Edmund Gerald Flynn ( 2022 )

United States Tax Court
T.C. Memo. 2022-5EDMUND GERALD FLYNN,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 10182-19L. Filed February 3, 2022.
—————
Edmund Gerald Flynn, pro se.
Michael J. De Matos and Mimi M. Wong, for respondent.
MEMORANDUM OPINION
URDA, Judge: In this collection due process (CDP) case
petitioner, Edmund Gerald Flynn, seeks review pursuant to section
6330(d)(1) 1 of the determination by the Internal Revenue Service (IRS)
Office of Appeals 2 that upheld a notice of intent to levy with respect to
his 2012–14 tax liabilities. The Commissioner has moved for summary
judgment, with the parties disputing whether the Office of Appeals
abused its discretion in rejecting an offer-in-compromise (OIC) proposed
1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
We round all monetary amounts to the nearest dollar.
2 On July 1, 2019, the Office of Appeals was renamed the Independent Office
of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 891, 983
(2019). As the events in this case predated that change, we will use the name in effect
at the time relevant to this case, i.e., the Office of Appeals.
Served 02/03/22
2
[*2] by Mr. Flynn. Seeing no abuse of discretion, we will grant summary
judgment to the Commissioner.
Background
The following facts are derived from the pleadings, the parties’
motion papers, and the exhibits attached thereto. Mr. Flynn resided in
New York when he timely petitioned this Court.
I. Mr. Flynn’s 2012 Through 2014 Tax Liabilities
Mr. Flynn did not file his 2012 federal income tax return. The
IRS thereafter prepared a substitute for return for him based upon the
authority conferred by section 6020(b). After sending Mr. Flynn a notice
of deficiency, 3 the IRS assessed federal income tax of $7,680, as well as
additions to tax for failure to timely file his return and failure to timely
pay, and statutory interest.
Mr. Flynn filed his 2013 and 2014 tax returns late. The IRS
assessed the tax reported on those returns and further assessed for each
year additions to tax for failure to timely file his returns and pay his tax
as well as statutory interest. All told, Mr. Flynn’s tax liabilities for 2013
and 2014 exceeded his tax withholdings by $1,084 and $3,741,
respectively.
II. Collection Activities
A. Initial CDP Hearing
As of February 12, 2018, Mr. Flynn’s outstanding 2012–14 tax
liabilities totaled $15,557. To collect this amount, the IRS sent Mr.
Flynn a levy notice informing him of its intent to seize his assets and
apprising him of his right to a hearing. Mr. Flynn timely submitted
Form 12153, Request for a Collection Due Process or Equivalent
Hearing, expressing his interest in either an OIC or an installment
agreement.
The case thereafter was assigned to a settlement officer in the
Office of Appeals. The settlement officer held a telephone CDP hearing
with Mr. Flynn on June 14, 2018. After the settlement officer discussed
with Mr. Flynn the liabilities at issue, the conversation turned to Mr.
3 Mr. Flynn did not petition this Court in response to the notice of deficiency
for tax year 2012.
3
[*3] Flynn’s desire for an OIC in the interest of giving him “a fresh
start.” In response, the settlement officer advised Mr. Flynn to submit
Form 656, Offer in Compromise, for evaluation by the Centralized Offer
in Compromise (COIC) unit.
B. COIC Consideration and Rejection
On October 15, 2018, Mr. Flynn submitted Form 656, proposing
an OIC of $3,600 to settle his 2007, 2009, and 2011–17 tax liabilities.
Mr. Flynn premised his OIC on doubt as to collectibility, indicating that
he would pay $150 monthly for 24 months if the OIC were accepted.
In support of his OIC Mr. Flynn provided Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed
Individuals. On that form, he identified his assets as $239 in a bank
account, a life insurance policy worth $800, and a collection of license
plates valued at $4,000. With respect to income, he listed a monthly
stipend of $333 and monthly retirement payments (Social Security and
pension) of $4,973. He further claimed that his wife received
approximately $4,769 from Social Security and her pension.
Mr. Flynn reported $3,321 in expenses, including $770 monthly
for food, clothing, and miscellaneous items and $1,800 per month that
he paid to his wife for household expenses. In total, Mr. Flynn’s
Form 433-A showed $1,652 in monthly income in excess of his expenses.
On April 9, 2019, the COIC unit sent Mr. Flynn a letter stating
that it would recommend rejection of his OIC. Comparing Mr. Flynn’s
monthly income to his expenses, the COIC unit determined that his net
monthly income was $2,752. In reaching this conclusion, the COIC unit
found that Mr. Flynn’s monthly income was $5,293, which is more than
what he had reported. To determine Mr. Flynn’s allowable expenses,
the COIC unit either relied on IRS national and local standards or
adopted the expense amounts Mr. Flynn had reported on his Form
433-A. For food, clothing, miscellaneous, and housing expenses, the
COIC unit used the IRS’s standard allowances and multiplied those
amounts by 53%, Mr. Flynn’s proportionate share of the total household
income.
The COIC unit concluded that Mr. Flynn had a reasonable
collection potential (RCP) of $330,206 over the following ten years, based
4
[*4] on his net monthly income and assets of $800. 4 Noting that Mr.
Flynn’s disposable monthly income would allow him to pay his total
outstanding tax liability of $63,821 (which included the years at issue in
this case but additionally included years as far back as 2007) in 25
months, the COIC unit recommended rejection of Mr. Flynn’s $3,600
OIC.
C. Rejection and Notice of Determination
After receiving the COIC recommendation, the settlement officer
called Mr. Flynn and proposed an installment agreement for $750 per
month. Mr. Flynn refused to enter into an installment agreement or pay
more than $250 per month, arguing that he could not afford to pay more.
Concluding that they had reached an impasse, the settlement officer
issued a notice of determination rejecting Mr. Flynn’s proposed OIC and
sustaining the proposed levy action for tax years 2012 through 2014.
III. Tax Court Proceedings and Supplemental CDP Hearing
Mr. Flynn filed a timely petition in this Court. He thereafter
alerted the IRS to a potential change in his financial condition, which
led to a remand for a supplemental CDP hearing so that the Office of
Appeals might consider the purported changes in Mr. Flynn’s financial
circumstances.
During the supplemental hearing, Mr. Flynn introduced
documentation of certain additional expenses, including student loan
payments, lawncare and snow plowing expenses, and outstanding credit
card debt. The settlement officer determined that Mr. Flynn’s monthly
disposable income was $1,783 based upon the loan, lawncare, and snow
plowing expenses. The settlement officer refused to recognize Mr.
Flynn’s credit card debt, however, in light of Mr. Flynn’s admission that
the underlying charges were not for necessary living expenses.
Given that Mr. Flynn’s monthly disposable income ($1,783)
remained considerably higher than the amount proposed for the
4 The Commissioner has promulgated guidelines for the evaluation of OICs,
and the calculation of a taxpayer’s RCP plays a central role in that evaluation. See
Abraham v. Commissioner, T.C. Memo. 2021-97, at *7 n.4; Internal Revenue Manual
(IRM) 5.8.5.1(1) (Sept. 24, 2021). RCP is generally calculated by multiplying a
taxpayer’s monthly income available to pay taxes by the number of months remaining
in the statutory period for collection and adding realizable equity in assets. See
Johnson v. Commissioner, 136 T.C. 475, 485 (2011), aff’d, 502 F. App’x 1 (D.C. Cir.
2013).
5
[*5] monthly installment agreement payments ($750), the settlement
officer again offered that collection alternative. Mr. Flynn refused,
reasserting his request for monthly payments of $250. Having reached
the same impasse as before, the settlement officer issued a supplemental
notice of determination rejecting Mr. Flynn’s OIC and upholding the
notice of intent to levy.
Discussion
I. Summary Judgment
The purpose of summary judgment is to expedite litigation and
avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.
v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(b) the Court
may grant summary judgment when there is no genuine dispute as to
any material fact and a decision may be rendered as a matter of law.
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17
F.3d 965 (7th Cir. 1994). In deciding whether to grant summary
judgment, we construe factual materials and inferences drawn from
them in the light most favorable to the nonmoving party. Id. However,
the nonmoving party may not rest upon the mere allegations or denials
of its pleadings but instead must set forth specific facts showing that
there is a genuine dispute for trial. Rule 121(d); see Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986).
II. Standard of Review
Pursuant to section 6330(d)(1), we have jurisdiction to review the
Office of Appeals’ determination. See Murphy v. Commissioner, 125 T.C.
301, 308 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). Where, as here, the
underlying tax liability is not at issue, we review the determination of
the Office of Appeals for abuse of discretion. Sego v. Commissioner, 114
T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000).
In reviewing for abuse of discretion we must uphold the Office of
Appeals’ determination unless it is arbitrary, capricious, or without
sound basis in fact or law. Murphy, 125 T.C. at 320; Taylor v.
Commissioner, T.C. Memo. 2009-27, 2009 WL 275721, at *9.
III. Abuse of Discretion
In determining whether the Office of Appeals abused its
discretion, we consider whether the settlement officer: (1) properly
verified that the requirements of applicable law or administrative
procedure have been met, (2) considered any relevant issues Mr. Flynn
6
[*6] raised, and (3) considered “whether any proposed collection action
balances the need for the efficient collection of taxes with the legitimate
concern of [Mr. Flynn] that any collection action be no more intrusive
than necessary.” § 6330(c)(3). Our review of the record establishes that
the settlement officer satisfied all the requirements.
A. Verification
We have authority to review satisfaction of the verification
requirement regardless of whether the taxpayer raised that issue at the
CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200–03 (2008),
supplemented by 136 T.C. 463 (2011). Mr. Flynn has not at any point in
this case challenged the verification requirement, and we conclude from
the record that the settlement officer conducted a thorough review of
Mr. Flynn’s account transcripts and verified that all applicable
requirements were met. See Rules 121(d), 331(b)(4) (“Any issue not
raised in the assignments of error shall be deemed to be conceded.”).
B. Issues Raised
1. Legal Background
Mr. Flynn raises only one issue: whether the settlement officer
abused her discretion when she rejected Mr. Flynn’s OIC. 5
Section 7122(a) authorizes the IRS to compromise an outstanding tax
liability on grounds that include doubt as to collectibility, the ground
that Mr. Flynn asserted. See Treas. Reg. § 301.7122-1(b)(2). The IRS
may compromise a tax liability on this basis where the taxpayer’s assets
and income are less than his full amount of liability. Id. Conversely,
the IRS may reject an OIC when the taxpayer’s RCP exceeds the amount
he proposes to pay. See Johnson, 136 T.C. at 486. Generally, settlement
officers will reject any offer substantially below the taxpayer’s RCP
unless special circumstances justify acceptance of such an offer. See
Mack v. Commissioner, T.C. Memo. 2018-54, at *10; Rev. Proc. 2003-71,
§ 4.02(2), 2003-2 C.B. 517, 517.
In reviewing the settlement officer’s determination we do not
decide for ourselves what would be an acceptable collection alternative.
Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Murphy, 125 T.C.
5 Although Mr. Flynn’s Form 656 proposed an OIC of $3,600, the settlement
officer evaluated Mr. Flynn’s subsequent oral proposal of $6,000 ($250 for 24 months).
We accordingly will evaluate the settlement officer’s actions considering the higher
OIC proposal of $6,000.
7
[*7] at 320; see Randall v. Commissioner, T.C. Memo. 2018-123, at *9
(“We . . . do not recalculate a different amount for an acceptable
installment agreement or OIC.”). Our review instead is limited to
determining whether the settlement officer abused her discretion—that
is, whether her decision to reject Mr. Flynn’s offer was arbitrary,
capricious, or without sound basis in fact or law. See Thompson, 140
T.C. at 179; Murphy, 125 T.C. at 320. We have jurisdiction to review a
settlement officer’s rejection of an OIC that encompasses liabilities for
both CDP years and non-CDP years. See, e.g., Sullivan v.
Commissioner, T.C. Memo. 2009-4, 2009 WL 20979, at *8–9.
2. Analysis of OIC
The settlement officer did not abuse her discretion in rejecting
Mr. Flynn’s OIC in light of the financial analysis establishing that Mr.
Flynn’s monthly net income was $1,783. Mr. Flynn raises no objection
regarding the settlement officer’s calculation of his income. He instead
takes aim at her disallowance, after the supplemental CDP hearing, of
a portion of his reported housing expenses of $2,000 and of certain
monthly credit card payments. We find no fault as to either.
As to the former, Mr. Flynn asserts that he spent (via payments
to his wife) $2,000 per month on household expenditures and that the
settlement officer abused her discretion by failing to consider the full
amount in determining his net monthly income. But she had no
obligation to do so. “Pursuant to Congress’ directive, the IRS has
published ‘national and local allowances’ to ensure that taxpayers
entering into collection alternatives have adequate means to provide for
basic living expenses.” Ansley v. Commissioner, T.C. Memo. 2019-46,
at *16 (quoting § 7122(d)(1) and (2)(A)). And we have upheld a
settlement officer’s use of those standards to calculate basic living
expenses when considering whether to accept a proposed OIC. Id. at
*16–17 (citing Speltz v. Commissioner, 124 T.C. 165, 179 (2005), aff’d,
454 F.3d 782 (8th Cir. 2006)). As is relevant here, the Internal Revenue
Manual directs that generally a taxpayer is allowed the lesser of the
applicable local standards or the amounts that he actually paid monthly
with respect to housing and utility expenses. See IRM 5.15.1.8(5) (July
24, 2019), 5.15.1.10.1 (Nov. 22, 2021).
In this case the settlement officer took into account $1,315 for
housing expenses, which was consistent with the applicable local
standard in effect at the time. We see no abuse of discretion in the
settlement officer’s decision to follow the IRS standards in this regard.
8
[*8] See Walker v. Commissioner, T.C. Memo. 2016-75, at *17–18;
Glossop v. Commissioner, T.C. Memo. 2013-208, at *13–14, Ramdas v.
Commissioner, T.C. Memo. 2013-104, at *30–31. 6
Mr. Flynn asserts that the allowances were insufficient because
they did not support his particular lifestyle. Deviations from the
national and local allowances set by the IRS, however, are permitted
only upon a showing that the standard amounts are “inadequate to
provide for a specific taxpayer’s basic living expenses.” IRM 5.15.1.8(6)
(July 24, 2019); see Ansley, T.C. Memo. 2019-46, at *18. The taxpayer
bears the burden of providing sufficient information to justify a
deviation from local standards. Ansley, T.C. Memo. 2019-46, at *18;
Thomas v. Commissioner, T.C. Memo. 2015-182, at *27. Mr. Flynn fails
to point to any specific facts indicating that the standard housing
amount was inadequate to accommodate for his basic living expenses.
Mr. Flynn fares no better regarding his credit card payments. As
we have observed previously, credit cards are generally considered a
method of payment, not a category of expense. See Love v.
Commissioner, T.C. Memo. 2019-92, at *12 n.6; IRM 5.15.1.11(3) (Aug.
29, 2018). We therefore must examine the nature of the payments to
determine whether they constitute necessary living expense payments.
Mr. Flynn dooms his own argument by his admission that the credit card
debt had not been incurred to pay basic living expenses.
We consequently find no abuse of discretion in the settlement
officer’s rejection of Mr. Flynn’s OIC of $6,000 given her well-reasoned
analysis showing monthly disposable income far exceeding the amount
of his offer.
C. Balancing Analysis
Mr. Flynn did not allege in his petition or argue at any later point
that the settlement officer failed to consider “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.” See § 6330(c)(3)(C). He thus has
conceded this issue. See Rules 121(d), 331(b)(4). In any event the
settlement officer expressly concluded in the supplemental notice of
6 In any event, even if the settlement officer had recognized the full $2,000 in
housing expenses reported by Mr. Flynn, his net monthly disposable income would still
be more than $1,000, thus justifying the rejection of the OIC proposing payments of
$250 per month. See, e.g., Glossop, T.C. Memo. 2013-208, at *15–16.
9
[*9] determination that the proposed levy action balanced the need for
efficient tax collection with Mr. Flynn’s legitimate concerns about
intrusiveness since a collection alternative could not be reached. We
find in the record no basis for disturbing the settlement officer’s
conclusion regarding this requirement.
IV. Conclusion
Finding no abuse of discretion, we will grant summary judgment
for the Commissioner and affirm the IRS’s determination to sustain the
proposed collection action.
To reflect the foregoing,
An appropriate order and decision will be entered.