Estate of Konkus v. Comm'r ( 2017 )

T.C. Memo. 2017-45
UNITED STATES TAX COURT
ESTATE OF CHARLES KONKUS, DECEASED,
LINDA COLLINS, ADMINISTRATOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5783-13L. Filed March 16, 2017.
Alvin S. Brown, for petitioner.
Shawna A. Early, for respondent.
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[*2] MEMORANDUM FINDINGS OF FACT AND OPINION
GALE, Judge: Pursuant to section 6330(d),1 the estate2 seeks review of
respondent’s determination to sustain the filing of a Notice of Federal Tax Lien
(NFTL) and a notice of intent to levy to collect assessed section 6700 tax shelter
promotion penalties for Mr. Konkus’ taxable years 2002 and 2003 of $3,411,577
and $3,252,130, respectively. The issue for decision is whether the Internal
Revenue Service (IRS) Appeals officer abused his discretion by rejecting
Mr. Konkus’ offer-in-compromise and sustaining the proposed collection actions.
FINDINGS OF FACT
Some of the facts are stipulated and are so found. The stipulation of facts
and the attached exhibits are incorporated herein by this reference.
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code as in effect at all relevant times, and all Rule references are to the
Tax Court Rules of Practice and Procedure. All dollar amounts have been rounded
to the nearest dollar. (Figures may differ because of rounding.)
2
Charles M. Konkus resided in Illinois when the petition was filed. He died
intestate after trial. Linda Collins was thereafter appointed administrator of
Mr. Konkus’ estate, and by subsequent order of this Court the estate was
substituted as petitioner.
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[*3] I. Assessment of Section 6700 Penalties and Refund Claim
During the years in question Mr. Konkus was the president and controlling
officer of Partners In Charity, Inc. (PIC), which held itself out as a section
501(c)(3) organization. At that time PIC operated a downpayment assistance
program through which it provided downpayments to home purchasers who (PIC
claimed) were of modest means contingent on the seller’s reimbursement of the
downpayment and remission to PIC of an administrative fee. On April 17, 2006,
in response to a complaint filed by the United States, the U.S. District Court for
the Northern District of Illinois entered a permanent injunction barring Mr.
Konkus and PIC from characterizing, in any way, the payments from sellers to PIC
as tax-deductible charitable contributions, United States v. Partners In Charity,
Inc., No. 05-cv-6374 (N.D. Ill. Apr. 17, 2006) (order granting permanent
injunction), and this Court ultimately upheld the IRS’ retroactive revocation of
PIC’s tax-exempt status, Partners In Charity, Inc. v. Commissioner, 141 T.C. 151
(2014).
In relation to Mr. Konkus’ involvement with PIC, on June 16, 2008,
respondent issued to him a CP15, Notice of Penalty Charge, advising of the
assessment of section 6700 penalties against him, for the promotion of an abusive
tax shelter, of $3,411,577 and $3,252,130 for 2002 and 2003, respectively. On
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[*4] July 15, 2008, Mr. Konkus submitted a Form 6118, Claim for Refund of
Income Tax Return Preparer and Promoter Penalties, contesting the assessment of
the section 6700 penalties (refund claim) but did not remit 15% of each penalty as
required by section 6703(c)(1).3
II. Collection Actions and Hearing Requests
Also on July 15, 2008, respondent filed an NFTL and subsequently issued
to Mr. Konkus a Notice of Federal Tax Lien Filing and Your Right to a Hearing
Under IRC 6320 (lien notice). On July 24, 2008, respondent issued to Mr. Konkus
a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a
Hearing (levy notice), informing him of respondent’s intent to levy on his property
to collect the unpaid section 6700 penalty assessments for 2002 and 2003.
Mr. Konkus timely requested a hearing with respect to both the lien notice and the
levy notice.
Appeals acknowledged Mr. Konkus’ hearing requests on September 19,
2008, and approximately one month later, an Appeals officer held an initial
3
Mr. Konkus also submitted on July 28, 2008, a Form 656-L, Offer in
Compromise (Doubt as to Liability) (OIC-DATL), wherein he disputed the sec.
6700 penalties as “contrary to the clear language of section 6700.” Appeals
rejected the OIC-DATL on the grounds that sec. 6700 penalties “are not subject to
compromise based upon doubt as to liability.” The estate concedes that the OIC-
DATL is not at issue.
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[*5] telephone conference with Mr. Konkus and his counsel. However, on
February 10, 2009, the section 6330 hearing was suspended pending disposition of
Mr. Konkus’ refund claim.
III. Denial of Refund Claim
The refund claim was denied on February 10, 2010, in a letter advising
Mr. Konkus that he could appeal to Appeals within 30 days. Mr. Konkus did so,
and his appeal was considered by an Appeals officer not associated with
Mr. Konkus’ section 6330 hearing.4 On April 23, 2012, Mr. Konkus’ appeal of his
rejected refund claim was denied.
IV. Resumption of Section 6330 Hearing
A. Proposed Conference
On the same day the appeal of Mr. Konkus’ refund claim was denied, the
Appeals officer who had been assigned to Mr. Konkus’ section 6330 hearing while
4
Although the parties stipulated that Appeals Officer Curtis Megyesi (AO
Megyesi), who issued the notice of determination after Mr. Konkus’ sec. 6330
hearing, also issued the Appeals memorandum rejecting the appeal of Mr. Konkus’
refund claim, this stipulation is contradicted by the administrative record. AO
Megyesi’s case notes record that on April 23, 2012, he received an Appeals
officer’s memorandum rejecting the appeal of Mr. Konkus’ refund claim. We
therefore disregard the stipulation and find that the Appeals memorandum
rejecting the appeal of Mr. Konkus’ refund claim was prepared not by AO
Megyesi but instead by a different Appeals officer. See Rule 91(e); Jasionowski
v. Commissioner, 66 T.C. 312, 318 (1976).
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[*6] his refund claim was pending, AO Megyesi, took the hearing out of
suspension and sent Mr. Konkus a letter proposing a telephone conference. AO
Megyesi further explained in the letter that Mr. Konkus was entitled to a hearing
with an Appeals employee who had had no prior involvement with the years in
question, stated that he could not recall having had any prior involvement with the
years in question, and requested that Mr. Konkus notify him if he believed
otherwise. There is no evidence that Mr. Konkus notified AO Megyesi of any
concern regarding prior involvement with respect to the section 6700 penalties for
2002 and 2003.
B. Mr. Konkus’ Offer-in-Compromise and Financial Information
Submitted
On June 11, 2012, Mr. Konkus submitted as a collection alternative, on a
Form 656, Offer in Compromise, an offer to pay $2,215 to compromise his
combined $6,663,707 section 6700 penalty liabilities based on doubt as to
collectibility (OIC-DATC). Mr. Konkus supplemented his offer with a Form 433-
A, Collection Information Statement for Wage Earners and Self-Employed
Individuals, covering himself and a Form 433-B, Collection Information Statement
for Businesses, covering PIC. The Form 433-B included PIC’s 2011 Form 990,
Return of Organization Exempt From Income Tax, a balance sheet reflecting PIC’s
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[*7] financial condition as of December 27, 2012, and a profit and loss statement
covering PIC’s operations from January 1 through December 27, 2012. The OIC-
DATC and supporting materials were forwarded to AO Megyesi on July 3, 2012,
for review.
The Form 433-A reported that Mr. Konkus owned assets with a total current
value of $8,163, comprising the following:
Asset Current value
1
Life insurance policy $3,683
2
1974 Nissan 280Z 4,480
Total 8,163
1
Mr. Konkus reported the life insurance policy’s fair market value as $7,353
and its outstanding loan balance of $2,774, yet reported total available cash as
$3,683. The record is silent regarding this apparent discrepancy.
2
Mr. Konkus reported the Nissan’s fair market value as $5,600 but reported
total equity of $4,480.
The Form 433-A reported the following monthly items of income and
expense:
Income Amount
Wages $1,372
Total 1,372
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[*8]
Expense Amount
Food, clothing, and miscellaneous $565
Housing and utilities 314
Vehicle operating costs 262
Out-of-pocket healthcare costs 60
Taxes 125
Total 1,326
PIC’s balance sheet appended to the Form 433-B reported that as of December 27,
2012, it had total cash of $206,500 and total other assets of $1,420,005. The same
balance sheet reported $146,881 in “Loans from Stockholders” as a current
liability. Mr. Konkus’ Form 433-A did not report this loan as an asset. PIC’s
profit and loss statement for 2012 listed a health insurance expense and legal fees
of $3,489 and $33,292, respectively.
C. The Telephone Conference
On January 15, 2013, AO Megyesi held a telephone conference with
Mr. Konkus and his counsel. AO Megyesi’s notes of the telephone conference
record that Mr. Konkus claimed he had no rent or mortgage expenses because he
lived in foreclosed properties. The notes further record that Mr. Konkus claimed
he paid utility expenses in the names of the properties’ former owners. In
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[*9] addition, the notes record that Mr. Konkus explained that although he owned
a car he drove PIC’s company vehicle. As his notes reflect, after discussing
Mr. Konkus’ and PIC’s credit card statements that Mr. Konkus had submitted, AO
Megyesi concluded that Mr. Konkus’ and PIC’s expenses were largely
commingled and that in several instances PIC had paid Mr. Konkus’ personal
expenses and vice versa.
During the telephone conference AO Megyesi inquired as to the nature of
the outstanding $146,881 “stockholder” loan reflected on PIC’s balance sheet. As
recorded in AO Megyesi’s notes, Mr. Konkus explained that he had made this loan
to PIC when it had initiated its operations but that the loan no longer had any
value as PIC was unable to repay it. Mr. Konkus therefore argued that it should
not be considered a collectible asset. AO Megyesi additionally reviewed
Mr. Konkus’ 2009 and 2010 Federal income tax returns (which Mr. Konkus had
submitted) during the telephone conference. Mr. Konkus’ 2009 return reported
that he had made a $19,100 donation, at “thrift store value”, to another not-for-
profit entity of which he was the president, Restoration America.
During the telephone conference AO Megyesi informed Mr. Konkus and his
counsel that the OIC-DATC would likely be rejected because, inter alia, AO
Megyesi believed that Mr. Konkus’ reasonable collection potential was much
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[*10] higher than the $2,215 offered. AO Megyesi’s notes record that Mr. Konkus
agreed to increase his offer to $50,000 but indicated that he would not pay more.
D. AO Megyesi’s Calculation of Mr. Konkus’ Reasonable Collection
Potential
On the basis of the telephone conference and financial information which
Mr. Konkus had submitted, AO Megyesi calculated his reasonable collection
potential in an internal supplemental OIC Appeals case memorandum (case
memorandum). AO Megyesi determined that Mr. Konkus’ net realizable equity in
his personal vehicle was $1,030 after reducing Mr. Konkus’ reported fair market
value of $5,600 by 20% to reflect quick sale value5 and by a further $3,450
reduction from the quick sale value. As to Mr. Konkus’ life insurance policy, AO
Megyesi accepted Mr. Konkus’ reported fair market value of $7,353 but reduced it
by its outstanding loan balance of $2,774 for a net realizable equity of $4,579.
AO Megyesi also determined that the $146,881 loan from Mr. Konkus listed
as a current liability on PIC’s balance sheet should be included as an asset of
Mr. Konkus, as PIC’s balance sheet from the previous month demonstrated that it
had sufficient cash to pay the balance in full. AO Megyesi’s notes reflect that, in
5
Quick sale value is an estimate of the price a seller could get for an asset if
sold quickly, usually in 90 days or less. Quick sale value is generally calculated at
80% of the fair market value. See Internal Revenue Manual (IRM) pt.
5.15.1.20(4) (Oct. 2, 2012).
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[*11] reaching this position, he concluded that Mr. Konkus controlled PIC to such
an extent that he could have caused PIC to repay the loan at any time. In drawing
this conclusion, he relied on items he unearthed from PIC’s profit and loss
statement for 2012 (and discussed with Mr. Konkus) which demonstrated that PIC
had paid significant personal expenses of Mr. Konkus in that year, including
$33,000 in legal fees paid to Mr. Konkus’ counsel representing him in connection
with his liability for the section 6700 penalties, $3,489 in health insurance for Mr.
Konkus, as well as the payment of Mr. Konkus’ personal expenses with PIC’s
credit card previously noted.
Finally, AO Megyesi included $19,000 (of the $19,100 Mr. Konkus donated
to Restoration America in 2009) as a dissipated asset of Mr. Konkus, reasoning
that Mr. Konkus was aware of his section 6700 penalty liabilities at the time of
donation.
AO Megyesi’s determination of Mr. Konkus’ net realizable equity in assets
is summarized as follows:
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[*12]
Asset Net realizable equity
1974 Nissan 280Z $1,030
Life insurance policy 4,580
Loan to PIC 146,881
Contribution to Restoration America 19,000
Total 171,491
In determining Mr. Konkus’ reasonable collection potential AO Megyesi
also calculated Mr. Konkus’ monthly income and expenses. In so doing, AO
Megyesi accepted Mr. Konkus’ reported monthly income of $1,372; food,
clothing, and miscellaneous expenses of $565; out-of-pocket healthcare expenses
of $60; and tax expenses of $125. However, AO Megyesi did not accept
Mr. Konkus’ reported housing and utilities and transportation operating costs, as
Mr. Konkus had informed AO Megyesi that he lived rent free in foreclosed
properties and drove PIC’s company car. AO Megyesi’s case memorandum stated
that Mr. Konkus had failed to provide evidence that he in fact paid any utility
expenses, nor had he proven that he paid for gas when driving PIC’s company car.
According to AO Megyesi’s calculations this resulted in monthly disposable
income of $622; on the basis of an estimate that Mr. Konkus could pay for a
period of 12 months AO Megyesi determined that he had future income of $7,466.
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[*13] AO Megyesi therefore calculated Mr. Konkus’ reasonable collection
potential to be no less than $178,956 (comprising $171,491 of net equity in assets
and $7,466 in future income).
AO Megyesi concluded in the case memorandum that Mr. Konkus’ OIC-
DATC should be rejected on two grounds. First, he determined that it should be
rejected on public policy grounds under IRM pt. 5.8.7.7.2 (May 10, 2011) because
Mr. Konkus and PIC had financially benefited from falsely advising sellers that
their contributions to PIC were tax deductible. AO Megyesi believed, given that
Mr. Konkus’ operation of a not-for-profit entity had resulted in section 6700
penalty liabilities totaling over $6 million, that to accept his much lower offer
could incentivize similarly situated taxpayers to abuse not-for-profit entities,
knowing that any negative consequences would be slight. Alternatively, AO
Megyesi concluded that Mr. Konkus’ OIC-DATC should be rejected because his
reasonable collection potential was significantly higher than his offer.
V. Notice of Determination
Appeals issued a notice of determination to Mr. Konkus on February 8,
2013, denying his OIC-DATC and sustaining the proposed collection actions. The
notice of determination stated that Mr. Konkus’ OIC-DATC had been rejected on
the basis of public policy provisions of the IRM because acceptance of his offer
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[*14] would cause public reaction to be so negative as to diminish future voluntary
compliance by the general public. It further reasoned that if Mr. Konkus’ offer
were accepted, “[e]veryone would weigh complying with federal tax laws against
the potential for financial gain if there is little or no consequence to their actions.”
Alternatively, the notice of determination stated that Mr. Konkus’ offer--either the
$2,215 original amount or his increased offer of $50,000 during the telephone
conference--was rejected because it was determined that he could pay a higher
amount. The notice further stated that, on the basis of the financial information
Mr. Konkus had provided, it was determined that an acceptable offer should be “in
the range of $180,000.00 or higher” and that Mr. Konkus had refused to consider
amending his offer to reflect that amount. The notice made specific reference to
Mr. Konkus’ $146,881 outstanding loan to PIC and concluded that Mr. Konkus
“h[ad] not provided sufficient financial information for * * * [PIC] to establish
that * * * [PIC] do[es] not have the ability to repay the loan.”
Mr. Konkus timely filed a petition for review of the determination.
OPINION
I. Statutory Framework and the Estate’s Arguments
Section 6321 imposes a lien in favor of the United States on all property and
rights to property of a taxpayer after a demand for the taxes has been made and the
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[*15] taxpayer fails to pay those taxes. The lien arises when an assessment is
made. See sec. 6322. The Secretary generally must file a notice of lien with
certain State or local authorities where a taxpayer’s property is situated for the lien
to be valid against certain categories of third parties. Sec. 6323(a), (f); Behling v.
Commissioner, 118 T.C. 572, 575 (2002). Section 6320 provides that the
Secretary shall furnish the taxpayer with written notice of the filing of an NFTL
and of the taxpayer’s right to a hearing with Appeals concerning the lien. Sec.
6320(a)(1), (3).
Section 6331(a) authorizes the Secretary to levy upon property and property
rights of a person liable for any tax (taxpayer) if the taxpayer fails to pay the tax
within 10 days after notice and demand for payment is made. Such a levy,
however, generally requires that the Secretary first notify the taxpayer in writing
of his or her right to a prelevy hearing with Appeals on the issue of whether the
levy is appropriate. Sec. 6330(a)(1), (b)(1).
If the taxpayer timely requests a hearing, an Appeals officer must at the
hearing verify that the requirements of any applicable law or administrative
procedure have been met. Secs. 6320(c), 6330(c)(1). In addition, the taxpayer
may generally raise at the hearing “any relevant issue”, including appropriate
spousal defenses, challenges to the appropriateness of the collection action, and
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[*16] possible collection alternatives. Secs. 6320(c), 6330(c)(2)(A). The taxpayer
may challenge the existence or amount of the underlying tax liability, but only if
he did not receive a notice of deficiency with respect to the liability or otherwise
have an opportunity to dispute it. Secs. 6320(c), 6330(c)(2)(B).
At the conclusion of the section 6330 hearing the Appeals officer must
determine whether to sustain the collection action and shall take into account:
(1) the verification that the requirements of applicable law and administrative
procedure have been met, (2) the relevant issues raised by the taxpayer, and
(3) whether the proposed lien or levy action appropriately balances the need for
efficient collection of taxes with the taxpayer’s legitimate concern that the
proposed collection action be no more intrusive than necessary. Sec. 6330(c)(3).
Section 6330(d)(1) grants this Court jurisdiction to review an Appeals
officer’s determination in connection with a section 6330 hearing. Where the
underlying tax liability is properly at issue, we review the taxpayer’s liability de
novo. See Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). The parties
agree that the underlying tax liability is not at issue, and the estate does not contest
respondent’s rejection of the OIC-DATL. Accordingly, we review the Appeals
officer’s rejection of Mr. Konkus’ OIC-DATC and determination to sustain the
proposed collection actions for abuse of discretion. See Lunsford v.
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[*17] Commissioner, 117 T.C. 183, 185 (2001); Sego v. Commissioner, 114 T.C.
604, 610 (2000); Goza v. Commissioner, 114 T.C. 182. The Appeals officer
abuses his discretion if he acts “arbitrarily, capriciously, or without sound basis in
fact or law.” Woodral v. Commissioner, 112 T.C. 19, 23 (1999). In deciding the
propriety of an Appeals officer’s rejection of an offer-in-compromise we do not
substitute our judgment for that of the Appeals officer, and we do not decide
independently the amount that we believe would be an acceptable offer-in-
compromise. See Murphy v. Commissioner, 125 T.C. 301, 315 (2005), aff’d, 469
F.3d 27 (1st Cir. 2006).
Section 7122(a) authorizes the Secretary to compromise any civil or
criminal case arising under the internal revenue laws; section 7122(c) authorizes
the Commissioner to prescribe guidelines to determine when a taxpayer’s offer-in-
compromise should be accepted. The applicable regulations set forth three
grounds for compromising a tax liability: (1) doubt as to liability, (2) doubt as to
collectibility, and (3) promotion of effective tax administration. Sec. 301.7122-
1(b), Proced. & Admin. Regs. “Doubt as to collectibility exists in any case where
the taxpayer’s assets and income are less than the full amount of the liability.” Id.
subpara. (2). However, the decision to accept or reject an offer-in-compromise is
left to the Secretary’s discretion. Id. para. (c)(1). “The determination whether to
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[*18] accept or reject an offer to compromise will be based upon consideration of
all the facts and circumstances, including whether the circumstances of a particular
case warrant acceptance of an amount that might not otherwise be acceptable
under the Secretary’s policies and procedures.” Id.
The estate contends that AO Megyesi abused his discretion in rejecting the
OIC-DATC in two major respects. First, the estate argues that AO Megyesi
misapplied the IRM standards for denying Mr. Konkus’ offer on public policy
grounds. Second, the estate alleges that AO Megyesi failed to properly calculate
Mr. Konkus’ reasonable collection potential in rejecting the offer.6 However,
because we find that AO Megyesi properly calculated Mr. Konkus’ reasonable
collection potential and appropriately sustained the rejection of his OIC-DATC on
that ground, we need not address the first argument.
6
The estate also contends, for the first time on brief, that AO Megyesi was
not an impartial officer as required by sec. 6330(b)(3) because he engaged in
prohibited ex parte communications. The estate offers no specifics regarding this
allegation nor any evidence to support it. As the record is closed, respondent
would be prejudiced if we considered this issue, as he would be deprived of any
opportunity to proffer evidence to rebut the allegation. We conclude that the
estate’s claim is untimely and decline to consider it.
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[*19] II. Whether AO Megyesi Abused His Discretion in Calculating Mr.
Konkus’ Reasonable Collection Potential
Generally, under the IRS’ administrative guidance an offer to compromise
based on doubt as to collectibility will be acceptable only if the offer exceeds the
taxpayer’s reasonable collection potential (i.e., that amount, less than the full
liability, that the IRS could collect through means such as administrative and
judicial collection remedies). Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517,
517. A taxpayer’s reasonable collection potential is determined, in part, using
published guidelines for certain national and local allowances for basic living
expenses and essentially treating income and assets in excess of those needed for
basic living expenses as available to satisfy Federal tax liabilities. See Lemann v.
Commissioner, T.C. Memo. 2006-37.7
The IRM provides procedures for analyzing a taxpayer’s financial condition
to determine reasonable collection potential. See IRM pt. 5.8.5.1 (Sept. 23, 2008).
A taxpayer’s reasonable collection potential is calculated by determining, then
7
In certain cases the Secretary will accept an offer of less than the
reasonable collection potential upon a showing by the taxpayer of special
circumstances. See sec. 301.7122-1(c)(3), Proced. & Admin. Regs.; Rev. Proc.
2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517. However, the estate has neither
identified nor argued that any special circumstances exist which would compel the
Secretary to accept an offer of less than Mr. Konkus’ reasonable collection
potential.
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[*20] adding together: (1) the taxpayer’s “net realizable equity”, i.e., the quick
sale value of the taxpayer’s assets less amounts owed to secure lien holders with
priority over Federal tax liens, and (2) his “future income”, i.e., the amount
collectible from the taxpayer’s expected future gross income after allowing for
necessary living expenses. See IRM pt. 5.8.5.4.1 (Oct. 22, 2010); id. pt. 5.8.5.18;
see also Johnson v. Commissioner, 136 T.C. 475, 485 (2011), aff’d, 502 F. App’x
1 (D.C. Cir. 2013); Lemann v. Commissioner, T.C. Memo. 2006-37. When an
Appeals officer has followed the IRS’ guidelines to ascertain a taxpayer’s
reasonable collection potential and rejected the taxpayer’s proposed collection
alternative on that basis, we have found no abuse of discretion. See Murphy v.
Commissioner, 125 T.C. 321; Lemann v. Commissioner, T.C. Memo. 2006-37.
The estate chiefly contends that AO Megyesi did not calculate Mr. Konkus’
reasonable collection potential as required by the IRS’ guidelines but instead used
an unsubstantiated estimate, citing the statement in the notice of determination that
Mr. Konkus could pay an amount “in the range of $180,000.00 or higher”. The
estate alternatively contends that AO Megyesi improperly calculated Mr. Konkus’
reasonable collection potential. However, it is clear from the case memorandum
that AO Megyesi considered the financial information Mr. Konkus submitted for
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[*21] himself and PIC and followed the IRS’ published guidelines to ascertain Mr.
Konkus’ reasonable collection potential.
AO Megyesi calculated the net realizable equity in Mr. Konkus’ car by
accepting its fair market value as Mr. Konkus reported it on the Form 433-A,
$5,600, reducing it to a quick sale value of $4,480 and further reducing it by
$3,450. See IRM pt. 5.8.5.4.1.8 AO Megyesi calculated the net realizable equity
in Mr. Konkus’ life insurance policy by accepting its value as Mr. Konkus
reported it on Form 433-A, $7,353, and subtracting the policy’s outstanding loan
balance, $2,774. See IRM pt. 5.8.5.8 (Oct. 22, 2010). AO Megyesi also included
$19,000 that Mr. Konkus donated to American Restoration during 2009 as a
dissipated asset, reasoning that at that time Mr. Konkus was aware of his large
section 6700 penalty liabilities. See id. pt. 5.8.5.16 (allowing the value of
dissipated assets, including gifts, to be included in the calculation of reasonable
collection potential). AO Megyesi determined that the “thrift store value” of the
8
IRM pt. 5.8.5.12 (Sept. 30, 2013) allows for the exclusion of $3,450 from
the quick sale value of vehicles owned by a taxpayer and used for work, the
production of income, or the welfare of the taxpayer’s family. However, this
provision of the IRM was added after AO Megyesi had issued the notice of
determination. We therefore treat this reduction in the net realizable equity of
Mr. Konkus’ personal vehicle as a concession by respondent. We note that
Mr. Konkus’ reasonable collection potential exceeds his offer despite this
concession.
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[*22] items as listed on Mr. Konkus’ 2009 return already reflected the items’
quick sale value.
Finally, AO Megyesi included the $146,881 loan that Mr. Konkus had made
to PIC as a collectible asset in calculating his net realizable equity. See id.
pt. 5.8.5.13 (notes receivable are considered assets and should be valued in part by
what is collectible from the borrower). The estate argues that this amount should
not have been included as a collectible asset because Mr. Konkus testified at trial
that the amount at issue was provided to PIC as a capital contribution and not a
loan. However, an Appeals officer is required to consider only the information
presented by the taxpayer during a section 6330 hearing, and in reviewing the
Appeals officer’s determination we are likewise limited to reviewing the
information presented. See Chandler v. Commissioner, T.C. Memo. 2004-7.
There is no evidence in the administrative record to suggest that Mr. Konkus
contended during the section 6330 hearing that the amount characterized as a loan
on PIC’s balance sheet actually constituted a capital contribution. To the contrary,
AO Megyesi’s notes of the telephone conference record that Mr. Konkus
specifically referred to the $146,881 as a loan and argued that this amount was not
a collectible asset because PIC could not repay it. Noting that PIC’s balance
sheets demonstrated that it had sufficient assets and cash to pay the outstanding
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[*23] balance in full, AO Megyesi determined that the $146,881 should be
included as a collectible asset. Given AO Megyesi’s other findings concerning
PIC’s payment of Mr. Konkus’ personal expenses during 2012, we do not believe
it was an abuse of discretion for him to conclude that Mr. Konkus could cause PIC
to repay the loan. AO Megyesi’s inclusion of the $146,881 as an asset of Mr.
Konkus was reasonable.
AO Megyesi likewise followed the IRS’ published guidelines in computing
Mr. Konkus’ future income. AO Megyesi accepted the amount of monthly income
Mr. Konkus reported on his Form 433-A, $1,372, and reduced it by the national
standards for food, clothing, and miscellaneous and those for out-of-pocket
healthcare costs Mr. Konkus claimed on Form 433-A, as well as the expense for
taxes he claimed. See IRM pt. 5.15.1.8(1), (5) (Oct. 2, 2012). However, given
that Mr. Konkus had advised AO Megyesi that he lived in foreclosed properties
and thus had no rent expenses and drove a company car, AO Megyesi did not
allow Mr. Konkus’ claimed housing and utilities and transportation expenses,
relying on IRM guidelines that allow the lesser of the local standard or the amount
actually paid for such expenses, see id. pt. 5.15.1.7(4). AO Megyesi further
concluded in the case memorandum that Mr. Konkus had provided no evidence
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[*24] that he personally paid either utility or gas expenses, and our review of the
administrative record discloses none.
AO Megyesi’s determination to reject Mr. Konkus’ OIC-DATC on the
grounds that his offer fell below his reasonable collection potential was not
arbitrary, capricious, or without a sound basis in fact or law; it was based on a
reasonable application of the IRS’ published guidelines, which we decline to
second-guess. See Speltz v. Commissioner, 124 T.C. 165 (2005), aff’d, 454 F.3d
782 (8th Cir. 2006). Finding no abuse of discretion, we will sustain the proposed
collection actions.
To reflect the foregoing,
Decision will be entered for
respondent.