's subsidiary determinations.
Applying a more deferential standard to these determinations
consistent with the nature and purpose of the CDP process, we
conclude that the IRS did not abuse its discretion when it rejected
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the taxpayers' offer in compromise. The IRS acted reasonably in
determining that the taxpayers were the owners of the property and,
thus, the equity in the property was appropriately considered when
the IRS evaluated the compromise offer. Consequently, we reverse
the Tax Court's judgment.
I. BACKGROUND
The taxpayers are a married couple: Arthur Dalton, Jr.,
and Beverly Dalton. In 1977 and 1980, respectively, they purchased
two adjacent lots abutting Thompson Lake in Poland, Maine. In
1983, they deeded both lots, subject to an existing mortgage, to
Arthur Dalton, Sr. (the father of Arthur Dalton, Jr.) for $1.
Although the grantee agreed to assume the mortgage, the record
contains no evidence that the mortgagee released the taxpayers from
liability.
In 1984, Arthur Dalton, Sr., purchased an abutting lot.
He then deeded all three lots (the Property) to a grantor trust of
his creation. He appointed himself as the sole trustee, specified
that the trust would expire upon the death of the last survivor of
himself and the taxpayers, and designated the taxpayers' children
as the trust's beneficiaries.
Notwithstanding these maneuvers, the record contains
substantial evidence suggesting that the taxpayers continued to
treat the Property as their own. For one thing, they continued to
pay for the maintenance and upkeep of the Property. For another
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thing, long after the trust had taken title, Beverly Dalton co-
signed a new mortgage on the Property and, in the mortgage papers,
represented herself to be an owner of the Property.1
The Property contains a large house, and the taxpayers
moved into the house in 1997. The impetus for the move was the
failure of their business and the consequent loss of their
Massachusetts home. The Property has remained their principal
residence since that time. The taxpayers have never had a written
lease, but they insist that they entered into an oral lease with
the trustee. They assert that under the terms of the oral lease,
they agreed to care for the trustee's elderly wife, manage and
maintain the Property, and pay "rent" roughly equal to the amount
needed to defray mortgage payments and real estate taxes.
Arthur Dalton, Sr., passed away in 1999. The trust
indenture gave Arthur Dalton, Jr., the power to name a successor
trustee. He appointed Robert Pray (Beverly Dalton's brother). The
widow of Arthur Dalton, Sr., entered an assisted-living facility a
few years later. Since then, the taxpayers have been the sole
inhabitants of the Property. They continue to maintain the
premises and supply funds to the trust sufficient to cover the
mortgage payments and real estate taxes. Beverly Dalton, who has
1
In the CDP proceedings, Beverly Dalton claimed to have co-
signed the mortgage as an "accommodation" to the mortgagee. She
also asserted that the mortgagee knew that she did not own the
Property.
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the power to sign checks written on the trust's account, ensures
that mortgage and tax payments are kept current.
The record also indicates that the trustees and the
taxpayers have been less than scrupulous in observing certain
formalities. To cite one example, the trust did not file any tax
returns until 2001 (after the present controversy with the IRS was
under way). To cite another example, the mortgagee, Key Bank, has
since 2000 forwarded paperwork to Arthur Dalton, Jr., indicating
that he is the payor of the mortgage and, thus, the person eligible
to take the concomitant interest deduction for tax purposes.
In 2001, the taxpayers refinanced the mortgage. The
bank's records anent the new mortgage list the taxpayers as the
owners of the Property.
The current trustee, Pray, lives in Texas but insists
that he controls the trust corpus. He claims that he speaks to the
taxpayers three to four times per year regarding the Property and
that he visits annually to ensure its condition. He has kept no
records (or even notes) commemorating any of these meetings or
discussions.
The taxpayers' troubles with the IRS began just before
their business went bankrupt. The taxpayers owned and operated
Challenger Construction Corp., which in 1996 withheld payroll taxes
but never paid the retained amounts to the United States. The IRS
determined that the taxpayers were personally liable for those
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amounts. See 26 U.S.C. § 6672(a); Jean v. United States, 396 F.3d
449, 453-54 (1st Cir. 2005). With accrued interest, the taxpayers'
alleged indebtedness now exceeds $400,000.
In 2004 — perhaps eyeing the taxpayers' equity in the
Property — the IRS gave notice of its intent to levy. See 26
U.S.C. § 6330(a). The taxpayers did not dispute the amount of
taxes owed but, rather, requested a pre-attachment CDP hearing and
offered to settle their debt for a total of $10,000. See id.
§ 6330(b), (c)(2)(A)(iii). They denied that they had any ownership
interest in the Property and asserted that, based on their assets
and income, they could never come close to satisfying their total
tax liability.
After gathering information from the taxpayers and
hearing their arguments, the IRS rejected the offer in compromise.2
In reaching this decision, the IRS applied principles gleaned from
federal case law and found that the taxpayers were the real owners
of the Property; that is, that the trust was merely a nominee for
the taxpayers and held naked legal title purely for their
convenience. Relying on this finding, the IRS concluded that the
offer in compromise was insufficient because the taxpayers'
2
The decision to reject the offer was made by an appeals
officer. For ease in exposition, we attribute actions of specific
IRS employees to the agency itself.
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ownership interest in the Property could be liquidated to generate
substantially more funds.3
The taxpayers appealed, and the Tax Court directed the
IRS to reconsider the nominee issue in light of Maine law. See
Dalton v. Comm'r, 96 T.C.M. 3 (2008). On remand, the IRS
concluded that a Maine court likely would borrow nominee principles
from federal law and reiterated its finding that the trust was a
mere nominee. Accordingly, the IRS stood by its rejection of the
offer in compromise.
The taxpayers again repaired to the Tax Court. Reviewing
the IRS's ownership finding de novo, the court determined that the
trust was not a nominee of the taxpayers under Maine law. Dalton
v. Comm'r, 135 T.C. 393, 407-15 (2010). The court added that
federal law would dictate the same result. Id. at 415-23.
Accordingly, the IRS had abused its discretion in rejecting the
taxpayers' offer because the IRS had premised that rejection on an
erroneous view of the law. Id. at 423-24. To add insult to
injury, the court thereafter awarded attorneys' fees to the
taxpayers on the ground that the IRS was not substantially
justified in rejecting the offer. Dalton v. Comm'r, 101 T.C.M.
(CCH) 1653 (2011) (citing 26 U.S.C. § 7430). This timely second-
tier appeal ensued.
3
The record indicates that the Property is likely worth far
more than the amount outstanding on the mortgage encumbrances.
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II. ANALYSIS
We begin our analysis by identifying the applicable
standards of review. We then proceed to discuss the merits of the
Tax Court's rulings.
A. Standards of Review.
Where, as here, the amount of the underlying tax
liability is not in dispute, we review the IRS's disposition of an
offer in compromise following a CDP hearing for abuse of
discretion, ceding no special deference to the Tax Court's
intermediate review. See Murphy v. Comm'r, 469 F.3d 27, 32 (1st
Cir. 2006); Olsen v. United States, 414 F.3d 144, 150 (1st Cir.
2005); see also H.R. Rep. No. 105-599, at 266 (1998). The parties
agree with this paradigm. They disagree, however, as to how a
court should review the preludial findings on which the IRS bases
its rejection of an offer in compromise.
The taxpayers argue that any finding predicated on a
material error of law is a per se abuse of discretion. See, e.g.,
United States v. Walker, 665 F.3d 212, 223 (1st Cir. 2011). This
means, they say, that any abstract legal question that formed a
part of the IRS's decisional calculus must be accorded de novo
review. The IRS argues for a more deferential standard.
In the exercise of powers of judicial review, one size
does not fit all. The taxpayers' construct — that questions of law
engender de novo review even when a matter is committed to a lower
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court's (or an agency's) discretion, see, e.g., R & G Mortg. Corp.
v. Fed. Home Loan Mortg. Corp., 584 F.3d 1, 7-8 (1st Cir. 2009) —
can usefully be applied in many contexts. But the taxpayers'
attempt to impose that construct across the board overlooks the
peculiar nature of the CDP process. As we explain below, a court's
role in the CDP process is simply to confirm that the IRS did not
abuse its wide discretion and — as part and parcel of that inquiry
— to ensure that the agency's subsidiary factual and legal
determinations were reasonable.
The appropriate conception of the standard of review for
CDP cases flows naturally from the history and structure of the
legislation that created the CDP process. Congress inaugurated
this process in 1998 as part of a legislatively crafted "Taxpayer
Bill of Rights." See Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L. No. 105-206, §§ 3000, 3401, 112 Stat.
685, 726, 746. Prior to that time, the IRS could reach a
delinquent taxpayer's assets by lien or levy without providing any
sort of pre-attachment process. See Phillips v. Comm'r, 283 U.S.
589, 593-97 (1931). This one-sided model created a potential for
abuse. Congress recognized this risk, and its goal in establishing
the CDP process was to safeguard taxpayers by affording them a pre-
deprivation opportunity to ward off harassment and to avoid
groundless attachments. See Olsen, 414 F.3d at 150; Living Care
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Alts. of Utica, Inc. v. United States, 411 F.3d 621, 629, 631 (6th
Cir. 2005).
The CDP process has its own standards: there is no
obligation to conduct a face-to-face hearing, no formal discovery,
no requirement for either testimony or cross-examination, and no
transcript. See Living Care, 411 F.3d at 624, 629; Treas. Reg.
§ 301.6330-1(d)(2), Q&A D6. Rather, the "hearing" typically
comprises informal oral and written communications between the IRS
and the taxpayer. See Treas. Reg. § 301.6330-1(d)(2), Q&A D6.
Following this exchange of information, which may include the
making of an offer in compromise, the IRS is tasked with deciding
whether it is reasonable to proceed with its intended collection
action. See 26 U.S.C. § 6330(c); Olsen, 414 F.3d at 150; Living
Care, 411 F.3d at 625.
To be sure, Congress did not give the IRS the final say
in the CDP process. Instead, it provided for judicial review of
the IRS's determinations. See 26 U.S.C. § 6330(d)(1). But
Congress must have intended this direction for judicial review to
operate in light of the CDP process itself; and given the limited
scope of the CDP process and the "scant record" that it customarily
generates, Olsen, 414 F.3d at 150, a court cannot be expected to
conduct the same level of judicial review that would follow, say,
a bench trial or a more formal agency proceeding. See Living Care,
411 F.3d at 625.
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We conclude, therefore, that judicial review must be
tailored to effecting the purpose of the CDP process; that is, to
ensuring that the IRS's determinations, whether of fact or of law,
are not arbitrary. See Murphy, 469 F.3d at 32; Christopher Cross,
Inc. v. United States, 461 F.3d 610, 612 (5th Cir. 2006); Robinette
v. Comm'r, 439 F.3d 455, 459 (8th Cir. 2006); Olsen, 414 F.3d at
150; Living Care, 411 F.3d at 631. Thus, a court should set aside
determinations reached by the IRS during the CDP process only if
they are unreasonable in light of the record compiled before the
agency. See Murphy, 469 F.3d at 33 (finding no abuse of discretion
when the IRS reached a reasonable conclusion regarding a taxpayer's
ability to pay and, accordingly, rejected an offer in compromise).
Any more intrusive standard of review would result in the courts
"inevitably becom[ing] involved on a daily basis with tax
enforcement details that judges are neither qualified, nor have the
time, to administer." Olsen, 414 F.3d at 150 (quoting Living Care,
411 F.3d at 631) (internal quotation marks omitted).
This case illustrates both the wisdom and the utility of
the custom-tailored standard of review that should accompany
appeals from CDP dispositions. The pivotal question in connection
with the appropriateness of the taxpayers' offer in compromise
relates to the actual ownership of the Property. Especially when
a claim is made that one party is a nominee for another, such
questions are notoriously fact-intensive. Oxford Capital Corp. v.
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United States, 211 F.3d 280, 284 (5th Cir. 2000) (per curiam). The
CDP process neither allows for discovery, nor does it bring before
the IRS all of the parties in interest — the trust, which holds
record title to the Property, is conspicuously absent. And even
though the IRS had the benefit of some documentary evidence and a
few affidavits, it could not cross-examine any of the affiants,
compel production of other relevant documents, or subpoena third
parties. See Treas. Reg. §§ 301.6330-1(d)(2), Q&A D6, 601.106(c).
These circumstances make it almost certain that not all of the
facts that will ultimately inform the determination of who actually
owns the Property were before the IRS.
Congress knew about the incomplete nature of the record
that would be available to the IRS during the CDP process, and,
thus, Congress must have known that it would make little sense for
a court to undertake de novo review of subsidiary determinations
made during that process. See Olsen, 414 F.3d at 150; Living Care,
411 F.3d at 625. The more sensible course — and the one that we
are confident that Congress envisioned — is for a reviewing court
to consider whether the factual and legal conclusions reached at a
CDP hearing are reasonable, not whether they are correct.
This case is a poster child for the reasonableness
standard. Were we to decide definitively who owns the Property, we
would be adjudicating the rights of a third party (the trust) that
has had no opportunity to be heard. The trust would not be bound
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by our decision, see Cruz v. Melecio, 204 F.3d 14, 19 (1st Cir.
2000), and it could relitigate the ownership issue in an
independent proceeding. Such a duplication of effort would both
undermine the significant public interest in the speedy and
efficient resolution of disputes and open the door to inconsistent
decisions. See Z & B Enters., Inc. v. Tastee-Freez Int'l, Inc.,
162 F. App'x 16, 21 (1st Cir. 2006). That would, in turn, cast a
shadow over the integrity of the judicial system. See Montana v.
United States, 440 U.S. 147, 153-54 (1979).
De novo review would also give the taxpayers two bites at
the cherry. For example, were we to rule that the trust is the
real owner of the Property, the taxpayers would carry the day. If,
however, we were to rule that the taxpayers are the real owners,
the Commissioner in all likelihood would have to relitigate the
point in a separate proceeding to which the trust is a party. The
need for relitigation would, in effect, create a second opportunity
for the taxpayers to dispute ownership. We do not think that
Congress could have intended so curious a result.
In sum, a court's job is not to review the IRS's CDP
determinations afresh. Rather, its job is twofold: to decide
whether the IRS's subsidiary factual and legal determinations are
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reasonable and whether the ultimate outcome of the CDP proceeding
constitutes an abuse of the IRS's wide discretion.4
B. The CDP Hearing.
We turn next to the reasonableness of the IRS's
subsidiary determinations and the appropriateness of its ultimate
decision. We start with some background.
There are three sets of circumstances that may induce the
IRS to accept a taxpayer's offer in compromise following a CDP
hearing. These include doubt about the taxpayer's liability, doubt
about the collectability of the tax indebtedness, or a finding that
the proffered compromise would promote effective tax
administration. Treas. Reg. § 301.7122-1(b). In this case, the
taxpayers say that doubts about collectability should have prompted
the IRS to accept their settlement offer. Cf. John Heywood,
Dialogue Prouerbes Eng. Tongue (1546) (explaining that "[f]or
better is half a loaf than no bread").
The IRS does not abuse its discretion when it rejects an
offer in compromise premised on doubts about collectability as long
as it reasonably determines that more than the proferred amount may
4
This deferential standard of review by no means leaves a
taxpayer at the mercy of the IRS. There are almost always other
legal channels through which a taxpayer may develop a complete
record and secure a definitive legal ruling on a contested point of
law or fact. Here, for instance, if the IRS attaches the Property,
the taxpayers can attempt to secure a court order dissolving the
attachment. By the same token, the trust can bring either a
wrongful levy action or a suit to quiet title.
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be collectable. See Murphy, 469 F.3d at 33. The IRS rejected the
taxpayers' proferred compromise because it concluded that their
perceived ownership interest in the Property represented a
significant source of additional funds. We explain briefly why we
do not think that the IRS abused its discretion in formulating this
rationale.
The IRS has broad powers to levy against "property and
rights to property" belonging to taxpayers in order to collect
delinquent debts. 26 U.S.C. § 6331(a). An ownership interest in
land is attachable property within the meaning of the levy statute.
See G.M. Leasing Corp. v. United States, 429 U.S. 338, 349-50
(1977). Here, however, the taxpayers assert that they have no
ownership interest in the Property. Whether a particular asset
belongs to a taxpayer is a question of state law. See Drye v.
United States, 528 U.S. 49, 58 (1999). In the case at hand, Maine
law provides the substantive rules of decision. See Sunderland v.
United States, 266 U.S. 226, 232-33 (1924).
In connection with real property, Maine recognizes the
nominee doctrine. See Atkins v. Atkins, 376 A.2d 856, 859 (Me.
1977). This doctrine allows for the possibility that the true
owner of a parcel of land may be someone other than the record
owner. See id.; see also Holman v. United States, 505 F.3d 1060,
1065 (10th Cir. 2007); William D. Elliott, Federal Tax Collections,
Liens, and Levies, at 9-93 to 9-94 (2d ed. 2008). The IRS argues
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that this doctrine applies here because the trust holds title to
the Property as a proxy for the taxpayers. The taxpayers argue
that the nominee doctrine is not applicable because the trust owns
the Property in its own right.
Maine case law does not fully delineate the contours of
the nominee doctrine. The only decision on point is Atkins, in
which the Maine Supreme Judicial Court (the Law Court) mentioned
three factors that may tend to indicate the existence of a nominee
relationship. See 376 A.2d at 859. Atkins, however, does not
aspire to spell out the totality of the nominee inquiry. Given
this dearth of precedent, the IRS looked elsewhere for guidance as
to how the Maine courts might flesh out the nominee doctrine. This
entailed canvassing cases from other jurisdictions (primarily
federal cases).
It is not our role, as a court reviewing findings made in
the course of a CDP hearing, to determine whether the IRS applied
the correct rule of law. In the last analysis, we need only
determine whether the IRS applied a reasonable view of what the law
is or might be. In this instance, we believe that the IRS acted
reasonably in looking to case law from other jurisdictions to fill
the void and illuminate Maine's nominee doctrine. Cf. Andrew
Robinson Int'l, Inc. v. Hartford Fire Ins. Co., 547 F.3d 48, 51-52
(1st Cir. 2008) (explaining that a federal court tasked to
determine state law in a diversity case and finding no controlling
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decision may consider, among other things, "precedents in other
jurisdictions").
The taxpayers suggest that Maine cases discussing
fraudulent conveyance, constructive trust, and resulting trust
would have better informed the IRS's nominee inquiry. This case
law might have been helpful if the IRS's theory were that the
taxpayers either had conveyed the Property for the purpose of
avoiding their tax liability, see Me. Rev. Stat. tit. 14, §§ 3571-
3582 (Uniform Fraudulent Transfer Act), or had abused a
confidential relationship in order unjustly to retain an interest
in the Property, see Christman v. Parrotta, 361 A.2d 921, 925 (Me.
1976). But the IRS's theory is of a different character; it posits
that, given the taxpayers' dominion over the Property, they should
be treated as the real owners. This difference renders inapposite
the cases on which the taxpayers rely. See Oxford Capital, 211
F.3d at 284 (explaining that the nominee doctrine differs from
other ownership theories and provides an "independent bas[i]s for
attaching the property of a third party in satisfaction of a
delinquent taxpayer's liability").
Almost universally, courts weigh the existence of a
nominee relationship by balancing a series of factors, including
but not limited to whether the consideration paid by the putative
nominee was adequate, whether the property was transferred in
anticipation of liability, whether a close relationship exists
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between the transferor and putative nominee, whether the transferor
retains possession and/or use of the property notwithstanding the
transfer, and whether the transferor continues to enjoy the
benefits of the property. See, e.g., Holman, 505 F.3d at 1065 n.1;
Spotts v. United States, 429 F.3d 248, 253 n.2 (6th Cir. 2005);
Oxford Capital, 211 F.3d at 284 n.1. Courts also have viewed as
relevant whether the transferor furnishes the funds used to
purchase the property, whether the transferor is providing the
wherewithal needed to maintain the property post-transfer, and
whether the transferor continues to treat the property as his own.
See United States v. Callahan (In re Callahan), 442 B.R. 1, 6 n.5
(D. Mass. 2010); Richards v. United States (In re Richards), 231
B.R. 571, 579 (E.D. Pa. 1999). Virtually without exception, courts
focus on the totality of the circumstances without regarding any
single factor as the sine qua non of a nominee relationship. See
Elliott, supra, at 9-95.
Viewed against this backdrop, the IRS's decision to apply
a balancing test to resolve the nominee question appears
reasonable. Atkins bolsters this conclusion. There, the Law Court
deemed as indicative of a nominee relationship three of the factors
commonly weighed in the balancing test. See Atkins, 376 A.2d at
859 (noting that transferor had furnished down payment, claimed
depreciation for tax purposes, and continued to pay taxes and
insurance).
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The IRS's execution of the balancing test was equally
reasonable. Numerous circumstances in this case point unerringly
to the existence of a nominee relationship. The taxpayers "sold"
the major part of the Property to the grantor of the trust for
nominal consideration ($1); they nonetheless continue to enjoy sole
possession of the Property; they alone are responsible for the
Property's maintenance and upkeep; they defray all mortgage
payments and real estate taxes and pay no rent as such; they have
from time to time continued to hold themselves out as owners; and
the beneficiaries of the trust are the taxpayers' children. What
is more, one of the taxpayers hand-picked the present trustee (who
is a sibling of the other taxpayer); the taxpayers and the trust
have no written lease or other documentation of their asserted
relationship; and the trust itself habitually has operated with
minimal attention to records or other indicia of independent
existence. These and other undisputed facts are sufficient to
ground a reasonable inference that the trust is nothing more than
a proxy for the taxpayers.
We do not gainsay that there are some facts that point in
the opposite direction. But the existence of these contradictory
facts is not enough to tip the scales in a reasonableness analysis.
After all, the question is not the correctness vel non of the IRS's
determination that the taxpayers actually own the Property.
Rather, the question is whether the IRS's determination, correct or
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not, falls within the wide universe of reasonable outcomes.
Because the evidence before the IRS was ample to justify its
conclusion that the taxpayers' valuable ownership interest in the
Property had to be considered when evaluating their $10,000 offer
in compromise, the IRS acted within its discretion in refusing to
accept that offer. See Murphy, 469 F.3d at 33 (finding no abuse of
discretion when IRS rejected offer in compromise after reasonably
determining that taxpayers could afford more than compromise
amount).
In this context, reviewing factual and legal
determinations for reasonableness does not present an undue risk of
an erroneous deprivation. The taxpayers will have the opportunity
to challenge the substantive correctness of the IRS's ownership
determination in subsequent judicial proceedings (say, by a motion
to dissolve a wrongful attachment). By the same token, the trust
— which was not a party to the proceeding before the IRS — will
have an opportunity to assert its ownership of the Property and to
litigate that question in an appropriate forum.5
We add a coda. Although this appeal presents a question
involving the IRS's determination of a mixed question of fact and
law, our analysis has broader implications. Whether an IRS
5
Indeed, the trust already has brought an action to quiet
title in the United States District Court for the District of
Maine. See Me. Rev. Stat. tit. 14, §§ 6651-6662. That case has
been stayed pending the adjudication of this appeal.
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determination reached during the CDP process rests upon a purely
factual question, a purely legal question, or a mixed question of
fact and law, a reviewing court's mission is the same: to evaluate
the reasonableness of the IRS's subsidiary determination. The CDP
process presents no occasion for a reviewing court to demand
incontrovertibly correct answers to subsidiary questions, whatever
their nature. Rather, the IRS acts within its discretion as long
as it makes a reasonable prediction of what the facts and/or the
law will eventually show.6
C. The Fee Award.
We need not linger long over the Commissioner's challenge
to the imposition of attorneys' fees. The Tax Court made a fee
award to the taxpayers as prevailing parties. See 26 U.S.C.
§ 7430(a). We have held that the IRS's rejection of the offer in
compromise was unimpugnable. See supra Part IIB. Consequently,
the taxpayers are not prevailing parties, and the award of
attorneys' fees cannot stand.
III. CONCLUSION
We need go no further. The IRS's nominee determination
was reasonable and, therefore, should not be disturbed. It follows
that the IRS's rejection of the $10,000 offer in compromise was not
6
Of course, an absurd factual determination or a legal
determination that flies in the face of settled precedent will
never be reasonable and, thus, will always constitute an abuse of
the IRS's discretion.
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an abuse of discretion. Accordingly, we reverse both the Tax
Court's contrary ruling and its concomitant award of attorneys'
fees.
Reversed.
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