James M. Robinette v. Commissioner

123 T.C. No. 5UNITED STATES TAX COURT
JAMES M. ROBINETTE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12052-01L. Filed July 20, 2004.
On Oct. 31, 1995, P and R entered into an offer-
in-compromise. The terms of the offer-in-compromise
required P to, among other things, timely file his 1995
through 1999 tax returns. On the morning of Oct. 15,
1999, the day P’s 1998 return was due, P’s accountant
(A) prepared P’s return. That afternoon, A drove to
P’s office to obtain P’s signature on P’s return. A
returned to his office. Thereafter, A affixed postage
to the envelope containing P’s return using a private
postage meter. A deposited the envelope containing P’s
return in a U.S. Postal Service mailbox in his office
building.
R’s records indicate that R received all of P’s
returns except for P’s 1998 return. R declared P’s
offer-in-compromise in default. After a hearing in
which P raised the issue of compliance with the terms
of the offer-in-compromise, R issued a notice of
determination in which R determined to proceed with
collection of the unpaid tax liabilities.
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Held: Pursuant to sec. 6330(c), I.R.C., abuse of
discretion is the applicable standard of review.
Held, further, When reviewing R’s determination
for an abuse of discretion under sec. 6330, I.R.C., we
may consider evidence presented at trial which was not
included in the administrative record.
Held, further, R abused his discretion in
determining to proceed with collection.
Thomas L. Overbey and Laurie M. Boyd, for petitioner.
Martha J. Weber, for respondent.
VASQUEZ, Judge: This case was commenced in response to a
Notice of Determination Concerning Collection Action(s) Under
Sections 63201 and/or 6330. The issue is whether respondent may
proceed with collection of petitioner’s 1983, 1984, 1985, 1986,
1987, 1988, 1989, 1990, and 1991 tax liabilities.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, first supplemental stipulation of
facts, second supplemental stipulation of facts, and the attached
exhibits are incorporated herein by this reference. At the time
he filed the petition, petitioner resided in Jonesboro, Arkansas.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. All amounts are rounded
to the nearest dollar.
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Since approximately 1990, Douglas W. Coy has served as
petitioner’s accountant. Mr. Coy has prepared petitioner’s tax
returns for all the tax years in which he has represented
petitioner.
Petitioner’s Offer-in-Compromise
On October 31, 1995, petitioner and respondent entered into
an offer-in-compromise. The offer-in-compromise related to
income tax liabilities for 1983, 1984, 1985, 1986, 1987, 1988,
1989, 1990, and 1991, and trust fund recovery penalties for
unpaid employment taxes for periods ending March 31, June 30, and
September 30, 1988, June 30 and December 31, 1989, and March 31,
June 30, and September 30, 1990. The offer-in-compromise was
submitted on the basis of doubt as to collectibility. The amount
of individual income tax and statutory additions compromised
totaled $989,475.2 Petitioner offered to pay $100,000 to
2
The trust fund recovery penalties to be compromised under
sec. 6672 were $102,030. By order dated Oct. 21, 2002, the Court
granted respondent’s motion to dismiss for lack of jurisdiction
and to strike as to the trust fund penalties. The parties agree:
The doctrine of collateral estoppel will apply to
prohibit the Respondent, as well as the Petitioner,
from re-litigating the Petitioner’s appeal of the
Notice of Determination in the District Court if the
Tax Court decides whether the Respondent abused his
discretion in proceeding with collection of tax
liabilities previously compromised prior to a decision
of that issue by the District Court.
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compromise the outstanding liabilities and penalties.3
Petitioner paid $1,000 with the submission of the offer and the
remaining $99,000 with borrowed funds within 60 days after
acceptance of the offer.
Petitioner agreed to the following terms and conditions:
(d) I * * * will comply with all the provisions
of the Internal Revenue Code related to
filing my * * * returns * * * for five (5)
years from the date IRS accepts the offer.
* * * * * * *
(j) I * * * understand that I * * * remain
responsible for the full amount of the tax
liability unless and until IRS accepts the
offer in writing and I * * * have met all the
terms and conditions of the offer. IRS won’t
remove the original amount of the tax
liability from its records until I * * * have
met all the terms and conditions of the
offer.
* * * * * * *
(o) If I * * * fail to meet any of the terms and
conditions of the offer, the offer is in
default, and IRS may:
* * * * * * *
(iv) file suit or levy to collect
the original amount of tax
3
As additional consideration, petitioner signed a Form
2261, Collateral Agreement, in which he also agreed to pay 40
percent of his annual income in excess of $100,000 and not in
excess of $130,000; 50 percent of annual income in excess of
$130,000 and not in excess of $150,000; and 60 percent of annual
income in excess of $150,000. Petitioner’s annual income was
less than $100,000 for 1995, 1996, 1997, 1998, and 1999.
Accordingly, petitioner was not required to pay additional
consideration.
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liability, without further notice
of any kind.
Petitioner’s 1998 Individual Income Tax Return
Petitioner received an extension to file his 1998 individual
income tax return (petitioner’s 1998 return) on or before October
15, 1999. On the morning of October 15, 1999, Mr. Coy received
via facsimile petitioner’s Schedule K-1, Shareholder’s Share of
Income, Credits, Deductions, etc., for Professional Acres Leasing
Group from the accounting firm of Osborne & Osborne. Upon
receipt of the Schedule K-1 on October 15, 1999, Mr. Coy
completed petitioner’s 1998 return. For 1998, petitioner was
entitled to a refund of $3,300.
At approximately 3:45 to 4 p.m. on October 15, 1999, Mr. Coy
left his office in Little Rock, Arkansas, en route by car to
three other cities in Arkansas in order to review State and
Federal income tax returns with four of his clients, including
petitioner, and to obtain his clients’ signatures on their
returns. First, Mr. Coy drove to Mount Pleasant, Arkansas, to
deliver the returns of Howard and Jane Lamb for review and
signatures. After the Lambs signed their tax returns, Mr. Coy
drove to Melbourne, Arkansas, to deliver the returns of David and
Theresa Sharp for review and signatures. After the Sharps signed
their tax returns, Mr. Coy delivered the returns of Fred Lamb,
also in Melbourne, Arkansas, for review and signature. After Mr.
Lamb signed his tax returns, Mr. Coy drove to Jonesboro,
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Arkansas, to deliver the returns of petitioner for review and
signature.
Mr. Coy arrived at petitioner’s office between 8:45 and 9
p.m. Petitioner signed the returns in the presence of Mr. Coy
and Frances Robinette, petitioner’s wife and office manager.
After the clients signed their tax returns, Mr. Coy took the
signed returns from his clients so that he could mail them from
his office in Little Rock, Arkansas.
Mr. Coy returned to his office in Little Rock, Arkansas,
sometime after 11 p.m., but before midnight. Mr. Coy made a copy
of the signature page of petitioner’s 1998 return. Mr. Coy
affixed postage to the envelope containing petitioner’s 1998
return using a private postage meter. The postage from the
private postage meter displayed a postmark of October 15, 1999.
Before midnight, Mr. Coy placed the envelope containing
petitioner’s 1998 return in a U.S. Postal Service mailbox in the
building where his office is located.
At this same time, Mr. Coy mailed the returns of Mr. Sharp.
Mr. Sharp was not assessed late filing penalties or late payments
by the Internal Revenue Service (IRS) with respect to his 1998
individual income tax return.
Petitioner’s 1995, 1996, 1997, 1999, and 2000 Individual Income
Tax Returns
Petitioner received extensions to file his 1995 individual
income tax return on or before October 15, 1996. Petitioner’s
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1995 individual income tax return was prepared by Mr. Coy on
October 15, 1996. For 1995, petitioner paid the $2,593 shown as
owed on his return.
Petitioner received extensions to file his 1996 individual
income tax return on or before October 15, 1997. Petitioner’s
1996 individual income tax return was received by the IRS on
October 20, 1997. For 1996, petitioner was entitled to a refund
of $14,435.
Petitioner received extensions to file his 1997 individual
income tax return on or before October 15, 1998. Petitioner’s
1997 individual income tax return was prepared by Mr. Coy on
October 14, 1998, and received by the IRS on October 19, 1998.
For 1997, petitioner was entitled to a refund of $5,644.
Petitioner received extensions to file his 1999 individual
income tax return on or before October 15, 2000. Petitioner’s
1999 individual income tax return was prepared by Mr. Coy on
October 15, 2000, and received by the IRS on October 19, 2000.
For 1999, petitioner was entitled to a refund of $2,631.
Petitioner received extensions to file his 2000 individual
income tax return on or before October 15, 2001. Petitioner’s
2000 income tax return was received by the IRS on October 17,
2001.
Each of the aforementioned years, including 1998, on or
about October 15, Mr. Coy, or a person from Mr. Coy’s office,
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delivered to petitioner at petitioner’s office his original
individual income tax return, and petitioner would sign it.
IRS Collection Efforts
On February 21, 2000, the IRS sent petitioner a “Request for
Your Tax Return” for 1998. Petitioner received this letter. On
March 17, 2000, the IRS notified petitioner that it had received
his required Statement of Annual Income for 1998 but needed a
copy of his 1998 Form 1040, U.S. Individual Income Tax Return.
On April 17, 2000, the IRS sent petitioner a letter stating:
“Your Tax Return is Overdue -- Contact us Immediately” for 1998.
The letter also stated:
*** OFFER IN COMPROMISE ***
Our records indicate that we’ve accepted an offer
in compromise from you. You agreed to file and pay
all your federal taxes for the five (5) year period
after we accepted this offer. If you don’t file the
requested delinquent return, we may reinstate the
amount you owe that we previously compromised.
Petitioner forwarded to Mr. Coy by fax all notices from the IRS
concerning his 1998 return and offer-in-compromise, as he was
“scared to death” of these notices.
The Austin, Texas, Service Center monitored petitioner’s
offer-in-compromise. Revenue Officer Kathy Santino of the
Oklahoma City, Oklahoma, office was assigned to examine whether
petitioner’s offer-in-compromise was in default. She examined
petitioner’s offer-in-compromise “as a courtesy to the Austin
Service Center [because] they were overloaded in potentially-
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defaulted offers”. Ms. Santino knew of the 5-year filing
requirement, but she did not know what years were covered by
petitioner’s offer-in-compromise. In her courtesy investigation
of petitioner’s offer-in-compromise, she did not look at the
transcripts for 1995, 1996, or 1997. She did not consider
petitioner’s pattern of filing his returns on or about October
15. Ms. Santino never spoke with petitioner or Mr. Coy.
On July 13, 2000, Ms. Santino sent petitioner a letter
declaring petitioner’s offer-in-compromise in default. The basis
for the default was that the IRS had not received petitioner’s
Form 1040 for 1998.
On September 28, 2000, the IRS issued a Final Notice--Notice
of Intent to Levy and Your Right to a Hearing.
On October 6, 2000, petitioner, through his authorized
representative Mr. Coy, filed a Form 12153, Request for a
Collection Due Process Hearing. Petitioner stated the basis for
the appeal as: “We do not believe the taxpayer owes the amounts
stated in the Notice of Intent to Levy and would like the
opportunity to resolve these matters at a Collection Due Process
Hearing.”
On January 10, 2001, Appeals Officer Troy C. Talbott of the
Oklahoma City, Oklahoma, office sent Mr. Coy a letter identifying
the options available for resolution of petitioner’s tax
liability (such as full payment, installment agreement, offer-in-
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compromise, or determination that petitioner’s account is
currently not collectible) and asking for more details as to why
petitioner did not owe the amount stated in the notice of intent
to levy. Mr. Talbott also requested and reviewed the IRS
administrative file related to the default of the offer-in-
compromise. On January 24, 2001, Mr. Talbott looked at
petitioner’s transcript of account for 1998. Mr. Talbott’s case
activity record states: “Per research on IDRS, no record of 98
1040 being filed. * * * Per IRP information, TP had a filing
requirement, but may have been due a refund.” Mr. Talbott
concluded that petitioner had defaulted on the offer-in-
compromise.
On January 29, 2001, in a telephone section 6330 hearing
(the hearing), Mr. Coy stated to Mr. Talbott that he mailed
petitioner’s 1998 return on October 15, 1999. Specifically, Mr.
Coy told Mr. Talbott that he prepared petitioner’s return, took
the return to petitioner, obtained petitioner’s signature, and
mailed the return on October 15, 1999.
The only evidence Mr. Talbott would consider for proof of
mailing was a certified mail or registered mail receipt. Mr.
Talbott did not consider petitioner’s pattern of filing returns
on October 15, despite having looked at the transcripts for 1995,
1996, 1997, and 1999.
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Mr. Talbott believed he had no authority to reinstate
petitioner’s offer-in-compromise. He believed only the National
Office could reinstate the offer-in-compromise. He stated: “The
National Office would still have to do the reinstatement by
itself” and the “National Office would have the call”. Mr.
Talbott reviewed the Internal Revenue Manual. The manual was
silent as to whether an Appeals officer has authority to
reinstate an offer-in-compromise.
Mr. Coy sent Mr. Talbott a copy of petitioner’s 1998 return.
Mr. Talbott received the copy of petitioner’s 1998 return on
February 16, 2001. Mr. Talbott forwarded it to the Austin
Service Center, where it was processed by the IRS as an original
return. Petitioner’s transcript of account for 1998 states
“return filed and tax assessed” on April 2, 2001.
Petitioner never personally met with, or spoke to, Mr.
Talbott.
The Appeals settlement memorandum prepared by Mr. Talbott
concluded that the notice of intent to levy was appropriate. Mr.
Talbott’s evaluation concluded:
The Offer in Compromise was defaulted because the IRS
did not have a record of the taxpayer filing Form 1040
for 1998. The taxpayer’s representative claimed to
have timely mailed the tax return for 1998 on October
15, 1999, but the tax return was not sent by certified
mail and the representative does not have any evidence
to prove that the return was mailed. The taxpayer did
not respond to the IRS’s requests to file the tax
return, which resulted in the offer being defaulted.
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On August 21, 2001, the IRS issued to petitioner a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 determining to proceed with collection. Petitioner
timely filed a petition with the Court.
OPINION
I. Section 6330
Section 6331(a) provides that if any person liable to pay
any tax neglects or refuses to do so within 10 days after notice
and demand, the Secretary can collect such tax by levy upon
property belonging to such person. Pursuant to section 6331(d),
the Secretary is required to give the taxpayer notice of his
intent to levy and within that notice must describe the
administrative review available to the taxpayer, before
proceeding with the levy. See also sec. 6330(a).
Section 6330(b) describes the administrative review process,
providing that a taxpayer can request an Appeals hearing with
regard to a levy notice. At the Appeals hearing, the taxpayer
may raise certain matters set forth in section 6330(c)(2), which
provides, in pertinent part:
SEC. 6330(c). Matters Considered at Hearing.--In
the case of any hearing conducted under this section--
* * * * * * *
(2) Issues at hearing.--
(A) In general.--The person may raise at the
hearing any relevant issue relating to the unpaid
tax or proposed levy, including--
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(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of
collection actions; and
(iii) offers of collection alternatives,
which may include the posting of a bond, the
substitution of other assets, an installment
agreement, or an offer-in-compromise.
(B) Underlying liability.--The person may
also raise at the hearing challenges to the
existence or amount of the underlying tax
liability for any tax period if the person did not
receive any statutory notice of deficiency for
such tax liability or did not otherwise have an
opportunity to dispute such tax liability.
Pursuant to section 6330(c)(2)(A), a taxpayer may raise at
the section 6330 hearing any relevant issue with regard to the
Commissioner’s collection activities, including spousal defenses,
challenges to the appropriateness of the Commissioner’s intended
collection action, and alternative means of collection. Sego v.
Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114
T.C. 176, 180 (2000).
Pursuant to section 6330(d)(1), within 30 days of the
issuance of the notice of determination, the taxpayer may appeal
that determination to this Court if we have jurisdiction over the
underlying tax liability. Van Es v. Commissioner, 115 T.C. 324,
328 (2000).
II. Standard of Review
The parties dispute the standard of review to be applied in
this case. Although section 6330 does not prescribe the standard
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of review that the Court is to apply in reviewing the
Commissioner’s administrative determinations, we have stated that
where the validity of the underlying tax liability is properly at
issue, the Court will review the matter de novo. Where the
validity of the underlying tax liability is not properly at
issue, however, the Court will review the Commissioner’s
administrative determination for abuse of discretion. Sego v.
Commissioner, supra at 610; Goza v. Commissioner, supra at 181.
Generally, under section 6330(c)(2)(B), issues that are
reviewed de novo include those such as a redetermination of the
tax on which the Commissioner based the assessment, provided that
the taxpayer did not have an opportunity to seek such a
redetermination before assessment. See, e.g., Landry v.
Commissioner, 116 T.C. 60, 62 (2001) (“Because the validity of
the underlying tax liability, i.e., the amount unpaid after
application of credits to which petitioner is entitled, is
properly at issue, we review respondent’s determination de
novo.”). Whether the Commissioner’s assessment was made within
the limitation period also constitutes a challenge to the
underlying tax liability. Hoffman v. Commissioner, 119 T.C. 140,
145 (2002).
Under an abuse of discretion standard, “we do not interfere
unless the Commissioner’s determination is arbitrary, capricious,
clearly unlawful, or without sound basis in fact or law.” Ewing
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v. Commissioner, 122 T.C. 32, 39 (2004); see also Woodral v.
Commissioner, 112 T.C. 19, 23 (1999). Review for abuse of
discretion includes “any relevant issue relating to the unpaid
tax or the proposed levy”, including “challenges to the
appropriateness of collection actions” and “offers of collection
alternatives” such as offers in compromise. Sec. 6330(c)(2)(A).
Questions about the appropriateness of the collection action
include whether it is proper for the Commissioner to proceed with
the collection action as determined in the notice of
determination, and whether the type and/or method of collection
chosen by the Commissioner is appropriate. See, e.g., Swanson v.
Commissioner, 121 T.C. 111, 119 (2003) (challenge to
appropriateness of collection reviewed for abuse of discretion).
Abuse of discretion is the proper standard of review in this
case. The introductory language of section 6330(c)(2)(A)
encompasses the situation at bar. Mr. Talbott’s conclusion that
respondent had acted properly in declaring petitioner’s offer-in-
compromise in default and that issuing a notice of determination
was proper is a “relevant issue relating to the unpaid tax or the
proposed levy”. Further, offers in compromise are a specifically
mentioned collection alternative. Sec. 6330(c)(2)(A)(iii).
Additionally, whether respondent may proceed with collection of
petitioner’s unpaid liability is a challenge to the
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appropriateness of collection. See sec. 6330(c)(2)(A)(ii);
Swanson v. Commissioner, supra.
Petitioner argues that a de novo standard of review is
appropriate because he “put forth the argument of the validity of
the underlying taxes--i.e. the petitioner does not owe the tax,
nor the additions to the tax, since the tax was previously
discharged by an Offer in Compromise which was improperly
defaulted by the respondent”. We view petitioner’s argument as a
challenge to the appropriateness of collection, rather than as a
challenge to the underlying tax liability. See Swanson v.
Commissioner, supra.
III. Evidentiary Issue
A. The Parties’ Contentions
At trial, respondent moved to strike “all documents and
testimony not part of the administrative record on the ground
that the trial record should be limited to the agency
administrative record.” Documents and testimony not part of the
administrative record include: (1) Petitioner’s testimony; (2)
petitioner’s tax returns for 1995, 1996, 1997, 1999, 2000, and
other stipulated facts relating to the date these returns were
received by the IRS; (3) Mr. Coy’s private postage meter log,
cellular telephone records, credit card records, and daily
calendar for October 15, 1999; (4) Frances Robinette’s testimony;
and (5) all statements made by Mr. Coy at trial that he did not
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make to Mr. Talbott. Respondent contends that this evidence is
not relevant because it is not part of the administrative record.
Petitioner contends that this evidence is relevant.
Petitioner argues that on account of the informal nature of
section 6330 hearings, as there is no formal record, it is
impossible to determine the actual statements made at the
hearing. Further, petitioner argues that the tax returns for
1995, 1996, 1997, 1999, and 2000 show his pattern and practice of
filing returns on or about October 15.
The Court reserved decision on this issue. For the
following reasons, we hold that, when reviewing for abuse of
discretion under section 6330(d), we are not limited by the
Administrative Procedure Act (APA) and our review is not limited
to the administrative record. The evidence in this case pertains
to issues raised at the hearing. The evidence in this case is
relevant and admissible.
B. Applicability of the APA Judicial Review Provisions to
Tax Court Proceedings Commenced Under Section 6330(d)
1. Established Practice and Procedure
Since the enactment of section 6330, the Court has applied
our traditional de novo procedures in deciding whether an Appeals
officer abused his or her discretion in determining to proceed
with collection. At trials under section 6330 when reviewing for
abuse of discretion, the Court has received into evidence
testimony and exhibits that were not included in the
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administrative record. See, e.g., Wells v. Commissioner, T.C.
Memo. 2003-234 (taxpayer’s testimony admissible at trial when he
was represented by counsel and taxpayer was not present at
hearing); Maloney v. Commissioner, T.C. Memo. 2003-143 (taxpayers
presented numerous letters sent to Commissioner asking him to
recalculate their FICA taxes as evidence of claimed
overpayments), affd. 94 Fed. Appx. 969 (3d Cir. 2004); Black v.
Commissioner, T.C. Memo. 2002-307 (extensive testimony as to
taxpayer’s physical limitations due to diabetes and testimony of
taxpayer’s accountant considered when, at hearing, taxpayers
raised issue of illness from diabetes and presented Appeals
officer with medical files), affd. 94 Fed. Appx. 968 (3d Cir.
2004); Gougler v. Commissioner, T.C. Memo. 2002-185 (Court
considered two documents at trial that were not presented to
Appeals officer); Holliday v. Commissioner, T.C. Memo. 2002-67(Commissioner permitted to present documents, records, and
testimony at trial that was not part of administrative record),
affd. 57 Fed. Appx. 774 (9th Cir. 2003) (“Holliday’s contention
that the Tax Court erred by admitting into evidence documents
that were not produced at the * * * [section 6330] hearing fails
because the ‘record review’ provisions of the Administrative
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Procedure Act * * * do not apply to the Tax Court.” (Emphasis
added.)), cert. denied 124 S. Ct. 1038 (2004).4
2. The Court’s Specific Statutory Review Provisions
The APA has never governed proceedings in the Court (or in
the Board of Tax Appeals). Ewing v. Commissioner, 122 T.C. at 50(Thornton, J., concurring). It is well established that “The Tax
Court, rather than being a ‘reviewing court’ within the meaning
of Sec. 10(e) [of the APA] reviewing the ‘record’, is a court in
which the facts are triable de novo”. O’Dwyer v. Commissioner,
266 F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957). The
“Tax Court is not subject to the Administrative Procedure Act.”
4
Additionally, in numerous instances, we have noted the
taxpayer’s failure to present evidence at trial. This failure to
present evidence supported our conclusion that the Appeals
officer did not abuse his or her discretion. See, e.g., Dorn v.
Commissioner, T.C. Memo. 2003-192 (“Petitioner did not offer
sufficient evidence at his section 6330(b) hearing or before this
Court to show he is entitled to prevail” when petitioner did not
offer any evidence at trial related to the issues raised at his
hearing); Maloney v. Commissioner, T.C. Memo. 2003-143(“Petitioners did not present any evidence that their excess
withholdings for 1984 exceeded [the stipulated amount of credits
for increased Federal income tax withholdings, including FICA
taxes]”, and “they presented no evidence that they made deposits
or that any FICA taxes were assessed after the applicable period
of limitations had expired”), affd. 94 Fed. Appx. 969 (3d Cir.
2004); Schulman v. Commissioner, T.C. Memo. 2002-129 (settlement
officer did not abuse her discretion where “petitioners presented
no evidence at trial or on brief to otherwise substantiate their
expenses” and where “petitioners did not introduce any evidence
of any meaningful ties to Ozaukee County, other than the relative
proximity of their residence”); Howard v. Commissioner, T.C.
Memo. 2002-81 (“Petitioner also did not present any evidence at
trial or otherwise show any irregularity in the assessment
procedure.”).
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Id. In Nappi v. Commissioner, 58 T.C. 282, 284 (1972), we
reasoned that the APA provisions “apply to an ‘agency’ of the
Government of the United States, but specifically exclude ‘the
courts of the United States.’ * * * the United States Tax Court
is established as a court of record under article I of the
Constitution of the United States. Being a court of the United
States, it is excluded from the provisions of the * * * [APA].”
Although section 6330 postdates the APA, the APA judicial
review provisions are not applicable. The APA does not “limit or
repeal additional requirements imposed by statute or otherwise
recognized by law.” 5 U.S.C. sec. 559 (2000). The Court’s de
novo procedures for reviewing IRS functions were well established
and “recognized by law” at the time of the APA’s enactment.
Ewing v. Commissioner, supra at 52 (Thornton, J., concurring);
see also Phillips v. Commissioner, 283 U.S. 589, 598, 600 (1931);
Blair v. Oesterlein Mach. Co., 17 F.2d 663, 665 (D.C. Cir. 1927);
Barry v. Commissioner, 1 B.T.A. 156, 157 (1924). The Court’s de
novo procedures provide a stricter scope of review of the
Commissioner’s determinations than would be obtained under APA
judicial review procedures. Ewing v. Commissioner, supra at 52-
53 (Thornton, J., concurring).
The APA does not supersede specific statutory provisions for
judicial review, as it is a statute of general application. 5
U.S.C. secs. 703, 704 (2000); Ewing v. Commissioner, supra at 50
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(Thornton, J., concurring). “The legislative history of APA
section 703 makes clear that where there is a special statutory
review proceeding relevant to the subject matter, that special
statutory review ‘shall not be disturbed’.” Ewing v.
Commissioner, supra at 50 (Thornton, J., concurring); see also S.
Comm. on the Judiciary, 79th Cong., Administrative Procedure Act
(Comm. Print 1945), reprinted in Administrative Procedure Act
Legislative History, 1944-46, at 11, 37 (1946); see also H. Rept.
1980, 79th Cong., 2d Sess. (1946), reprinted in the
Administrative Procedure Act Legislative History, 1944-46, at
233, 276 (1946). “When Congress enacted the APA to provide a
general authorization for review of agency action in the district
courts, it did not intend that general grant of jurisdiction to
duplicate the previously established special statutory procedures
relating to specific agencies.” Bowen v. Massachusetts, 487 U.S.
879, 903 (1988).
The Internal Revenue Code has long provided a specific
statutory framework for reviewing determinations of the
Commissioner. Section 6330 is part and parcel of this statutory
framework. The Court’s de novo review procedures emanate from
this framework. The APA judicial review procedures do not
supplant the Court’s longstanding de novo review procedures.
Thus, the Court’s de novo procedures are not limited by the APA.
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3. Section 6330 Hearings Are Not Formal Adjudications
Section 6330 hearings do not take the form of the formal
adjudicative hearings under the APA. Indeed, the Commissioner’s
regulations describe the hearing as informal and not subject to
the APA:
Q-D6. How are * * * [section 6330] hearings
conducted?
A-D6. The formal hearing procedures required
under the Administrative Procedure Act, 5 U.S.C. 551 et
seq., do not apply to * * * [section 6330] hearings.
* * * [Section 6330] hearings are much like Collection
Appeal Program (CAP) hearings in that they are informal
in nature and do not require the Appeals officer or
employee and the taxpayer, or the taxpayer’s
representative, to hold a face-to-face meeting. A
* * * [section 6330] hearing may, but is not required
to, consist of a face-to-face meeting, one or more
written or oral communications between an Appeals
officer or employee and the taxpayer or the taxpayer’s
representative, or some combination thereof. A
transcript or recording of any face-to-face meeting or
conversation between an Appeals officer or employee and
the taxpayer or taxpayer’s representative is not
required. The taxpayer or the taxpayer’s
representative does not have the right to subpoena and
examine witnesses at a * * * [section 6330] hearing.
[Sec. 301.6330-1(d)(2), Proced. & Admin. Regs.]
The Commissioner vigorously litigated, and we agreed, that
hearings are informal. In Davis v. Commissioner, 115 T.C. 35(2000), we held that taxpayers had no right to subpoena witnesses
to appear at a hearing. We stated:
When Congress enacted section 6330 and required
that taxpayers be given an opportunity to seek a pre-
levy hearing with Appeals, Congress was fully aware of
the existing nature and function of Appeals. Nothing
in section 6330 or the legislative history suggests
that Congress intended to alter the nature of an
- 23 -
Appeals hearing so as to compel the attendance or
examination of witnesses. When it enacted section
6330, Congress did not provide either Appeals or
taxpayers with statutory authority to subpoena
witnesses. The references in section 6330 to a hearing
by Appeals indicate that Congress contemplated the type
of informal administrative Appeals hearing that has
been historically conducted by Appeals and prescribed
by section 601.106(c), Statement of Procedural Rules.
The nature of the administrative Appeals process does
not include the taking of testimony under oath or the
compulsory attendance of witnesses. * * * [Id. at 41-
42; fn. ref. omitted; emphasis added.]
In Katz v. Commissioner, 115 T.C. 329, 337 (2000), we held that
the Appeals officer may conduct the hearing by telephone. In
Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002), we held
that the IRS was not required to provide assessment records to
the taxpayer at the hearing. In some instances, we have affirmed
the Appeals officer’s determination when no hearing was
conducted. See Lunsford v. Commissioner, 117 T.C. 183, 189
(2001). In Keene v. Commissioner, 121 T.C. 8 (2003), we held
that while the IRS is not required to record the hearing, the
taxpayer may make an audio record.
The “administrative record” compiled at the hearing is quite
limited. It is nowhere near as comprehensive as the record
required to be compiled at a formal APA hearing. See 5 U.S.C.
sec. 556(e) (“The transcript of testimony and exhibits, together
with all papers and requests filed in the proceeding, constitutes
the exclusive record for decision in accordance with * * * [5
U.S.C. section 557]”). Section 6330 hearings were not intended
- 24 -
to provide a detailed factual record for judicial review.
Rather, they allow for the taxpayer to informally raise matters
relevant to the collection actions at hand, such as spousal
defenses, propriety of IRS collection activities, and
alternatives to collection actions proposed by the IRS. See sec.
6330(c)(2)(A).
4. Legislative History
Nothing in the legislative history of section 6330 or 6320
indicates that the APA applies or that the Court’s review is
limited to the administrative record. Congress was well aware
when it enacted section 6330 that the Court is a trial court
which has historically resolved cases by taking evidence and has
never been governed by the APA. Section 6330 expanded the
Court’s jurisdiction. The conference agreement states: “The
determination of the appeals officer may be appealed to the Tax
Court or, where appropriate, the Federal district court.” H.
Conf. Rept. 105-559, at 266 (1998), 1998-3 C.B. 747, 1020. The
report specifies that where “the validity of the tax liability is
not properly part of the appeal, the taxpayer may challenge the
determination of the appeals officer for abuse of discretion.”
Id. Reference to the APA or the administrative record, however,
is absent.
- 25 -
5. Other Instances Where the Court Reviews
for Abuse of Discretion
“The mere fact that judicial review is for abuse of
discretion * * * does not trigger application of the APA record
rule or preclude this Court from conducting a de novo trial.
* * * [This] Court has a long tradition of providing trials when
reviewing the Commissioner’s determinations under an abuse of
discretion standard.” Ewing v. Commissioner, 122 T.C. at 53(Thornton, J., concurring). In Ewing, we held that when
reviewing the Commissioner’s determination for an abuse of
discretion under section 6015, we may consider evidence presented
at trial which was not included in the administrative record.
Id. at 44. Our review of section 6330 cases for abuse of
discretion is similar to our review of section 6015(f) cases--
which are reviewed for an abuse of discretion. Id. at 39; Sego
v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C.
at 181; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd.
282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C.
276, 293 (2000).
The APA does not apply to challenges of the Commissioner’s
denials of requests to abate interest under section 6404, which
are reviewed for abuse of discretion. See Beall v. United
States, 336 F.3d 419, 427 n.9 (5th Cir. 2003) (“review under the
APA is accordingly available only where ‘there is no other
adequate remedy in a court’”). The Court has consistently
- 26 -
conducted trials on the issue of whether the Commissioner’s
denial of a request to abate interest under section 6404 was an
abuse of discretion. See, e.g., Goettee v. Commissioner, T.C.
Memo. 2003-43; Jacobs v. Commissioner, T.C. Memo. 2000-123.
Additionally, other cases the Court has decided under the
abuse of discretion standard include waiver of additions to tax,
Krause v. Commissioner, 99 T.C. 132, 179 (1992), affd. sub nom.
Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994);
reallocation of income or deduction under section 482, Bausch &
Lomb v. Commissioner, 933 F.2d 1084, 1088 (2d Cir. 1991), affg.
92 T.C. 525 (1989); declaratory judgment, Fujinon Optical, Inc.
v. Commissioner, 76 T.C. 499, 506-507 (1981); tax-exempt status,
Lowry Hosp. Association v. Commissioner, 66 T.C. 850 (1976); and
change of accounting method, Thor Power Tool Co. v. Commissioner,
439 U.S. 522, 532-533 (1979); Bank One Corp. v. Commissioner, 120
T.C. 174 (2003). In none of these types of cases have we held
that the APA applies or that we are limited to the administrative
record.
For the reasons set forth supra, we conclude that our review
under section 6330(d) of an Appeals officer’s determination is
not limited to the administrative record.
C. Whether the Evidence Presented at Trial Relates
to Issues Raised at the Hearing
Respondent, citing Magana v. Commissioner, 118 T.C. 488, 493
(2002), contends that “only ‘arguments, issues and other matter’
- 27 -
presented to Appeals are relevant to the determination whether an
appeals officer abused his or her discretion.” Further,
respondent argues that “judicial review of respondent’s exercise
of discretion in this case should be based solely on the
information presented to, and considered by, the appeals
officer.” We disagree with respondent’s interpretation of
Magana.
In a review for abuse of discretion of the Commissioner’s
determination under section 6330(d)(1), “generally we consider
only arguments, issues, and other matter that were raised at the
collection hearing or otherwise brought to the attention of the
Appeals Office.” Magana v. Commissioner, supra at 493 (emphasis
added). “We did not say in Magana that the taxpayer would be
limited to the administrative record or that the taxpayer may not
offer evidence in the proceeding in this Court.” Ewing v.
Commissioner, supra at 41.
In Magana, the issue for decision on the Commissioner’s
motion for summary judgment was whether the Court “shall consider
a new issue that was not raised by the petitioner at his
collection hearing with respondent’s Appeals Office.” Magana v.
Commissioner, supra at 489 (emphasis added). In the taxpayer’s
request for a collection hearing and at the hearing, the only
issue raised was whether the period of limitations had expired
- 28 -
under section 6502. The taxpayer did not raise the issue of
hardship. See id. at 490, 491.
In his petition to the Court, the taxpayer “for the first
time, raised hardship as an objection to respondent’s lien
filings (namely, petitioner’s physical illness and the resulting
cloud on title to petitioner’s residence, petitioner’s only
significant asset).” Id. At the oral argument on the
Commissioner’s motion for summary judgment, the taxpayer’s
counsel “acknowledged that * * * [the taxpayer’s] ill health was
not recent but had extended over 20 years.” Id. at 492. In
response to the Court’s questioning, the taxpayer’s counsel
“acknowledged that he had had an opportunity at the collection
hearing to raise hardship but that he had chosen not to do so.”
Id.
In the discussion section of the Opinion, under the heading
“New Issue”, we reasoned:
In this case, because petitioner’s alleged
longstanding illness and hardship were not raised as an
issue and were not otherwise brought to respondent’s
attention in connection with petitioner’s collection
hearing with respondent’s Appeals Office, petitioner
may not now raise hardship for the first time before
this Court. * * * [Id. at 493-494.]
The cases cited for support of the holding in Magana were issue
preclusion cases. See, e.g., McCoy Enters., Inc. v.
Commissioner, 58 F.3d 557, 563 (10th Cir. 1995) (Court does not
have to rule on an issue when taxpayer “cannot point to a single
- 29 -
time at which it presented the * * * issue to the Commissioner to
be ruled upon”), affg. T.C. Memo. 1992-693; Miller v.
Commissioner, 115 T.C. 582, 589 n.2 (2000) (“we would not
consider petitioner’s alternative request * * * because the
record does not establish that he raised that issue at his
Appeals Office hearing” (Emphasis added.)), affd. 21 Fed. Appx.
160 (4th Cir. 2001); Inner Office, Inc. v. United States, No.
3:00-CV-2576-L, (“Plaintiff has produced no evidence that the IRS
Hearing Officer’s determination is legally incorrect or that the
IRS Hearing Officer abused his discretion. * * * In seeking
district court review of a Notice of Determination, the taxpayer
can only ask the court to consider an issue that was raised in
the taxpayer’s * * * [section 6330] hearing.” (Emphasis added.)),
adopted on this issue 89 AFTR 2d 2002-1311, 2003-1 USTC par.
50,185 (N.D. Tex. 2002).
Unlike the taxpayer in Magana, petitioner is not raising a
new issue in his petition. At the hearing, petitioner raised the
issue of compliance with the terms of the offer-in-compromise.
Mr. Coy asked Mr. Talbott to reinstate the offer-in-compromise.
Mr. Coy brought to the attention of Mr. Talbott the fact that he
mailed petitioner’s 1998 return on October 15, 1999. Mr.
Talbott’s notes in his case activity record indicate that Mr. Coy
raised the issue and brought to his attention that Mr. Coy mailed
the return on October 15, 1999. Shortly after the hearing, Mr.
- 30 -
Coy wrote Mr. Talbott stating: “As I had mentioned, I prepared
the return for [petitioner], obtained his signature, and mailed
the return to the Service Center on the evening of October 15,
1999.” This was brought to the attention of Mr. Talbott.
Accordingly, we may consider evidence regarding this issue
at trial, if it is otherwise admissible under the Federal Rules
of Evidence.
D. Whether the Evidence Is Admissible Under the Federal
Rules of Evidence
While we are not limited by the APA’s judicial review
provisions in our proceedings arising under section 6330(d), our
review of materials not included in the Commissioner’s
administrative record is subject to the Federal Rules of
Evidence. Section 7453 and Rule 143(a) provide that the Court’s
proceedings are to be conducted in accordance with the rules of
evidence applicable in trials without a jury in the U.S. District
Court for the District of Columbia. Consistent with section 7453
and Rule 143(a), we must decide whether evidence in this case
which was not included in the administrative record is admissible
under the Federal Rules of Evidence in our proceedings arising
under section 6330(d).
Respondent moved to strike the evidence on the ground of
relevancy. “All relevant evidence is admissible. * * * Evidence
which is not relevant is not admissible.” Fed. R. Evid. 402.
Relevant evidence “means evidence having any tendency to make the
- 31 -
existence of any fact that is of consequence to the determination
of the action more probable or less probable than it would be
without the evidence.” Fed. R. Evid. 401. Therefore, we must
determine whether the evidence presented at trial that respondent
characterizes as “outside of the administrative record” has any
tendency to make the existence of any fact that is of consequence
in determining whether the Appeals officer abused his discretion
more probable or less probable than it would be without the
evidence. We find that the evidence does have a tendency to show
the Appeals officer abused his discretion in determining to
proceed with collection.
Petitioner’s testimony is relevant. Petitioner was not
present at the hearing. Petitioner’s testimony shows that he
signed the 1998 return on October 15, 1999. Petitioner’s
testimony shows that he had filed his returns for 1995, 1996,
1997, 1999, and 2000 on or about October 15 in the same pattern
and practice as he did for 1998. Petitioner’s testimony shows
that he acted in good faith in complying with the terms of the
offer-in-compromise.
Petitioner’s tax returns for 1995, 1996, 1997, 1999, and
2000 are relevant. They show a pattern and practice of
petitioner’s filing his returns on or about October 15. They
show petitioner generally received refunds for the period in
issue. While the Appeals officer reviewed petitioner’s
- 32 -
transcripts for 1995, 1996, 1997, and 1999, he did not consider
petitioner’s pattern and practice of timely filing. After
reviewing petitioner’s transcripts, the Appeals officer concluded
petitioner was probably entitled to a refund for 1998. These
facts, however, were of no consequence to him when he reviewed
whether the offer-in-compromise should have been defaulted.
Mr. Coy’s private postage meter log, cellular telephone
records, credit card records, and daily calendar for October 15,
1999, are relevant. They corroborate Mr. Coy’s statements
regarding mailing. The Appeals officer, however, refused to
consider any evidence of mailing, other than a certified or
registered mail receipt.
Frances Robinette’s testimony is relevant. Under Davis v.
Commissioner, 115 T.C. 35 (2000), taxpayers are not entitled to
call witnesses at the hearing. Mrs. Robinette’s testimony
corroborates petitioner’s good faith and compliance with the
terms of the offer-in-compromise.
Mr. Coy’s statements at trial that he did not make to Mr.
Talbott are relevant. Mr. Coy’s testimony indicates the Appeals
officer’s unwillingness to consider in depth certain issues that
he raised at the hearing.
Accordingly, respondent’s motion to strike will be denied.
- 33 -
IV. Whether Respondent Abused His Discretion
Where, as here, the validity of the underlying tax liability
is not at issue, we review the determination for abuse of
discretion. Sego v. Commissioner, 114 T.C. at 610; Goza v.
Commissioner, 114 T.C. at 181-182. In doing so, we review
whether the Appeals officer’s determination was arbitrary,
capricious, or without sound basis in fact or law. Woodral v.
Commissioner, 112 T.C. at 23. Having observed the appearance and
demeanor of the witnesses testifying for petitioner at trial,
including petitioner, we find them to be honest, forthright, and
credible.
Taking into account all the facts and circumstances, we
conclude that on the basis of the record before us, respondent
abused his discretion in determining to proceed with collection.
A. Whether Petitioner’s Return Was Timely Filed
We note at the outset that contrary to petitioner’s
contentions, we find that petitioner’s return was not timely
filed. Filing, generally, “is not complete until the document is
delivered and received”. United States v. Lombardo, 241 U.S. 73,
76 (1916). Section 7502 provides an exception to this rule.
Section 7502(a)(1) provides that, in certain circumstances, a
timely mailed document will be treated as though it were timely
filed. Section 7502(a)(2) provides that the timely
mailing/timely filing rule applies if the postmark date on an
- 34 -
envelope falls within the prescribed period or on or before the
prescribed date.
In the case of postmarks not made by the U.S. Postal
Service, the timely mailing/timely filing rule applies “only if
and to the extent provided by regulations prescribed by the
Secretary”. Sec. 7502(b). The postmark in this case was made by
a private postage meter. Section 301.7502-1(c)(1)(iii)(b),
Proced. & Admin. Regs., provides:
If the postmark on the envelope or wrapper is made
other than by the United States Post Office, (1) the
postmark so made must bear a date on or before the last
date, or the last day of the period, prescribed for
filing the document, and (2) the document must be
received by the agency, officer, or office with which
it is required to be filed not later than the time when
a document contained in an envelope or other
appropriate wrapper which is properly addressed and
mailed and sent by the same class of mail would
ordinarily be received if it were postmarked at the
same point of origin by the United States Post Office
on the last date, or the last day of the period,
prescribed for filing the document. However, in case
the document is received after the time when a document
so mailed and so postmarked by the United States Post
Office would ordinarily be received, such document will
be treated as having been received at the time when a
document so mailed and so postmarked would ordinarily
be received, if the person who is required to file the
document establishes (i) that it was actually deposited
in the mail before the last collection of the mail from
the place of deposit which was postmarked (except for
the metered mail) by the United States Post Office on
or before the last date, or the last day of the period,
prescribed for filing the document, (ii) that the delay
in receiving the document was due to a delay in the
transmission of the mail, and (iii) the cause of such
delay. If the envelope has a postmark made by the
United States Post Office in addition to the postmark
not so made, the postmark which was not made by the
United States Post Office shall be disregarded, and
- 35 -
whether the envelope was mailed in accordance with this
subdivision shall be determined solely by applying the
rule of (a) of this subdivision. [Emphasis added.]
Mr. Coy testified that he placed petitioner’s return in the
mail between 11 p.m. and midnight. Petitioner presented no
evidence that this was before the last collection for that
mailbox. Petitioner presented no evidence as to a delay in the
transmission of the mail. Petitioner presented no evidence as to
the cause of a delay. Petitioner has failed to meet the
requirements of the regulation. See Fishman v. Commissioner, 420
F.2d 491, 492 (2d Cir. 1970), affg. 51 T.C. 869 (1969); cf. Jones
v. Commissioner, T.C. Memo. 1998-197 (the taxpayer met
requirements of non-U.S.-postmark regulation when evidence
established, in part, that he deposited the envelope in the mail
before the last collection).
Petitioner argues that Estate of Wood v. Commissioner, 909
F.2d 1155 (8th Cir. 1990), affg. 92 T.C. 793 (1989), and not the
regulation, controls this issue. In Estate of Wood, the Court of
Appeals for the Eighth Circuit, the court to which an appeal of
this case would lie, discussed section 7502 in the situation
where the taxpayer’s return was not received by the IRS.
Petitioner’s reliance on Estate of Wood is misplaced. The
presumption of delivery discussed in Estate of Wood is raised
only when a timely mailing occurs. As petitioner’s return was
- 36 -
not timely mailed, the presumption of delivery discussed in
Estate of Wood has not been raised.
On the basis of the foregoing, we hold that petitioner has
not proven that he filed his return on October 15, 1999. Mr. Coy
sent Mr. Talbott a copy of petitioner’s 1998 return. On February
16, 2001, Mr. Talbott received the copy of petitioner’s 1998
return, which he forwarded to the Austin Service Center and which
was then processed by the IRS as an original return.
Petitioner’s transcript of account for 1998 states: “return
filed and tax assessed” on April 2, 2001. Thus, petitioner’s
return was late filed.
B. Whether Petitioner Materially Breached the
Offer-in-Compromise
Despite the late filing of petitioner’s return, under the
facts and circumstances of this case, respondent abused his
discretion in determining to proceed with collection. The
Appeals officer acted arbitrarily and without sound basis in law
and had a closed mind to the arguments presented on petitioner’s
behalf. He failed to consider the facts and circumstances of
this case. He determined to proceed with collection even though
the breach in the contract was not material and under contract
law the contract remained in effect.
- 37 -
1. Jurisdiction To Consider Petitioner’s
Offer-in-Compromise
Respondent contends that the Court has no jurisdiction to
determine whether petitioner’s offer-in-compromise was properly
terminated. Respondent contends that only the Court of Federal
Claims or a U.S. District Court may review this determination.
We disagree.
In Roberts v. United States, 242 F.3d 1065 (Fed. Cir. 2001),
the Court of Appeals for the Federal Circuit reversed and
remanded the order of the U.S. District Court for the Eastern
District of Missouri transferring the case to the Court of
Federal Claims for lack of jurisdiction. The Court of Appeals
held that the U.S. District Court did have jurisdiction over the
taxpayer’s claim for refund, even though the tax liability
resulted from an offer-in-compromise that the IRS had defaulted.
The Court of Appeals reasoned:
Roberts is not requesting, for example, damages
from the government for breach of contract, which would
constitute a claim based purely upon a government
contract. Certainly, the district court does not have
jurisdiction over additional contract claims Roberts
may wish to assert against the government under the
terms of the OIC * * *.
Instead, Roberts has paid taxes that he alleges
were illegally or erroneously collected. Tax cases
heard in the district courts often involve offers in
compromise * * *. The fact that the alleged collection
error stems from the cancellation of Roberts’s OIC
contract with the IRS does not negate the fact that the
monies at issue were paid pursuant to the internal-
revenue laws. [Id. at 1069.]
- 38 -
The Court of Appeals found that the taxpayer had satisfied the
jurisdictional requirements for a tax refund suit. Thus, the
U.S. District Court could review whether the taxpayer’s offer-in-
compromise had been properly defaulted. See id.5
In this case, petitioner is not asserting a cause of action
under contract law. See id. at 1068-1069. Petitioner seeks a
finding from the Court that respondent abused his discretion in
determining to proceed with collection, which is within our
jurisdiction under section 6330. Respondent’s determination to
proceed with collection arises from defaulting petitioner’s
offer-in-compromise. Whether the offer-in-compromise was
properly defaulted is a relevant issue relating to the unpaid tax
or proposed levy. Sec. 6330(c)(2)(A). Respondent issued
petitioner a notice of intent to levy on the basis of
petitioner’s unpaid tax liability.
5
On remand, the U.S. District Court held that the
taxpayer’s failure to timely pay his 1995 taxes was a material
breach of the offer-in-compromise. Further, the court held that
“the doctrine of substantial performance has no relevance in this
case as the Plaintiff completely failed to timely pay his 1995
federal income tax liability, and instead waited to pay it until
April 10, 1997, so that he could offset his tax liability for
1995 with his losses in 1996.” Roberts v. United States, 225 F.
Supp. 2d 1138, 1149 (E.D. Mo. 2001).
- 39 -
2. Whether the Breach of the Offer-in-Compromise
Was Material
a. Applicable Law
“An accepted offer in compromise is properly analyzed as a
contract between the parties.” Dutton v. Commissioner, 122 T.C.
133, 138 (2004). Offers in compromise are governed by “general
principles of contract law.” Id. “If the plaintiff’s breach is
material and sufficiently serious, the defendant’s obligation to
perform may be discharged. * * * Not so, however, if the
plaintiff’s breach is comparatively minor.” TXO Prod. Corp. v.
Page Farms, Inc., 698 S.W.2d 791, 793 (Ark. 1985).
In determining whether a failure to perform is material, the
following five circumstances are significant:
In determining whether a failure to render or to offer
performance is material, the following circumstances
are significant:
(a) the extent to which the injured party will be
deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be
adequately compensated for the part of that benefit of
which he will be deprived;
(c) the extent to which the party failing to
perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to
perform or to offer to perform will cure his failure,
taking account of all the circumstances including any
reasonable assurances;
(e) the extent to which the behavior of the party
failing to perform or to offer to perform comports with
standards of good faith and fair dealing. [1
Restatement, Contracts 2d, sec. 241 (1981).]
- 40 -
Arkansas law adopts this analysis. See TXO Prod. Corp. v. Page
Farms, Inc., supra; see also DHC Resort, LLC v. Razorback
Entertainment Corp., 329 F.3d 974, 976 (8th Cir. 2003) (citing
TXO Prod. Corp. v. Page Farms, Inc., supra, and section 241 of 1
Restatement, Contracts 2d when applying Arkansas law). The
standard of materiality “is to be applied in the light of the
facts of each case in such a way as to further the purpose of
securing for each party his expectation of an exchange of
performances.” 1 Restatement, supra, sec. 241, comment a.
Cases in which courts have found offers in compromise
materially breached, and thus in default, generally involve
taxpayers who either fail to make payments agreed to in the
offer-in-compromise to pay off the amount compromised, or fail to
pay taxes owed during the 5-year period after the offer has been
accepted. See United States v. Feinberg, 372 F.2d 352, 356 (3d
Cir. 1965) (decedent’s installment payments of less than the
amount due and estate’s complete failure to make payments on
offer constituted material breach of offer-in-compromise); United
States v. Lane, 303 F.2d 1, 3-4 (5th Cir. 1962) (taxpayer’s
failure to comply with terms of collateral agreement by refusing
to file annual statements and pay additional money constituted
breach of offer-in-compromise); Roberts v. United States, 225 F.
Supp. 2d 1138, 1148 (E.D. Mo. 2001) (taxpayer’s delay in paying
his 1995 tax liability of $246,354 was a material breach of the
- 41 -
offer-in-compromise); Fortenberry v. United States, 49 AFTR 2d
82-1027, 82-1 USTC par. 9191 (S.D. Miss. 1981) (taxpayer’s
failure to pay additional amounts under collateral agreement was
breach of the terms of the offer-in-compromise); United States v.
Wilson, 182 F. Supp. 567, 570 (D.N.J. 1960) (taxpayer’s failure
to pay weekly installments caused IRS to terminate offer-in-
compromise).
b. Analysis
Loss of benefit to injured party. In petitioner’s late
filing of his 1998 return, in which he was due a refund, the
extent of the benefit that respondent was deprived of was not
significant. Inherent in the requirement that taxpayers comply
with the provisions of the Internal Revenue Code for 5 years is
the IRS expectation that the taxpayer will pay the taxes owed on
time. See Roberts v. United States, 225 F. Supp. 2d at 1148. In
this case, however, petitioner was due a refund.
As stated supra, petitioner’s return was not timely filed.
Not every delay, however, constitutes a material breach. There
must also be a causal connection between the delay and the
damages suffered by respondent, in order for a material breach to
be found on the basis of the delay. 23 Williston on Contracts,
sec. 63:18 (4th ed. 2002). Respondent suffered no monetary
damage from petitioner’s late filing of the 1998 return. Under
- 42 -
the facts of this case, the late filing, by itself, is not
sufficient basis for a material breach of the contract.
Adequacy of compensation for loss. The IRS was adequately
compensated for its “loss”. Respondent suffered minimal, if any,
damages, as he held petitioner’s refund as security.
Forfeiture by party who fails. Under this factor, the
comments in the Restatement explain: “[A] failure is less likely
to be regarded as material if it occurs late, after substantial
preparation or performance, and more likely to be regarded as
material if it occurs early, before reliance.” 1 Restatement,
supra, sec. 241, comment d. In this case, petitioner had
substantially performed under the terms of the offer-in-
compromise at the time the offer was declared in default.
Petitioner’s untimely mailing of the return occurred in the
fourth year of a 5-year agreement. Petitioner had already paid
the full amount of the offer-in-compromise, with borrowed funds,
within 60 days after the offer had been accepted. Petitioner had
complied with the filing requirements for the first 3 years of
the agreement. Further, at the time the Appeals officer
determined to proceed with collection, petitioner had filed his
1998 return and complied with all other terms of the offer-in-
compromise.
- 43 -
Uncertainty. Under this factor, the comments in the
Restatement note:
To the extent that expectation is already reasonably
secure, in spite of the failure, there is less reason
to conclude that the failure is material. The
likelihood that the failure will be cured is therefore
a significant circumstance in determining whether it is
material * * *. The fact that the injured party
already has some security for the other party’s
performance argues against a determination that the
failure is material. [1 Restatement, supra, sec. 241,
comment e.]
As stated supra, respondent was reasonably secured. Respondent
had possession of petitioner’s 1998 refund, making it likely that
petitioner would perform under the agreement by filing his 1998
return. Respondent also had received $100,000 within 60 days of
his acceptance of the offer, which was the amount offered and
accepted as payment of petitioner’s outstanding tax liabilities
from 1983 to 1991. Additionally, before the Appeals officer
determined to proceed with collection, petitioner had cured the
defect. Petitioner submitted his 1998 return to the Appeals
officer, at the request of the Appeals officer, to be filed as an
original return.
Absence of good faith or fair dealing. Petitioner acted in
good faith. Petitioner signed his 1998 return on the due date
and gave it back to Mr. Coy for mailing. This was the pattern
and practice petitioner had used in filing the returns prepared
by Mr. Coy. He paid the full amount of the offer-in-compromise
within 60 days after acceptance of the offer, with borrowed
- 44 -
funds. He timely filed his returns for 1995, 1996, 1997, 1999,
and 2000.6 Except for 1995, petitioner’s returns indicate that
petitioner was entitled to refunds. For 1998, petitioner was
entitled to a refund. Before respondent issued the notice of
determination, petitioner had filed his 1998 return. Indeed,
when petitioner received the notices from the IRS, he called Mr.
Coy to discuss them and also forwarded the notices by fax to Mr.
Coy, as he was “scared to death”.
Additionally, Mr. Talbott did not have an open mind to the
issues Mr. Coy presented at the hearing. He did not consider
that petitioner had acted in good faith. Mr. Talbott did not
consider petitioner’s pattern of filing of returns on or about
October 15, despite having looked at the transcripts for 1995,
1996, 1997, and 1999.
Mr. Talbott did not have an open mind regarding
reinstatement. Moreover, he failed to independently analyze
whether the terms of the offer-in-compromise had been materially
breached. Mr. Talbott believed he had no authority to reinstate
petitioner’s offer-in-compromise. He believed only the National
Office could reinstate the offer-in-compromise. Neither the
Internal Revenue Code nor the Internal Revenue Manual, however,
states that he could not reinstate the offer-in-compromise. Mr.
6
We note that by the terms of the offer-in-compromise, the
offer-in-compromise did not apply to 2000.
- 45 -
Talbott reviewed the Internal Revenue Manual. The manual was
silent as to whether he could reinstate the offer-in-compromise.
On the basis of the facts and circumstances of this case, we
conclude that petitioner did not materially breach the terms of
the offer-in-compromise. As the offer-in-compromise was not in
default, it was an abuse of discretion for respondent to
determine to proceed with collection of petitioner’s tax
liability.
In reaching all of our holdings herein, we have considered
all arguments made by the parties, and to the extent not
mentioned above, we find them to be irrelevant or without merit.
To reflect the foregoing,
An appropriate order and
decision will be entered.
Reviewed by the Court.
GERBER, COHEN, SWIFT, WELLS, and LARO, JJ., agree with this
majority opinion.
CHIECHI, J., dissents.
- 46 -
WELLS, J., concurring: I respectfully write separately to
express my belief that the majority opinion may have
unnecessarily focused its analysis on contract law to decide
whether respondent abused his discretion in the instant case.
Section 6330(c)(3)(C) requires the Appeals officer 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.” This provision requires the Appeals officer, when
conducting a hearing under section 6330, to carry out a balancing
of competing considerations between the Government and the person
against whom the collection action is instituted. Given this
balancing requirement, I do not believe the Appeals officer
should be required to rigidly apply contract law in determining
whether the Government should proceed with collection of a
liability where that liability, as in the instant case, has been
compromised in an agreement between the Government and the person
against whom the collection action has been instituted.1 Such a
requirement would detract from the flexibility and discretion
Congress granted the Appeals officer in section 6330(c)(3)(C) to
balance competing interests between the Government and those
persons. Consequently, I believe the focus of the analysis in
1
I do not mean to suggest, however, that respondent could
not have considered contract law issues, as well as other facts
and issues, as part of the balancing required under sec.
6330(c)(3)(C).
- 47 -
the instant case should be on whether respondent failed to
undertake the balancing required under section 6330(c)(3)(C).
On the basis of the trial Judge’s findings set out in the
majority opinion in the instant case it is clear to me that
respondent failed to balance the relatively slight harm to
respondent of receiving an hours-late2 return against the great
harm to petitioner of reinstating and collecting a large tax
liability. The abuse of discretion in failing to undertake the
required balancing becomes apparent when taking into account that
petitioner had timely filed his other returns as agreed in the
offer-in-compromise agreement, had made a good faith effort to
timely file the 1998 return, and had paid all the tax due in that
return and was due a refund. See majority op. pp. 4-7. Despite
petitioner’s technical3 failure to timely file the 1998 return,
respondent should have allowed petitioner to present evidence
that favored petitioner’s position and should have taken those
facts into account in balancing the competing interests between
the Government and petitioner. Respondent should have considered
2
By “hours-late” I mean hours after the “last collection”
requirement of sec. 301.7502-1(c)(1)(iii)(B), Proced. & Admin.
Regs.
3
I do not mean to imply that taxpayers are not required to
comply with the technical requirements of the Internal Revenue
Code and the regulations thereunder. However, respondent should
have allowed petitioner to present evidence favoring petitioner’s
position despite petitioner’s failure to comply with the last
collection requirement of sec. 301.7502-1(c)(1)(iii)(B), Proced.
& Admin. Regs.
- 48 -
that evidence, and on the basis of such evidence, should have
determined not to proceed with collection. Respondent’s failure
to do so under these circumstances is an abuse of discretion.
Regarding Magana v. Commissioner, 118 T.C. 488 (2002), I
question whether that case has any application to the instant
case. The majority opinion properly distinguishes Magana on the
grounds that petitioner is not raising a new issue. See majority
op. p. 29. However, even if Magana could be read to exclude
relevant and admissible evidence not raised during an Appeals
Office hearing, it would have no application to the instant case.
During the Appeals Office hearing in the instant case, petitioner
attempted to present evidence relevant to his position, and
respondent refused to consider it. If the Tax Court had no
authority to develop a factual record in the instant case, there
would not have been a sufficient record to determine whether
respondent had abused his discretion. This is important because
there are no formal procedures available for Appeals Office
hearings. See sec. 301.6330-1(d)(1), Q&A-D6, Proced. & Admin.
Regs. As this Court has stated, Appeals Office hearings
historically have been informal, and in enacting section 6330,
Congress did not intend to alter the nature of Appeals Office
hearings. Davis v. Commissioner, 115 T.C. 35, 41 (2000). Thus,
if the parties were not allowed to make a record in the trial
before this Court, they could be precluded from presenting all of
- 49 -
the evidence in support of their respective positions. Even the
Commissioner has routinely sought to add evidence to the record
in trials before this Court in order to bolster his determination
in collection cases. See Chase v. Commissioner, T.C. Memo. 2002-
93, affd. 55 Fed. Appx. 717 (5th Cir. 2002); Lindsey v.
Commissioner, T.C. Memo. 2002-87, affd. 56 Fed. Appx. 802 (9th
Cir. 2003); Holliday v. Commissioner, T.C. Memo. 2002-67, affd.
57 Fed. Appx. 774 (9th Cir. 2003).
Regarding this issue, I also do not believe that allowing
petitioner to present evidence in the instant case would mean
that in other cases where a person refuses to comply with an
Appeals officer’s reasonable request for relevant evidence at the
hearing, we would be required to receive that evidence in a trial
in this Court. In the instant case, petitioner attempted to
present a wide array of evidence to support his position, and the
Appeals officer refused to receive it. Thus, the case where a
person refuses to furnish relevant evidence requested at the
Appeals Office hearing is not before us and raises an issue the
Court has not addressed and need not address.
Accordingly, I agree with the conclusion of the majority
opinion that respondent should be prevented from proceeding with
collection in the instant case.
GERBER, FOLEY, MARVEL, and WHERRY, JJ., agree with this
concurring opinion.
- 50 -
THORNTON, J., concurring: I agree with the majority
opinion’s holding that the Administrative Procedure Act (APA), 5
U.S.C. secs. 551-559, 701-706 (2000), does not apply to our
proceedings under section 6330. Since its enactment in 1946, the
APA has never governed proceedings in this Court (or in its
predecessor, the Board of Tax Appeals), and there is no
indication that, in enacting section 6330, Congress intended to
change this general inapplicability of the APA. See Ewing v.
Commissioner, 122 T.C. 32, 50 (2004) (Thornton, J., concurring);
see also O’Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir.
1959) (“The Tax Court * * * is a court in which the facts are
triable de novo * * *. We agree that the Tax Court is not
subject to the Administrative Procedure Act”), affg. 28 T.C. 698(1957).
I also agree with the majority opinion’s holding that, under
the circumstances of this case, we may consider relevant evidence
presented at trial which was not included in respondent’s
administrative record. As discussed in my concurring opinion in
Ewing, this Court traditionally has applied de novo trial
procedures when reviewing the Commissioner’s determinations,
including in cases that we review for an abuse of discretion.
The majority opinion should not be construed, however, to
hold that the administrative record has no significance in our
review of determinations under sections 6320 and 6330. Indeed,
the administrative record takes on added significance under these
- 51 -
sections given the statutory requirement of an Appeals Office
hearing, and we often have relied on the administrative record in
reviewing Appeals Office determinations. Moreover, in
appropriate circumstances, we might restrict ourselves to the
administrative record--for instance, where the taxpayer has
failed to cooperate in presenting relevant evidence at the
Appeals Office hearing. In the instant case, petitioner
attempted to introduce relevant evidence at the Appeals Office
hearing, but the Appeals officer refused to consider that
evidence and failed to include it in the administrative record.
In these circumstances, I agree with the majority opinion that we
are not limited to evidence in the administrative record.
Section 6330(c)(2) provides that a taxpayer may raise at the
Appeals Office hearing “any relevant issue relating to the unpaid
tax or the proposed levy”. Section 6330(c)(3) requires that the
determination by an Appeals officer shall take into consideration
the relevant issues raised by the taxpayer in the Appeals Office
hearing. In this case, Judge Vasquez, as the trial Judge, has
found that issues relating to whether petitioner defaulted on the
offer-in-compromise are relevant issues that petitioner raised in
the Appeals Office hearing and which should have been considered
by the Appeals officer in his determination, but were not. I
defer to Judge Vasquez, as the trial Judge, in identifying the
issues raised at the Appeals Office hearing and whether those
issues are relevant. I also defer to his conclusions that the
- 52 -
Appeals officer failed to consider those relevant issues in his
determination. On that basis, I agree with the majority opinion
that “it was an abuse of discretion for respondent to determine
to proceed with collection of petitioner’s tax liability.”
Majority op. p. 45.
A taxpayer’s express agreement to file timely tax returns is
an integral condition to the Commissioner’s acceptance of an
offer-in-compromise, and a reasonable one–-it merely confirms an
obligation that is statutorily imposed (even in cases where the
taxpayer is entitled to a refund), see secs. 6011(a) and 6012,
and that is fundamental to our income tax system. Consequently,
a taxpayer’s failure to honor this obligation is not to be
lightly regarded. With that being said, however, I agree with
the majority opinion that it was an abuse of discretion to
proceed with collection of petitioner’s tax liability without
considering relevant issues relating to petitioner’s offer-in-
compromise. I shall defer to Judge Vasquez’s judgment in
fashioning an appropriate remedy to address that abuse of
discretion.
GERBER, COHEN, SWIFT, LARO, FOLEY, GALE, HAINES, GOEKE,
WHERRY, and KROUPA, JJ., agree with this concurring opinion.
- 53 -
MARVEL, J. concurring: I agree that the Administrative
Procedure Act does not apply and we are not limited to the
administrative record, and with the majority’s conclusion that
the Appeals officer abused his discretion in this case, but I
question the majority’s reliance on principles of contract law to
reach its conclusion. The Appeals officer’s failure to refer the
case to the National Office for guidance regarding the
reinstatement of petitioner’s offer-in-compromise before making
his determination in this case is more than sufficient to support
the conclusion that the Appeals officer abused his discretion in
upholding the proposed collection action.
In his brief, petitioner asserted several errors that he
contended established an abuse of discretion. One of those
errors was that the Appeals officer “did not fully investigate
the method of reinstating a revoked Offer in Compromise.” The
Appeals officer testified at trial that he did not believe that
he had the authority to reinstate the offer-in-compromise. He
also testified, however, that he could have referred the case to
the National Office for guidance concerning the reinstatement of
an offer-in-compromise.1 Given the importance of the
reinstatement issue in determining whether the collection action
1
Although the Appeals officer’s case activity records
indicate that he telephoned a person in the National Office on at
least two occasions regarding whether a defaulted offer-in-
compromise could be reinstated, it does not appear from the
records that formal guidance from the National Office was ever
obtained.
- 54 -
could proceed, the Appeals officer should have obtained the
guidance he needed from the National Office before he made his
determination in this case.
An Appeals officer is required by section 6330(c)(3) 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.” Until the Appeals officer had fully
explored whether and under what circumstances he had authority to
reinstate petitioner’s offer-in-compromise, it was impossible for
the Appeals officer to conduct the balancing analysis that
section 6330(c)(3) requires. Coupled with the Appeals officer’s
reluctance to fully explore the facts regarding petitioner’s
compliance with the terms and conditions of the offer-in-
compromise, which the majority discusses at length, the failure
to obtain the necessary guidance from the National Office
supports a conclusion that the balancing required by section
6330(c)(3) did not occur and that the Appeals officer abused his
discretion in upholding the proposed collection action.
LARO and WHERRY, JJ., agree with this concurring opinion.
- 55 -
HAINES, J., concurring: I concur with the result reached by
the majority that we are not limited by the Administrative
Procedure Act in this case, our review is not limited to the
administrative record, and respondent abused his discretion in
his determination to proceed with collection of petitioner’s 1998
tax liability. I write separately to make two points.
First, we have held that an offer-in-compromise is governed
by general principles of contract law. Dutton v. Commissioner,
122 T.C. 133, 138 (2004); majority op. p. 39. We have not
extended that holding to mean that the general principles of
contract law must be determined by application of the law of the
State where the taxpayer resides.
The majority opinion uses the Restatement of Contracts to
provide the circumstances in which a failure to perform is
“material”. Majority op. p. 39 (citing 1 Restatement, Contracts
2d, sec. 241 (1981)). The majority opinion further states that
“Arkansas law adopts this analysis.” Majority op. p. 40.
Readers of this Opinion should not infer that the use of State
law of a taxpayer’s residence, rather than general contract
principles, is necessary to reach the majority’s result. Given
the number of offers-in-compromise negotiated and overseen by the
Commissioner, if the terms of each offer-in-compromise had to be
analyzed on the basis of the State law of a taxpayer’s residence,
the result would be an administrative nightmare for the
- 56 -
Commissioner. General contract principles as expressed in the
Restatement of Contracts should control these determinations.
Second, an offer-in-compromise is an agreement between the
taxpayer and the Government which settles a tax liability for
payment of less than the full amount owed. 2 Administration,
Internal Revenue Manual (CCH), sec. 5.8.1.1.1, at 16,253. In the
case at bar, petitioner paid $100,000 to compromise individual
income tax and statutory additions totaling $989,475. Majority
op. p. 3. By defaulting petitioner, respondent now seeks to
collect the remaining sums previously compromised.
Noncompliance with the terms of the offer-in-compromise does
not automatically result in the offer’s being defaulted. As 2
Administration, Internal Revenue Manual (CCH), sec. 5.19.7.3.22,
at 18,507 (Defaults) states:
(1) When a taxpayer fails to meet any term of an offer,
the offer may be defaulted and all liabilities reinstated.
Any of the following may result in a default of the offer.
* * * * * * *
• Failure to timely file subsequent tax returns and pay
all taxes due during the compliance period.
The Internal Revenue Manual further states that “If the taxpayer
does not comply with the provisions of the offer in compromise,
the offer may be considered in default.” 4 Administration,
Internal Revenue Manual (CCH), sec. 8.13.2.5.4, at 27,581
(Actions on Defaulted Offers) (emphasis added).
- 57 -
Compromises are favored in the law, Big Diamond Mills Co. v.
United States, 51 F.2d 721, 724 (8th Cir. 1931), and, thus, the
Commissioner is under an obligation to be clear on the
circumstances before making a default determination. In the case
at bar, the Appeals officer failed to consider petitioner’s
pattern of filing his tax returns on or about October 15, did not
speak with petitioner, and failed to independently analyze
whether the terms of the offer-in-compromise had been materially
breached. Majority op. p. 10. Failure to consider these facts
constitutes an abuse of discretion.
GOEKE and WHERRY, JJ., agree with this concurring opinion.
- 58 -
WHERRY, J., concurring: While I agree with the majority in
concluding that our review is not limited to the administrative
record, I write separately to emphasize the temporal requirement
which, in my view, must be met to satisfy the evidentiary burden.
The majority holds:
that, when reviewing for abuse of discretion under
section 6330(d), we are not limited by the
Administrative Procedure Act (APA) and our review is
not limited to the administrative record. The evidence
in this case pertains to issues raised at the hearing.
The [new] evidence in this case is relevant and
admissible. [Majority op. p. 17.]
This conclusion should not be construed as sanctioning the
dilatory introduction at trial of new facts or documents
previously withheld and not produced at the Appeals hearing in
order to justify reversal or remand of the Appeals or settlement
officer’s determination. “It is the responsibility of the
taxpayer to raise all relevant issues at the time of the pre-levy
hearing.” H. Conf. Rept. 105-599, at 266 (1998), 1998-3 C.B.
747, 1020; see Magana v. Commissioner, 118 T.C. 488, 493 (2002).
“Taxpayers will be expected to provide all relevant information
requested by Appeals, including financial statements, for its
consideration of the facts and issues involved in the hearing.”
Sec. 301.6330-1(e)(1), Proced. & Admin. Regs.
Nevertheless, pursuant to section 6330(d)(2), the Internal
Revenue Service Office of Appeals retains jurisdiction of the
collection action after the determination is made and a taxpayer
may “apply for consideration of new information, make an offer-
- 59 -
in-compromise, request an installment agreement, or raise other
considerations at any time, before, during, or after the Notice
of Intent to Levy hearing.” H. Conf. Rept. 105-599, supra at
266, 1998-3 C.B. at 1020. This Court should consider the entire
record of the actions taken by the Appeals Office at the time it
conducts its judicial review.
Consequently, where the Appeals officer has invited or
requested relevant facts or documents from the taxpayer, before
or at the collection hearing, and those facts or documents are
not provided within a reasonable time, their attempted
introduction as new evidence at trial may not establish an abuse
of discretion. This could be the result because of the temporal
requirement, even though an abuse of discretion might have been
demonstrated had the documentation been timely produced before or
at the collection hearing.
In the instant case, the Appeals officer’s failure to fairly
consider evidence available at the hearing and to request and
consider possible corroborating evidence (where petitioner’s and
his accountant’s credibility was, in the Appeals officer’s mind,
at issue), coupled with the failure to ascertain whether a
material breach of the existing offer-in-compromise had occurred,
constituted an abuse of discretion.
COHEN, LARO, GALE, THORNTON, HAINES, and GOEKE, JJ., agree
with this concurring opinion.
- 60 -
HALPERN and HOLMES, JJ., dissenting:1 Petitioner admittedly
owed almost $1 million in back taxes and additions to tax.
Respondent agreed to forgo collection of almost 90 percent of
that amount in exchange for petitioner’s promise to pay the
balance of $100,000 in 60 days and pay additional amounts if his
future income exceeded certain levels.2 Respondent expressly
conditioned his forbearance on petitioner’s timely compliance
with tax filing and payment requirements over the next 5 years.
The majority essentially concludes that, notwithstanding
petitioner’s failures to (1) comply with the timely filing
condition and (2) respond to at least three written requests
demanding compliance, respondent may not declare petitioner in
default and proceed to collect the compromised amount in
accordance with the terms of the offer-in-compromise (OIC).
Along the way, the majority (1) eviscerates the Court’s holding
in Magana v. Commissioner, 118 T.C. 488 (2002), regarding the
matters we may properly address in a collection due process case,
1
Seventeen judges voted in conference on Judge Vasquez’s
report in this case. Including Judge Vasquez, six judges agree
fully with the report, while eight concur in the result but take
exception to one or more of the report’s particulars. Since we
do not have a full exposition of the exceptions, we are unable to
say exactly how strong the conference agreement is on any of the
particulars of the report. We will assume, however, that a
majority could be marshaled for each of the particulars we
address here, and will refer to the “majority” in discussing
those particulars.
2
As part of the agreement, petitioner also waived the
period of limitations on collection.
- 61 -
and (2) unwisely extends Ewing v. Commissioner, 122 T.C. 32(2004), which involved the evidence we may consider in a
proceeding involving section 6015(f) (“equitable” innocent spouse
relief). Respectfully, we dissent.
I. Issues Regarding the Scope of Our Review
Before we address the substantive aspect of the majority
opinion, we turn our attention to our concerns regarding
procedure.
A. “Topical” Scope of Review
As the majority recognizes, majority op. p. 27, we held in
Magana v. Commissioner, supra at 493, that, in reviewing
determinations of the Commissioner under section 6330(d)(1) for
abuse of discretion, “generally we consider only arguments,
issues, and other matter that were raised at the collection
hearing or otherwise brought to the attention of the Appeals
Office.” See also sec. 301.6330-1(f)(2), Q&A-F5, Proced. &
Admin. Regs. (taxpayer appealing the Commissioner’s determination
may ask the court to consider only issues that were raised at the
administrative hearing). The majority distinguishes Magana on
the ground that “petitioner is not raising a new issue in his
petition.” Majority op. p. 29. As far as it goes, that is a
true statement: Neither in the petition nor, previously, in his
dealings with the Appeals Office did petitioner raise the issue
of “material breach” (the majority does that on its own). The
- 62 -
majority overcomes that obstacle by broadly framing the issue as
“compliance with the terms of the offer-in-compromise”, id.,
which, by implication, encompasses both actual (strict)
compliance (petitioner’s position) and deemed (substantial)
compliance (the majority’s position).
The majority’s expansive characterization of the contract
issue in this case is simply another way of saying that there is
more than one possible argument in support of petitioner’s claim
that the OIC remained in force. Petitioner argued to the Appeals
officer that the OIC remained in force because he had timely
filed his 1998 return. He did not present to the Appeals officer
the argument underlying the majority’s conclusion; viz., that the
OIC remained in force because petitioner’s untimely filing of his
1998 return was not a material breach. As we stated in Magana v.
Commissioner, supra at 493: “[G]enerally it would be anomalous
and improper for us to conclude that respondent’s Appeals Office
abused its discretion under section 6330(c)(3) in failing to
grant relief, or in failing to consider arguments, issues, or
other matter not raised by taxpayers or not otherwise brought to
the attention of respondent’s Appeals Office.” It is indeed
anomalous and improper for the majority to conclude that
respondent’s Appeals Office abused its discretion in this case
for failing to consider an argument not brought to its attention.
- 63 -
B. Evidentiary Scope of Review
1. Unwarranted Extension of Ewing v. Commissioner
In Ewing v. Commissioner, supra (a report reviewed by the
Court pursuant to section 7460(b)), the Court held that, in
determining whether the Commissioner has abused his discretion in
denying “equitable” innocent spouse relief under section 6015(f),
the Court is not limited to a review of the administrative
record; i.e., the petitioning taxpayer is entitled to a trial de
novo. The Commissioner had argued that we are so limited
“pursuant to the Administrative Procedure Act (APA), 5 U.S.C.
secs. 551-559, 701-706 (2000) and cases decided thereunder”.3
Id. at 35.
Although the Court disagreed with the Commissioner’s APA
argument, id. at 36, it based its holding largely on the language
and structure of section 6015. Specifically, the Court focused
on the similar language in section 6015(e)(1)(A) (jurisdiction to
“determine” the appropriate relief under section 6015) and
sections 6213 and 6214(a) (jurisdiction to “redetermine”
3
As we discussed in our dissenting opinion in Ewing v.
Commissioner, 122 T.C. 32, 57-59 (2004) (Halpern and Holmes, JJ.,
dissenting), the issue regarding the applicability of the APA is
a red herring. The issue in Ewing was whether our review of the
Commissioner’s denial of sec. 6015(f) relief is subject to the
record rule–-the general rule of administrative law that a court
can engage in judicial review of an agency action only on the
basis of the record amassed by the agency. See id. at 56, 58.
The record rule predates, and indeed is not codified in, the APA.
Id. at 58 n.4.
- 64 -
deficiencies asserted by the Commissioner, which proceedings
unquestionably are conducted on a de novo basis). Id. at 38-39.
The Court also reasoned that, inasmuch as a section 6015(f) claim
(1) does not necessarily involve the review of discretionary
action on the part of the Commissioner, see sec.
6015(e)(1)(A)(i)(II), (2) may be raised as an affirmative defense
in an otherwise de novo deficiency proceeding, see, e.g., Butler
v. Commissioner, 114 T.C. 276, 287-288 (2000), and (3) may
involve the intervention of a third party (i.e., the
nonrequesting spouse) who may not have participated in the
administrative proceeding, see sec. 6015(e)(4), Congress likely
intended a uniform, de novo scope of review to apply to such
claims. See Ewing v. Commissioner, supra at 42-43.
In the instant case, despite the lack of any reference to
the APA in respondent’s opening brief, the majority frames the
issue regarding the appropriate scope of review as follows:
“Applicability of the APA Judicial Review Provisions to Tax Court
Proceedings Commenced Under Section 6330(d)”. Majority op. p.
17. The ensuing discussion in the majority opinion is based
primarily on Judge Thornton’s concurring opinion in Ewing v.
Commissioner, supra at 50-56, which focuses exclusively on the
APA issue. The majority loses sight of the fact that, in Ewing,
a substantial portion of the Court’s analysis, as discussed
above, was based on the unique aspects of section 6015. The
- 65 -
majority’s extension of Ewing to section 6330 cases is both
unwarranted and uncritical.
2. Additional Criticism of the Majority’s Scope
of Review Analysis
In our dissenting opinion in Ewing v. Commissioner, 122 T.C.
at 56-67 (Halpern and Holmes, JJ., dissenting), we discussed at
some length our view that, in the context of our “review”
jurisdiction, see id. at 56 n.1 and accompanying text, the
appropriate evidentiary scope of review is the administrative
record. See, e.g., Camp v. Pitts, 411 U.S. 138, 142 (1973) (in
reviewing agency action for abuse of discretion, “the focal point
for judicial review should be the administrative record already
in existence, not some new record made initially in the reviewing
court”); United States v. Carlo Bianchi & Co., 373 U.S. 709, 715
(1963) (the terms “arbitrary” and “capricious” “have frequently
been used by Congress and have consistently been associated with
a review limited to the administrative record”). While we see no
need to repeat here our entire analysis in support of that view,4
4
We do note that, in our Ewing dissent, we addressed much
of the authority relied on by the majority here in its scope of
review analysis. See, e.g., Ewing v. Commissioner, supra at 60-
61 (Halpern and Holmes, JJ., dissenting) (criticizing O’Dwyer v.
Commissioner, 266 F.2d 575 (4th Cir. 1959), affg. 28 T.C. 698(1957)); id. at 60 n.7 (explaining the context of Nappi v.
Commissioner, 58 T.C. 282 (1972)); id. at 61 n.9 (explaining the
context of Bowen v. Massachusetts, 487 U.S. 879, 903 (1988), and
Beall v. United States, 336 F.3d 419 (5th Cir. 2003)); id. at 64
n.11 (discussing APA sec. 559); id. at 65-66 (distinguishing Thor
Power Tool v. Commissioner, 439 U.S. 522 (1979), Bausch & Lomb,
(continued...)
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we do address certain difficulties with the majority’s scope of
review analysis in this case.
a. Prior Section 6330 Cases in This Court
The majority cites five Memorandum Opinions of this Court in
support of the statement that “[a]t trials under section 6330
when reviewing for abuse of discretion, the Court has received
into evidence testimony and exhibits that were not included in
the administrative record.” Majority op. pp. 17-18. None of
those opinions addresses the issue in this case; i.e., whether it
is appropriate for the Court to go beyond the administrative
record in a section 6330 case. The majority also cites three
additional Memorandum Opinions of this Court in which “we * * *
noted the taxpayer’s failure to present evidence at trial.”
Majority op. p. 19 n.4. Again, none of those opinions addresses
the issue of whether it is appropriate for the Court to consider
matters beyond the administrative record in a section 6330 case.
The majority also cites and quotes an unpublished opinion of
the Court of Appeals for the Ninth Circuit affirming one of the
aforementioned cases. Majority op. pp. 18-19; see Holliday v.
Commissioner, 91 AFTR 2d 2003-1338, 2003-1 USTC par. 50,358 (9th
Cir. 2003), affg. T.C. Memo. 2002-67. That court did devote two
4
(...continued)
Inc. v. Commissioner, 933 F.2d 1084 (2d Cir. 1991), affg. 92 T.C.
525 (1989), and Krause v. Commissioner, 99 T.C. 132 (1992), affd.
sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir.
1994)).
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sentences to the “scope of review” issue. Specifically, the
Court of Appeals stated that the “record review” provisions of
the APA do not apply to the Tax Court.5 The Court of Appeals
provided the following citation in support of that statement:
“See 5 U.S.C. § 504(a)(1) (APA does not apply where ‘a matter
[is] subject to a subsequent trial of the law and the facts de
novo in a court’).” APA section 554, to which the Court of
Appeals presumably was referring, provides rules governing agency
adjudications “required by statute to be determined on the record
after opportunity for an agency hearing”–-i.e., formal agency
adjudications. APA section 554(a)(1) simply provides that,
notwithstanding the general scope of APA section 554, that
section (as opposed to the entire APA) does not apply if the
matter is subject to a subsequent trial de novo. In other words,
the agency adjudication of such a matter need not conform to the
“formal” procedural rules set forth in APA section 554. As
section 6330 administrative adjudications are not “required by
statute to be determined on the record”, it follows that APA
section 554, including the “de novo” exception of APA section
554(a)(1), is altogether inapplicable to section 6330
proceedings.
5
As noted earlier, see supra note 3, the record rule
predates, and is not codified in, the APA. See also Ewing v.
Commissioner, 122 T.C. at 60 n.8 and accompanying text (Halpern
and Holmes, JJ., dissenting).
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b. Analogy to Deficiency Proceedings
Distilled to its essence, this portion of the majority’s
analysis proceeds from two major premises and one minor premise.
The major premises are: (1) Our de novo deficiency procedures
were well established before the enactment of the APA in 1946;
and (2) Congress did not intend to disturb those existing
procedures when it enacted the APA. We have absolutely no
quarrel with either of those premises. By definition, then, the
judge-made record rule, which is generally applicable to judicial
review of agency action, does not apply to deficiency proceedings
in this Court. The majority’s conclusion that the record rule is
inapplicable to our section 6330 cases as well is based on the
minor premise that section 6330, enacted in 1998, is “part and
parcel” of the “specific statutory framework for reviewing
determinations of the Commissioner” (i.e., our de novo deficiency
procedures) that Congress did not intend to disturb in 1946. See
majority op. p. 21. It is that minor premise that we are unable
to accept. Cf. Ewing v. Commissioner, supra at 64 n.11, 65-66
(Halpern and Holmes, JJ., dissenting).
c. Section 6330 Hearings as Informal Adjudications
Here the majority seems to imply that only formal agency
adjudications (i.e., those subject to the procedures set forth in
APA sections 554, 556, and 557) are subject to the record rule.
According to the Supreme Court, however, the record rule is no
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less applicable to judicial review of informal agency action.
See, e.g., Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744
(1985). In the event the administrative record of such an
informal proceeding is insufficiently developed, “the proper
course, except in rare circumstances, is to remand to the agency
for additional investigation or explanation.” Id.; see also
United States v. Carlo Bianchi & Co., 373 U.S. at 718 (remand
“would certainly be justified where the department had failed to
make adequate provision for a record that could be subjected to
judicial scrutiny”).
d. Other Instances Where the Court Reviews for Abuse
of Discretion
The majority notes that the Court “‘has a long tradition of
providing trials when reviewing the Commissioner’s determinations
under an abuse of discretion standard.’” Majority op. p. 25
(quoting Judge Thornton’s concurring opinion in Ewing v.
Commissioner, 122 T.C. at 53). In our Ewing dissent, we
suggested (on the basis of language in Estate of Gardner v.
Commissioner, 82 T.C. 989, 999, 1000 (1984)) that our application
of an abuse of discretion standard is properly the subject of a
trial de novo when the exercise of discretion at issue is
relevant to the Commissioner’s determination of the existence or
amount of a deficiency in tax or an addition to tax that is
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subject to our deficiency jurisdiction. See Ewing v.
Commissioner, supra at 65-66 (Halpern and Holmes, JJ.,
dissenting). We continue to adhere to that view.6
The majority cites a number of cases decided under the abuse
of discretion standard, stating that “[i]n none of these types of
cases have we held * * * that we are limited to the
administrative record.” Majority op. p. 26 (emphasis added). In
three of the types of cases to which the majority alludes
(involving section 482 reallocations, section 446 “clear
reflection of income” determinations, and waivers of the former
section 6659 addition to tax), the inapplicability of the record
rule is consistent with the suggested approach discussed in the
preceding paragraph. See Ewing v. Commissioner, supra at 65
(Halpern and Holmes, JJ., dissenting).
The other two types of cases cited by the majority involve
declaratory judgments with respect to determinations of the
Commissioner under section 7428 (tax-exempt status) and section
7476 (qualified status of retirement plans).7 De novo
6
The fact that our application of an abuse of discretion
standard may be the subject of a trial de novo does not
necessarily mean that we are free to substitute our judgment for
that of the Commissioner in such cases. See, e.g., Capitol Fed.
Sav. & Loan Association v. Commissioner, 96 T.C. 204, 209 (1991)
(sec. 446); Bausch & Lomb, Inc. v. Commissioner, 92 T.C. 525(1989), affd. 933 F.2d 1084 (2d Cir. 1991) (sec. 482).
7
Separately, the majority cites two Memorandum Opinions of
this Court in support of the proposition that “[t]he Court has
(continued...)
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proceedings in those types of cases would be inconsistent with
the approach we suggested in our Ewing dissent. Contrary to the
majority’s assertion, we have limited our review to the
administrative record in those types of cases. See Houston
Lawyer Referral Serv., Inc. v. Commissioner, 69 T.C. 570, 577
(1978) (“To allow oral testimony * * * as to facts not otherwise
in the administrative record to be introduced in evidence * * *
in a section 7428 declaratory judgment proceeding would convert
that proceeding from a judicial review of administrative action
to a trial de novo” and “would permit an applicant [for tax-
exempt status] to withhold information from the Internal Revenue
Service and then to introduce it before the Court”); Tamko
Asphalt Prods., Inc. v. Commissioner, 71 T.C. 824, 837 (1979)
(rejecting the argument of the taxpayer in a section 7476
proceeding “that it is entitled to a trial as in any other matter
before this Court”, the Court reasoned that “[t]o permit
extrinsic evidence, other than that present in the administrative
record, would convert a declaratory judgment proceeding from a
7
(...continued)
consistently conducted trials on the issue of whether the
Commissioner’s denial of a request to abate interest under
section 6404 was an abuse of discretion.” Majority op. pp. 25-
26. In neither case did the Court address the issue of the
appropriate scope of review. Although the issue is not before us
today, we would conclude that, for the same reasons discussed
herein and in our Ewing dissent, our review of the Commissioner’s
interest abatement determinations is not properly the subject of
de novo proceedings. See Ewing v. Commissioner, 122 T.C. at 65
n.12 (Halpern and Holmes, JJ., dissenting).
- 72 -
judicial review of an administrative determination to a judicial
trial de novo”), affd. 658 F.2d 735 (10th Cir. 1981).
e. Disregard of District Court Cases
The District Courts of the United States have jurisdiction
to hear section 6330 appeals involving taxes over which the Tax
Court does not have jurisdiction. Sec. 6330(d)(1)(B). As far as
we can tell, those courts have uniformly limited their review for
abuse of discretion in such cases to the administrative record.
See Muller v. Rossotti, 93 AFTR 2d 2004-1782, 1786-1787, 2004-1
USTC par. 50,239, at 83,495 (M.D. Tenn. 2004) (quoting United
States v. Carlo Bianchi & Co., 373 U.S. at 714); Living Care
Alternatives, Inc. v. United States, 93 AFTR 2d 2004-761, 764
n.2, 2004-1 USTC par. 50,167, at 83,249 n.2 (S.D. Ohio 2003);
Hart v. United States, 291 F. Supp. 2d 635, 640 (N.D. Ohio 2003);
Cmty. Residential Servs., Inc. v. United States, 91 AFTR 2d 2003-
2190, 2190, 2003-1 USTC par. 50,458, at 88,339 (M.D.N.C. 2003)
(citing Camp v. Pitts, 411 U.S. at 142-143); Dudley’s Commercial
& Indus. Coating, Inc. v. United States, 292 F. Supp. 2d 976, 985
(M.D. Tenn. 2003) (citing Camp v. Pitts, supra at 142); Triad
Microsys., Inc. v. United States, 90 AFTR 2d 2002-7332, 7334,
2003-1 USTC par. 50,106, at 87,030 (E.D. Va. 2002) (citing Camp
v. Pitts, supra at 142); Carroll v. United States, 217 F. Supp.
2d 852, 858 (W.D. Tenn. 2002) (citing United States v. Carlo
Bianchi & Co., supra at 714); Remole v. United States, 89 AFTR 2d
- 73 -
2002-1202, 1208, 2002-1 USTC par. 50,224, at 83,429 (C.D. Ill.
2001); MRCA Info. Servs. v. United States, 145 F. Supp. 2d 194,
198 (D. Conn. 2000) (quoting United States v. Carlo Bianchi &
Co., supra at 714). The majority makes no mention of those
cases. Are we to believe that Congress intended the appropriate
scope of review in section 6330 cases to hinge on the type of tax
involved? Certainly, the language of section 6330 suggests no
such distinction.
II. The Contract Issue
The contract issue as framed by the majority (i.e., whether
the OIC remained in effect despite petitioner’s failure to timely
file his 1998 return) is more nuanced than the majority opinion
leads one to believe. The majority oversimplifies what
respondent was bargaining for, disregards the significance of the
fact that respondent repeatedly offered petitioner the
opportunity to cure his default, and assumes, without analysis,
that the concepts of materiality and substantial performance are
dispositive of the contract issue.
A. Materiality of Timely Filing Requirement
The majority assumes that the only benefit the Commissioner
seeks when accepting an OIC is the actual receipt of moneys owed
under its terms: “Respondent suffered no monetary damage from
petitioner’s late filing of the 1998 return.” Majority op. p. 41
(emphasis added). But collecting money is not the Commissioner’s
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only purpose in agreeing to an OIC. The preamble to section
301.7122-1, Proced. & Admin. Regs., explicitly refers to the
IRS’s interest in promoting the voluntary compliance of
taxpayers. T.D. 9007, 2002-2 C.B. 349, 350. Indeed, not only is
this one of the policy underpinnings of the regulations; it can
even be the basis by itself for accepting an OIC. The timely
filing requirement is particularly important to the IRS as a
monitoring device with respect to OICs, like the one here, which
include future income level triggers that can result in
additional payment obligations. See majority op. p. 4 n.3.
B. Opportunities To Cure
It is also important to emphasize how deliberate the IRS was
before declaring the OIC in default. Respondent did not default
petitioner’s OIC as soon as he realized the 1998 return had not
been timely filed. Following the guidance of 2 Administration,
Internal Revenue Manual (CCH) (IRM), sec. 5.19.7.3.22.5, at
18,513, respondent first contacted petitioner to request the
missing return and did so at least two more times thereafter.
See majority op. p. 8. Those efforts by respondent were in
keeping with the mandate of the IRM that in the event of
potential default efforts “will be made to secure compliance”.
IRM sec. 5.8.9.4, at 16,382. Despite those efforts, petitioner
did not provide the missing return until approximately 1 year
- 75 -
after he was first requested to do so. That hardly qualifies as
a “foot fault”.
C. Doctrine of Express Conditions
Regardless of the nature of the breach and respondent’s
response thereto, we think that the most relevant doctrines of
contract law are not “substantial performance” and “material
breach.”8 Petitioner’s obligation to timely file all his returns
for 5 years was an express condition and so, as a general rule,
is subject to strict performance. See Calamari & Perillo, The
Law of Contracts, sec. 11.9, at 403 (4th ed. 1998); 13 Williston
on Contracts, sec. 38:6, at 384-385 (4th ed. 2000). The relevant
question should be whether there is an “excuse of conditions”
that may apply. Under that doctrine, petitioner would have to
show that (1) strict compliance with the timely filing condition
would result in an extreme forfeiture or penalty, and (2) timely
filing was not an essential part of the bargain. See 2
Restatement, Contracts 2d, sec. 229 (1981); 1 Restatement,
Contracts, sec. 302 (1932). If we are going to say that, as a
matter of law, the Appeals officer should not have enforced the
8
While the majority assumes that Arkansas law governs the
contract issue, it is quite possible that, under principles set
forth in Clearfield Trust Co. v. United States, 318 U.S. 363,
366-367 (1943), and United States v. Kimbell Foods, Inc., 440
U.S. 715, 727-729 (1979), the Federal common law of contracts is
the appropriate choice of law. See Saltzman, IRS Practice and
Procedure, par. 15.03[4][b], at 15-82 n.200 (rev. 2d ed. 2002).
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OIC in accordance with its terms, that is the line of inquiry we
should pursue.9
D. United States v. Lane
Quite apart from any discussion of general contract law
principles, we also disagree with the majority’s treatment of the
most similar case we have found, United States v. Lane, 303 F.2d
1 (5th Cir. 1962). In Lane, the Court of Appeals rejected the
taxpayer’s argument that strict enforcement of his OIC would
result in a forfeiture. As had petitioner, the taxpayer had
entered into an OIC which required him to pay a specific amount,
pay additional amounts if his annual income exceeded a floor, and
make annual statements of his income “regardless of amount”. The
taxpayer paid the specific amount and then failed to make the
annual statements of his income. The taxpayer’s OIC provided,
like petitioner’s, that, in the event of default, the
Commissioner could revive and collect the unpaid balance of the
9
We are aware of authority indicating that, in the context
of an executory accord (which an offer-in-compromise resembles),
enforcement of the original obligation is justified only if the
obligee’s noncompliance with the accord is material. See Frank
Felix Associates, Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 286-
289 (2d Cir. 1997) (reasoning at 287 that, under a rule requiring
strict compliance with the accord, the obligee “could obtain
payment of a contested debt and, due to a minor breach of the
accord, receive the windfall entitlement to reassert its pre-
settlement claims” (Emphasis added.)). We are not aware of any
authority addressing the interplay between that line of reasoning
and the doctrine of express conditions. Again, if we are going
to undertake a substantive analysis of contract law, those are
the types of issues we should be addressing.
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original debt. The District Court, ruling in favor of the
taxpayer, had reasoned that “‘the taxpayer can’t be pushed back
for years and years and after a settlement is made and have a
forfeiture so to speak, of everything he paid in under that
settlement agreement.’” Id. at 4.
The Court of Appeals for the Fifth Circuit reversed the
District Court, holding that the OIC should be enforced as
written. Id. at 5. It is worth considering the Court of
Appeals’ forceful language in that regard:
In the present case, the contracting parties
expressed their mutual intention in clear and
unmistakable terms. * * * [The OIC] expressly provided
that the Commissioner, upon default by the taxpayer
could terminate the compromise agreement and proceed to
collect the unpaid balance of the original tax
liability. This language is so precise, and the
intention which it manifests is so evident, as to leave
no doubt that the course of action taken by the
Government here was fully authorized by the compromise
agreement.
There was nothing illegal, immoral or inequitable
in the compromise agreement. It did not provide for
any “forfeiture”. By express provision, the amounts to
be paid under the compromise agreement * * * could not
exceed the aggregate amount which the taxpayer conceded
that he owed the Government from the start. By
allowing the Government to revive the taxpayer’s
original liability, the taxpayer will not forfeit the
amounts he has already paid, for those amounts will be
applied to reduce the original liability. The
agreement was precise, it was fair, and it was freely
consented to by the taxpayer. There is no reason why
it should not be enforced as written.
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Id. at 4; see also Roberts v. United States, 225 F. Supp. 2d
1138, 1149 (E.D. Mo. 2001) (quoting the latter paragraph in
full).
III. Conclusion
We would sustain respondent’s evidentiary objections on the
basis of Magana v. Commissioner, 118 T.C. 488 (2002), and the
record rule. We would also hold that, in light of petitioner’s
breach of an express condition of the OIC and his failure to cure
that breach despite ample opportunity to do so, respondent’s
Appeals officer did not abuse his discretion in sustaining the
proposed collection activity.