Edward Sadjadi v. CIR ( 2020 )

Case: 19-60663 Document: 00515480006 Page: 1 Date Filed: 07/07/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 19-60663 July 7, 2020
Lyle W. Cayce
Clerk
EDWARD F. SADJADI; CYNTHIA M. SADJADI,
Petitioners – Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent – Appellee.
Appeal from a Decision of the
United States Tax Court
Tax Court No. 6351-18L
Before JONES, ELROD, and HIGGINSON, Circuit Judges.
PER CURIAM:*
This case arises from an offer-in-compromise agreement between the
petitioners, Edward and Cynthia Sadjadi, and the IRS for the 2008 and 2009
tax years. According to the offer-in-compromise agreement, the petitioners had
to comply with their tax filing and payment obligations for the next five years.
The petitioners, however, did not remain current on their tax payment
obligations. The IRS therefore issued a Notice of Intent to Levy and a Notice
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 19-60663
of Your Right to a Hearing to the petitioners for the 2008, 2009, 2010, 2011,
and 2015 tax years. The petitioners timely filed for a collection due process
(CDP) hearing. At the CDP hearing, the settlement officer determined that the
IRS had recovered the right to collect the uncompromised balances due on the
petitioners’ 2008 and 2009 liabilities. The officer reasoned that even though
the petitioners had paid the agreed amount under the offer-in-compromise,
they failed to comply with the compromise’s payment requirements for the next
five years. The petitioners then offered to pay $350 per month as part of an
installment agreement. The settlement officer declined the petitioners’
proposal and imposed the levy. The Tax Court sustained that determination,
and the petitioners now appeal the Tax Court’s judgment. We affirm.
Ⅰ.
The petitioners timely filed their tax returns for tax years 2008, 2009,
2010, 2011, and 2015. Although they reported tax owed of $3,251 on their 2008
tax return and $1,047 on their 2009 tax return, the petitioners failed to enclose
the attendant payments. The IRS then examined the petitioners’ tax returns
for 2008, 2009, 2010, and 2011 and determined that they had underreported
the taxes that they owed. Subsequently, the petitioners agreed to the
assessment of additional unpaid tax liability and accompanying penalties for
the 2008 and 2009 tax years. For the 2008 tax year, the petitioners agreed to
an additional tax assessment of $10,953 and a penalty of $2,190.60. For the
2009 tax year, they agreed to an additional tax assessment of $18,393 and a
penalty of $3,759.
The petitioners then entered into installment payment agreements with
the IRS for the 2008 and 2009 tax years. In 2010 and 2011, the petitioners paid
more than $8,000 toward their 2008 tax liability, and on February 9, 2011, they
made a $100 payment toward their 2009 tax liability. On April 18, 2013, the
petitioners and the IRS entered into an offer-in-compromise for the 2008 and
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2009 tax years. Under this arrangement, the IRS agreed to accept $21,515 in
full satisfaction of the petitioners’ 2008 and 2009 tax liabilities, provided that
the petitioners complied with their tax filing and payment obligations for the
next five years.
The parties used the standard offer-in-compromise form. The left-hand
column of the form contained the following statement: “I must comply with my
future tax obligations and understand I remain liable for the full amount of my
tax debt until all terms and conditions of this offer have been met.” On the
opposite side of that statement, the form states, “I will file tax returns and pay
required taxes for the five[-]year period beginning with the date of acceptance
of this offer.” The left-hand column also contains the following statement: “I
understand what will happen if I fail to meet the terms of my offer (e.g.,
default).” On the opposite side of this statement, the form states, “If I fail to
meet any of the terms of this offer, the IRS may levy or sue me to collect any
amount ranging from the unpaid balance of the offer to the original amount of
the tax debt without further notice of any kind.”
Between December 17, 2012, and October 1, 2016, the petitioners made
payments toward their offer-in-compromise that totaled $10,650. On October
19, 2016, the petitioners filed their 2015 tax return, but they did not pay their
taxes for 2015 that were reported as due. Therefore, the petitioners failed to
remain current on their tax payment obligations, which the IRS construed as
a default on the offer-in-compromise.
On June 19, 2017, the IRS issued a Notice of Intent to Levy and a Notice
of Your Right to a Hearing to the petitioners for the 2008, 2009, 2010, 2011,
and 2015 tax years. The petitioners timely filed for a CDP hearing. On October
3, 2017, the settlement officer held the CDP hearing by telephone. At the
hearing, she explained that although the petitioners “may have paid the agreed
amount of the offer, [they] did not remain in compliance with the paying
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requirement for the next 5 years meaning the IRS would bring back all of the
liabilities.” The petitioners thereafter offered to pay $350 per month as part of
an installment agreement. The settlement officer declined their proposal and
imposed the levy after determining that the petitioners had a monthly
disposable income of $6,466.33.
The petitioners appealed to the Tax Court, arguing that the settlement
officer failed to consider that they had already paid more than the agreed
amount in the offer-in-compromise and that the agreement did not state that
compliance is required after the balance is completely paid. The Tax Court
sustained the settlement officer’s determination. The petitioners now appeal
the Tax Court’s judgment, claiming that they complied with all the terms and
conditions of the offer-in-compromise because they paid the agreed amount.
They also argue that they would have arranged to pay the balance owed for
2015 if the offer-in-compromise form properly informed them of the
consequences of failing to do so. The IRS does not dispute that the petitioners
paid the agreed amount, but it argues that the offer-in-compromise form
expressly required the petitioners to remain in compliance for five years
regardless of whether the petitioners paid the agreed amount.
Ⅱ.
The Tax Court reviews the Commissioner’s administrative
determinations for abuse of discretion where the validity of the underlying tax
liability is not at issue. 1 Sego v. Comm’r, 114 T.C. 604, 610 (2000). And this
court reviews decisions of the Tax Court using the same standards it uses to
review the decisions of district courts—findings of fact for clear error and legal
questions de novo. Estate of Duncan v. Comm’r, 890 F.3d 192, 197 (5th Cir.
1 The petitioners here do not challenge the underlying tax liability for the tax years
subject to the offer-in-compromise.
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2018). Thus, when there is no challenge to the validity of the underlying tax
liability at the CDP hearing, we also review the officer’s decision under an
abuse of discretion standard. Christopher Cross, Inc v. United States, 461 F.3d
610, 612 (5th Cir. 2006) (citing Living Care Alternatives of Utica v. United
States, 411 F.3d 621, 626 (6th Cir. 2005)); see also Marascalco v. Comm’r, 420
F. App’x 423, 423 (5th Cir. 2011) (“Since the underlying tax liability is not at
issue, the Tax Court and this court review the Commissioner’s administrative
determinations for an abuse of discretion.”). Acting “arbitrarily, capriciously,
or without sound basis in fact or law” constitutes an abuse of discretion. Estate
of Duncan, 890 F.3d at 197 (quoting Vinatieri v. Comm’r, 133 T.C. 392, 400
(2009)).
Ⅲ.
On appeal, we must determine whether the settlement officer abused her
discretion when she determined that the petitioners defaulted on the offer-in-
compromise and sustained the imposition of a levy. The petitioners argue that
the aggregate amount of payments they made to the IRS exceed the amount
agreed upon in the offer-in-compromise, although they do not argue that their
payments exceed the original (i.e., uncompromised) amount owed. They
further contend that the offer-in-compromise was not clear and unambiguous
and did not properly inform them of their obligations under the agreement.
Therefore, the petitioners claim that the offer-in-compromise was complete and
that the settlement officer abused her discretion because the petitioners acted
in good faith, satisfied all the terms and conditions of the agreement according
to their understanding, and paid the agreed amount in the offer-in-compromise
earlier than they needed to.
The IRS does not dispute that the petitioners paid the amount agreed
upon in the offer-in-compromise. Rather, the IRS argues that the form the
petitioners used was clear and unambiguous. The IRS asserts that the
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obligation to comply with filing and payment obligations for five years from the
acceptance date is not contingent on the petitioners’ payment of the amount in
the compromise agreement. According to the IRS, the petitioners must comply
with tax filing and payment obligations for five years regardless of when the
agreed amount is paid, and if the petitioners do not do so, the offer-in-
compromise is violated. Thus, the IRS argues that the settlement officer did
not abuse her discretion.
Here, we conclude that the settlement officer did not abuse her discretion
when she declared the offer-in-compromise had been violated and imposed the
levy. An offer-in-compromise is a contract, and the rules applicable to contracts
generally govern. United States v. Lane, 303 F.2d 1, 4 (5th Cir. 1962). In Lane,
the form expressly provided that the Commissioner could proceed to collect the
unpaid balance of the original tax liability upon the taxpayer’s default. Id. This
court determined that the language of the agreement was “so precise, and the
intention which it manifests [was] so evident, as to leave no doubt that the
[government’s] course of action . . . was fully authorized by the . . . agreement.”
Id.
Similarly, the offer-in-compromise in this case contains clear and
unambiguous language that explains the consequences of default. The form
states that the petitioners would “file tax returns and pay required taxes for
the five[-]year period beginning with the date of acceptance of this offer.” The
form further explains that the petitioners would “comply with [their] future
tax obligations and . . . remain liable for the full amount of [their] tax debt until
all terms and conditions of this offer have been met.” Indeed, the petitioners
conceded that they understood “the necessity of complying with future tax
obligations” and “what would happen if they default[ed].” Specifically, if they
defaulted, they understood that “the IRS may levy or sue [them] to collect any
amount ranging from the unpaid balance of the offer to the original amount of
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the tax debt without further notice of any kind.” Hence, the offer-in-
compromise is “so precise, and the intention which it manifests is so evident,
as to leave no doubt that the [government’s] course of action . . . was fully
authorized by the . . . agreement.” See Lane, 303 F.2d at 4.
The settlement officer did not abuse her discretion because the offer-in-
compromise unambiguously explained that the IRS could levy the petitioners
to collect any amount between the unpaid balance and the original amount of
the debt and because the petitioners defaulted by failing to remain current on
their tax payment obligations. Therefore, the Tax Court did not err in
sustaining the settlement officer’s determination.
Ⅳ.
For the foregoing reasons, we AFFIRM the judgment of the Tax Court.
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