DocketNumber: Docket No. 11556-09L.
Judges: Gustafson
Filed Date: 5/31/2011
Status: Precedential
Modified Date: 11/14/2024
Decision will be entered for respondent.
P had taxable income of $1.7 million in 1999 and $1.8 million in 2000. P filed income tax returns for those years in 2002 but paid no income tax. The Internal Revenue Service (IRS) assessed tax of $514,164 for 1999 and $565,268 for 2000 and then served on P notice of the filing of a notice of Federal tax lien (NFTL) and a notice of proposed levy to collect P's liabilities that (with interest and penalties) totaled $1,586,952.45. P requested a collection due process (CDP) hearing, during which he proposed an offer-in-compromise (OIC), which he amended several times during 2008 and 2009 while the CDP hearing was in process. During the pendency of the CDP proceeding, P received, from sales of investments, proceeds that he did not pay to the IRS. In December 2008 P amended his OIC to propose payments totaling $400,000, but in April 2009 P advised that he could not afford to make the payments and that he would amend his offer downward to $140,000. R rejected the OIC and issued a notice of determination sustaining the notices of lien and proposed levy. P filed a petition for review of the determination under
136 T.C. 475">*476 GUSTAFSON,
The issue for decision is whether the Office of Appeals' rejection of Mr. Johnson's OIC was an abuse of discretion. We hold that the Office of Appeals did not abuse its discretion 136 T.C. 475">*477 by rejecting Mr. Johnson's OIC and sustaining the proposed collection action.
This case was submitted fully stipulated 2011 U.S. Tax Ct. LEXIS 29">*32 pursuant to
Stephen Johnson earned a degree in business from the University of Pennsylvania School of Business and worked as an investment banker with UBS AG. Mr. Johnson left UBS AG and in 1999 established Asiawerks Global Investment Group, Pte., Ltd. (Asiawerks), in Singapore. Asiawerks is an investment firm in which Mr. Johnson held a 50-percent ownership interest. In 1999 and 2000, Mr. Johnson's primary sources of regular income were his Asiawerks salary and certain tribal income he received annually as a member of the Saginaw Chippewa Indian Tribe.
During 1999 and 2000, Mr. Johnson liquidated a number of investments.2011 U.S. Tax Ct. LEXIS 29">*33 and 2000 in December 2002, but he did not make any payments towards his outstanding liabilities for those years.136 T.C. 475">*478 On October 30, 2007, the Internal Revenue Service (IRS) issued Mr. Johnson a "Notice 2011 U.S. Tax Ct. LEXIS 29">*34 of Federal Tax Lien Filing and Your Right to a Hearing under The resulting CDP process took nearly four years. Since November 2007 multiple settlement officers have been involved in the CDP process, and through his representatives Mr. Johnson submitted three formal OICs on Forms 656, "Offer in Compromise", and a number of proposed amendments, and he informally proposed an amendment to an OIC. While only the most recent determination (made 2011 U.S. Tax Ct. LEXIS 29">*35 by the Office of Appeals in April 2010) is now subject to our review, see On November 30, 2007, Mr. Johnson submitted his first formal OIC on a Form 656 dated October 21, 2007 (October 2007 OIC). Under the October 2007 OIC Mr. Johnson proposed to pay, in settlement of his outstanding tax liabilities, a total of $225,000 in 23 monthly installments of $9,375 plus a deposit in the same amount. Mr. Johnson's CDP hearing was initially assigned to Settlement Officer Mark Hunt (SO Hunt), who calculated Mr. Johnson's total tax liability with accruals to be $2,324,895.40. On March 27, 2008, SO Hunt issued a preliminary determination in which he calculated Mr. Johnson's reasonable 136 T.C. 475">*479 collection potential (RCP) to be $707,3862011 U.S. Tax Ct. LEXIS 29">*36 However, in June 2008 the October 2007 OIC was informally amended downward to $350,000 to account for Mr. Johnson's plan to sell his interest in DCM to an unrelated investor for 75 percent of the value. During an October 28, 2008, telephone conference, Mr. Johnson's representatives informed SO Hunt and his manager that Asiawerks was having financial difficulty 2011 U.S. Tax Ct. LEXIS 29">*37 and that a portion of Mr. Johnson's 2008 DCM distribution,2011 U.S. Tax Ct. LEXIS 29">*38 On December 17, 2008, after a series of further discussions, Mr. Johnson's representatives faxed to SO Hunt an amended offer in compromise proposing a $400,000 cash offer payable within eight months. This offer was formally amended a week later on December 24, 2008, when Mr. 136 T.C. 475">*480 Johnson's representatives submitted a revised amended offer in compromise (the "December 24, 2008, OIC"), in which Mr. Johnson proposed to pay $400,000 in five bimonthly installments of $80,000.2011 U.S. Tax Ct. LEXIS 29">*39 SO Hunt's manager, however, rejected this recommendation. Shortly thereafter, SO Hunt was internally reassigned to an acting position in management. Settlement Officer D.W. DeVincentz was assigned to complete Mr. Johnson's CDP hearing upon SO Hunt's reassignment. After reviewing all the prior correspondence and records, SO DeVincentz recalculated Mr. Johnson's RCP to be $513,8722011 U.S. Tax Ct. LEXIS 29">*40 and advised Mr. Johnson's representatives that a short-term cash offer of $500,000, with an additional $20,000 downpayment, would be an acceptable collection alternative. On April 10, 2009, Mr. Johnson's representatives informed SO DeVincentz that Asiawerks was in the process of winding up, and thus Mr. Johnson could no longer afford the payment schedule proposed in his December 24, 2008, OIC. Mr. Johnson's representatives also informed SO DeVincentz that Mr. Johnson had used the remainder of his DCM distributions to fund the business operations of Asiawerks and for living expenses, and that his only remaining asset was his post-distribution interest in DCM, valued at $60,000. For that reason, 136 T.C. 475">*481 Mr. Johnson directed his representatives 2011 U.S. Tax Ct. LEXIS 29">*41 to amend the December 24, 2008, OIC downward to $140,000, which would consist of the $80,000 he had previously remitted in connection with his prior OICs and his remaining $60,000 interest in DCM. SO DeVincentz declined this informal offer of $140,000 and informed Mr. Johnson that a notice of determination sustaining the proposed collection action would be issued. The Office of Appeals issued its notice of determination on April 17, 2009. Mr. Johnson filed a petition with the Court challenging the IRS's rejection of his OIC and arguing that an offer of $140,000 was acceptable given his financial situation. Respondent subsequently moved for remand because the notice of determination did not explain how SO DeVincentz had calculated Mr. Johnson's RCP. This Court remanded the case to the Office of Appeals on December 17, 2009, granting Mr. Johnson a supplemental administrative hearing pursuant to Upon remand, Settlement Officer Covey was assigned to Mr. Johnson's hearing and reviewed the administrative record. At that time, Mr. Johnson's unpaid balance (including interest and penalties) was $2,468,936.29; 2011 U.S. Tax Ct. LEXIS 29">*42 and SO Covey tentatively calculated Mr. Johnson's RCP to be only about one fourth of that--i.e., $568,408136 T.C. 475">*482 Court proceeding and to fund the downpayment of the December 24, 2008, OIC, and that any remaining funds were 2011 U.S. Tax Ct. LEXIS 29">*43 either reinvested into the failing Asiawerks or used for personal living expenses. SO Covey requested that Mr. Johnson provide by March 16, 2010, a number of documents substantiating his current financial affairs, including: proof of disbursements from the 2008 DCM distribution and the liquidation of Mr. Johnson's investment in Claremont; closing statements; settlement sheets; bank statements verifying Mr. Johnson's claim that the money he reinvested in Asiawerks to pay his salary had been used for necessary living expenses; Mr. Johnson's current Form W-2, Wage and Tax Statement, to corroborate a supposed reduction in his tribal income; current statements establishing Mr. Johnson's remaining interests in DCM and Claremont; and Forms 433-B, "Collection Information Statement for Businesses", for all companies in which Mr. Johnson held an interest. In response, Mr. Johnson's representatives faxed SO Covey a letter on March 12, 2010, advising SO Covey that the Claremont investment had paid out $11,317 and was now finished, and advocating that SO Covey apply a flexible standard in calculating Mr. Johnson's RCP, given that Asiawerks was now defunct. (As is explained below, most of the requested 2011 U.S. Tax Ct. LEXIS 29">*44 documents were never provided to SO Covey.) In a letter dated March 12, 2010, Mr. Johnson's representatives reiterated that his current offer was $140,000, consisting of $80,000 already remitted in connection with his prior OICs plus $60,000 that he believed he could obtain by liquidating his remaining $60,000 interest in DCM. That is, Mr. Johnson's $140,000 proposal presumed that, beyond the $80,000 he had On the basis of her review of the entire administrative record, SO Covey ultimately concluded that neither of Mr. Johnson's proposed offers--i.e., neither the informal proposal of $140,000, nor the December 24, 2008, OIC of $400,000 that he had withdrawn--would be an acceptable offer, given her calculation of his RCP. In evaluating Mr. Johnson's proposals, SO Covey calculated his RCP to be $445,181 (i.e., about 18 percent of his total liability of about $2.5 million), on the 136 T.C. 475">*483 basis of total equity in assets of $288,317 and future income potential of $156,864. Her asset 2011 U.S. Tax Ct. LEXIS 29">*45 computation was as follows: SO Covey's determination of Mr. Johnson's future income potential first computed his monthly disposable income (income over allowable expenses) and then multiplied that amount by 48 months, to yield four years' worth of disposable income. For his monthly income, SO Covey took the figures from Mr. Johnson's own financial statement--i.e., wages of $3,267 per month and tribal income of $6,510 per month, totaling $9,777 per month. SO Covey's monthly expense figures differed somewhat from Mr. Johnson's (in some respects to his advantage, but overall to his disadvantage), and both are set out here: Thus, SO Covey disagreed with Mr. Johnson both about the amount of his assets (i.e., she included his personal 2011 U.S. Tax Ct. LEXIS 29">*46 bank accounts and about $220,000 of dissipated assets) and about the expenses that should be taken into account in figuring 136 T.C. 475">*484 his disposable income (chiefly, she made no allowance for his $3,000 loan payment). At the agency-level CDP hearing, taxpayers may raise challenges to "the appropriateness of collection actions" and may make "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." The regulations promulgated under The Secretary may compromise a tax liability based on doubt as to collectibility where the taxpayer's assets and income are less than the full amount of the liability. 136 T.C. 475">*486 The IRS may reject an OIC because the taxpayer's ability to pay is greater than the amount he proposes to pay under the compromise proposal. See Where the settlement officer determines that a taxpayer has dissipated assets in disregard of the taxpayer's outstanding Federal income tax liability, the IRM2011 U.S. Tax Ct. LEXIS 29">*51 dissipated should include an analysis of the following facts: • When the asset(s) were dissipated in relation to the offer submission. • When the asset(s) were dissipated in relation to the liability. • How the asset was transferred • If the taxpayer realized any funds from the transfer of assets. 136 T.C. 475">*487 • How any funds realized from the disposition of assets were used. • The value of the assets and the taxpayer's interest in those assets. * * * * (5) If the investigation clearly reveals that assets have been dissipated with a disregard of the outstanding tax liability, consider including the value in the RCP calculation. [Personal bank accounts $7,500 Value of remaining DCM interest 60,000 Dissipated assets: Claremont interest sold 4/2009 11,317 DCM interest sold 6/2009 Total 288,317 Monthly income $9,777 $9,777 Monthly expenses National Standard $600 $760 Housing & utils. 3,117 3,117 Health care 0 60 Taxes 1,500 1,500 Transportation-- operating cost 385 385 Transportation-- ownership cost 915 489 Child care 300 198 Loan payment Total expenses Monthly disposable income -40 3,268
A consequence of including dissipated assets in RCP is that the taxpayer is fictitiously assumed to have, as funds available to pay his tax liability, money that he manifestly does not have anymore--an assumption that may be discouraging to the delinquent 2011 U.S. Tax Ct. LEXIS 29">*53 taxpayer who is trying to get right with the IRS. However, the evident reason for this rule is to deter delinquent taxpayers from wasting money that they owe and should pay as taxes. Conscientious taxpayers would object--and the system would suffer--if a taxpayer with overdue taxes and with money in hand could spend his money on "non-priority items" and nonetheless effectively obtain forgiveness of his liability simply by proving in the collection context that he really did reduce his collection potential by wasting the assets. Removing dissipated assets from RCP could create perverse incentives, and the tax collector must have discretion to avoid that problem. It is therefore reasonable for the Office of Appeals to consider including dissipated assets in a taxpayer's RCP.
If the taxpayer is dissatisfied with the determination made by the Office of Appeals in his CDP hearing, he may appeal that determination by filing a petition in this Court. For two reasons, we hold that when in January 2009 the Office of Appeals declined to accept Mr. Johnson's December 24, 2008, OIC offering $400,000, it did not abuse its discretion: The regulations require that OICs be submitted "in the form and manner * * * prescribed 2011 U.S. Tax Ct. LEXIS 29">*55 by the Secretary". In a letter dated April 10, 2009, Mr. Johnson's representatives stated: Mr. Johnson * * * is no longer able to make the payments required under the $400,000 offer. * * * Mr. Johnson has instructed us to amend the pending $400,000 offer downward to $140,000, consisting of the $80,000 he has already paid to the IRS and the estimated $60,000 sale value of his remaining interest in Doll [DCM]. * * * * * * * We respectfully request * * * that Mr. Johnson's offer as revised herein be accepted by the IRS. We find no provision in the pertinent regulations or Revenue Procedure that precludes an amendment to an OIC or requires 2011 U.S. Tax Ct. LEXIS 29">*57 that such an amendment take any particular form. Consequently, we conclude that on April 10, 2009, Mr. Johnson's latest OIC was amended downward by $260,000136 T.C. 475">*490 2. Mr. Johnson's representatives' April 2009 letter made it clear that his payment of $400,000 was no longer possible and was not offered. If the letter did not effectively amend the offer down to $120,000, then it must have withdrawn the offer of $400,000. An offer will be considered withdrawn on the IRS's receipt of written notification of the withdrawal of the offer either by personal delivery or certified mail, or on issuance of a letter 2011 U.S. Tax Ct. LEXIS 29">*58 by the IRS confirming the taxpayer's intent to withdraw the offer. Even if Mr. Johnson's offer to pay $400,000 had still been pending, the Office of Appeals would not have abused its discretion by failing to accept that offer when it issued its supplemental determination in April 2010. This is so for one of two alternative reasons: First, Mr. Johnson had stated that he could not afford to make the payments that the $400,000 OIC called for. If that were true, then he would default on his obligations under the OIC and, under the standard term in paragraph However, the only collection alternative pending during the supplemental hearing was the amended offer of $140,000 (i.e., Mr. Johnson's offer to pay $60,000, in addition to the $80,000 already remitted to the IRS). We now analyze that proposal. As we have noted, IRS regulations require that an OIC be submitted on a Form 656, whereas Mr. Johnson's latest and only pending proposal was the $140,000 proposal communicated by letter of April 10, 2009 (and confirmed by letter of March 12, 2010). However, for the reasons stated above in part II.A.1, the April 2009 letter amended the December 24, 2008, OIC, so that the $140,000 proposal was pending in the form of the amended OIC. But even if the $140,000 proposal was We hold that the Office of Appeals did not abuse its discretion in declining Mr. Johnson's proposal to compromise his unpaid Federal income tax liabilities for $140,000. That proposed amount consisted of $80,000 that Mr. Johnson had already deposited in connection with prior offers and an additional $60,000. Thus, Mr. Johnson essentially offered an additional $60,000 in settlement of a Federal income tax liability of approximately $2.5 million. This offer assumed that Mr. Johnson's entire collection potential consisted of the value of a single asset that Mr. Johnson owned--his remaining interest in DCM after the second distribution. To be considered for acceptance, an offer based on doubt as to collectibility must equal or exceed a taxpayer's reasonable collection potential. For SO Covey to properly conclude that Mr. Johnson's proposal should be rejected, she needed only to find that Mr. 136 T.C. 475">*492 Johnson's RCP exceeded $60,000 (i.e., the amount he proposed to pay under his offer). The precise amount by which Mr. Johnson's RCP exceeded $60,000 need not be resolved, because it was sufficient for SO Covey to find that Mr. Johnson had available for collection an amount that was substantially greater than his $60,000 offer. SO Covey concluded (and we hold that she reasonably concluded) that Mr. Johnson had other assets and disposable income, not admitted by him, that could have funded additional collection. In fact, SO Covey calculated Mr. Johnson's RCP to be not $60,000, but $445,181. However, if Mr. Johnson's RCP did substantially exceed $60,000, then the rejection of his proposal was justified even if his RCP was not as great as $445,181. We therefore consider three principal items, any one of which by itself would support the 2011 U.S. Tax Ct. LEXIS 29">*62 supplemental determination of the Office of Appeals. SO Covey concluded that Mr. Johnson had a total equity in assets of $288,317, which included amounts he had previously received from his Claremont investment and his 2008 DCM distribution, which she considered dissipated assets. Specifically, SO Covey included (a) the $11,317 that Mr. Johnson received from the liquidation of his interest in Claremont and (b) $209,500 from Mr. Johnson's 2008 DCM distribution of $277,000. (The portions of that distribution that she did not treat as dissipation were the $42,500 that was remitted to the IRS as a downpayment with the December 24, 2008, OIC, and $25,000 that was used to pay Mr. Johnson's representatives in connection with the prosecution of his Tax Court proceeding.) Pursuant to Mr. Johnson disputes the inclusion of any of his liquidated investments as dissipated assets for purposes of calculating his RCP, because (he says) these funds were reinvested in his failing business, in order to pay him a salary, which he argues was needed for necessary living expenses. If Mr. Johnson could show that he invested these distributions into Asiawerks to pay himself a salary, and if he could substantiate that he used the resulting salary for necessary living expenses, then he could credibly argue that these assets should not be included in his RCP calculation as dissipated assets. However, despite pointed requests from SO Covey, Mr. Johnson failed to substantiate either (a) how much of the 2008 DCM distribution or the Claremont distribution that he invested into Asiawerks was actually used to pay his salary, or (b) how much of this salary, if any, was used for necessary living expenses.2011 U.S. Tax Ct. LEXIS 29">*64 assets in calculating Mr. Johnson's RCP. SO Covey determined from Mr. Johnson's own financial statements that he held $7,500 in bank accounts (an amount equal to more than 10 percent of the $60,000 he offered). Mr. Johnson did not dispute this determination. He was therefore in a position to pay substantially more than the $60,000 he offered (which would come from his liquidation of DCM). This fact in itself was enough to justify the rejection of his $140,000 proposal. According to the IRM, the amount to be collected from future income, for purposes of calculating a taxpayer's RCP, consists of projected gross monthly income, less allowable expenses, forecast over a specified monthly period. In this case, SO Covey calculated Mr. Johnson's future disposable income to be $9,777 in projected gross monthly income, less $6,509 in allowable monthly expenses, arriving at $3,268 in disposable income per month, which she projected over a period of 48 months.2011 U.S. Tax Ct. LEXIS 29">*66 in projecting his monthly income, given that Mr. Johnson's business, Asiawerks, is now defunct. In their letter dated March 12, 2010, Mr. Johnson's representatives essentially argue that he has no prospect of future income, other than his tribal income, because Asiawerks was in the process of winding up. This argument, however, overlooks the significant difference between being temporarily unemployed or underemployed and being permanently unemployable. In considering the factors outlined in the IRM, including Mr. Johnson's health, education, skills, prior earnings, and professional background, SO Covey did not abuse her discretion in finding that Mr. Johnson was very employable and could, at a minimum, earn a projected $39,000 a year, in addition to his tribal income. Second, Mr. Johnson argues that his disposable income should be reduced by loan payments of $3,000 per month. This purported expense stems from a home equity loan that his mother took out on her home, the proceeds of which he claims was used by him for living expenses, the payment of taxes, and legal fees incurred in connection with this proceeding. 136 T.C. 475">*495 While SO Hunt proposed to allow the monthly loan payments as an expense 2011 U.S. Tax Ct. LEXIS 29">*67 in the calculation of Mr. Johnson's RCP, and while SO DeVincentz would have allowed a portion of these loan payments, the administrative record reflects that the Office of Appeals was justified in ultimately disallowing the $3,000 monthly loan payments on SO Covey's recommendation, because Mr. Johnson failed to establish that the payment of this debt was "necessary for the production of income or for the health and welfare of the taxpayer's family," as required by the IRM. See Thus, while Mr. Johnson proposed to pay the IRS the proceeds from the anticipated sale of one asset and nothing more, SO Covey reasonably determined, in view of his professional qualifications 2011 U.S. Tax Ct. LEXIS 29">*68 and personal earning history, that his reasonable collection potential included some amount of future disposable income. That being the case, rejection of his proposal was not an abuse of discretion. Mr. Johnson claims in his answering brief that his OICs were accepted by the IRS four times over the last seven years, but each time the IRS subsequently reneged on the deals. Mr. Johnson argues that the administrative course of conduct was therefore more intrusive than necessary and denied him the fundamental fairness that Congress sought to protect in CDP hearings. Mr. Johnson's claim fails, however, as a matter of both fact and law. The record is altogether void of any instance in which a settlement officer or Appeals officer purported to actually accept any of Mr. Johnson's OICs. While SO Hunt An OIC is a contract, and general principles of contract law therefore determine whether a binding settlement has been reached. The outcome is the same if Mr. Johnson contends not that an OIC was explicitly accepted by SO Hunt but that in some other, less formal fashion SO Hunt made a deal with him on behalf of the IRS. Such a contention alleges a quasi-contract, or a contract implied in fact, which is "'founded upon a meeting of minds, which, although not embodied in an 2011 U.S. Tax Ct. LEXIS 29">*71 express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.'" [W]hen the United States is a party to an alleged contract implied-in-fact, the government representative "whose conduct is relied upon must have actual authority to bind the government in contract." Mr. Johnson also asserts 2011 U.S. Tax Ct. LEXIS 29">*72 in his briefs that the CDP proceedings were "more intrusive than necessary", in violation of First, Second, the long duration of Mr. Johnson's CDP hearing was largely attributable to Mr. Johnson. His case presented a moving target, as his financial affairs drastically fluctuated, with the liquidation of his investments and the failing of Asiawerks. In addition, Mr. Johnson delayed providing the necessary financial records that were requested of him by various settlement officers (many of which records he never provided). Personnel in the Office of Appeals cannot be chained 2011 U.S. Tax Ct. LEXIS 29">*73 to their cases. The work of that office, like the work in any office, will have to be reassigned as time passes, when employees take leave, receive promotions, or retire. And when reassignments do occur, new personnel will necessarily take time to get up to speed. We do not find that the Office of Appeals protracted Mr. Johnson's proceedings in a manner that could constitute an abuse of discretion. The determination of the IRS's Office of Appeals--i.e., not to accept Mr. Johnson's proposed collection alternative, but instead to sustain the filing of the notice of lien and the proposed collection by levy of his outstanding tax liabilities--was not an abuse of discretion. Respondent may proceed with collection. To reflect the foregoing,
1. Unless otherwise indicated, all section references are to the Internal Revenue Code (26 U.S.C.) as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. In his briefs Mr. Johnson stresses the stipulated fact that he liquidated the investments in order to fund a divorce settlement. However, as respondent points out, Mr. Johnson paid $1.25 million to his former wife, whereas his combined adjusted gross income (AGI) for the two years totaled over $3.5 million. In general, when calculating a taxpayer's RCP, a settlement officer may allow an expense for court ordered payments (e.g., alimony, child support) where the payments are reasonable.
3. The IRS did, however, apply to those liabilities various overpayment credits from subsequent years and the downpayments Mr. Johnson submitted in connection with various OICs.↩
4. SO Hunt calculated Mr. Johnson's RCP to be $707,386 on the basis of a future income potential of $215,653 (monthly income of $9,777 less allowable monthly expenses of $5,284.22 projected over 48 months) and a total equity in assets of $491,733. In calculating Mr. Johnson's RCP for the purpose of this preliminary determination, SO Hunt did not place any value on Mr. Johnson's 50-percent interest in Asiawerks, and he did not treat the distribution from certain investments or the proceeds from the sale of real property as dissipated assets. In ultimately recommending rejection of the October 2007 OIC, SO Hunt rejected Mr. Johnson's assertion that the forced sale of securities giving rise to his tax liabilities for years 1999 and 2000 presented a unique circumstance that would permit the acceptance of an OIC for less than his RCP.↩
5. Mr. Johnson received an earlier DCM distribution, apparently in 2006, which is not at issue in the supplemental notice of determination issued by Settlement Officer Covey (SO Covey). For clarity, we will refer to the distribution at issue in the present case as the "2008 DCM distribution."↩
6. The parties have continuously disagreed about the disallowance (in computing RCP) of a $3,000 monthly loan payment attributable to a home equity loan that Mr. Johnson's mother took out on behalf of her son. Mr. Johnson claims that the loan was taken out so that he could fund the repayment of his outstanding tax liabilities; however, he failed to substantiate that the loan proceeds were ever used for this purpose. SO Hunt initially proposed to allow this expense in his draft determination, but the Appeals Office ultimately disallowed the expense in the supplemental notice of determination, because Mr. Johnson was not legally obligated to repay the loan and the payments were not a necessary living expense.
7. The first installment of $80,000 consisted of $42,500 (which Mr. Johnson would pay upon acceptance of the December 24, 2008, OIC) plus the $37,500 previously paid in connection with the October 2008 OIC.↩
8. SO Hunt's January 2009 draft ACM was not a final product and contained a number of errors, including a misstatement of Mr. Johnson's RCP. Mr. Johnson's RCP was determined to be $364,392 by combining future income potential of $7,800 and equity in assets of $356,592. This figure did not include the combined $80,000 in cash already remitted to the IRS in connection with Mr. Johnson's October 2007 OIC and December 24, 2008, OIC.
9. SO DeVincentz recalculated Mr. Johnson's RCP to be $513,872 by combining $77,280 in future income potential with $436,592 in asset equity. In recalculating Mr. Johnson's future income potential, SO DeVincentz determined that only $1,842 of the $3,000 monthly loan payment was allowable as a necessary living expense, representing the difference between the $3,000 Mr. Johnson was currently paying and the $1,158 his mother had been paying towards her mortgage before the monthly loan payment arrangement. This effectively increased Mr. Johnson's disposable income by $1,158 per month. SO DeVincentz added the $1,158 to the $130 in net monthly income determined by SO Hunt, which he then multiplied by 60 months to arrive at a future income potential of $77,280. Moreover, SO DeVincentz increased Mr. Johnson's asset equity figure from $356,592 (as calculated by SO Hunt) to $436,592 by adding the value of Mr. Johnson's discounted interest in a coal mine owned by Asiawerks.
10. SO Covey initially calculated Mr. Johnson's RCP to be $568,408 on the basis of a future income potential of $212,784 over a period of 48 months and a total equity in assets of $355,625. SO Covey noted, however, that before a final calculation could be determined she needed more information regarding an appraisal of Asiawerks and other companies Mr. Johnson held interests in, as well as documentation substantiating that the liquidation proceeds of certain investments were used for necessary living expenses.↩
11. See
12. The IRM provisions on dissipated assets were revised in October 2010 and since then appear in part
13. Mr. Johnson requests that this Court "order that petitioner's pending offer in compromise be accepted by respondent"; however, this Court has jurisdiction to review respondent's rejection of an OIC for abuse of discretion. We cannot order the IRS to accept an OIC. Rather, if we find that the IRS abused its discretion in rejecting an OIC, the remedy available to this Court is to determine that the collection action itself--the filing of the NFTL or the proposed levy--is not sustained.↩
14. Respondent's motion for remand filed December 14, 2009, stated: "The primary issue in this case is whether respondent's Office of Appeals abused its discretion in rejecting, as a collection alternative, a proposed offer-in-compromise. * * * The Notice of Determination, however, does not provide an explanation as to how the Office of Appeals calculated petitioner's reasonable collection potential". This suggests that respondent believed Mr. Johnson's December 24, 2008, OIC was still pending and had not been withdrawn. Otherwise respondent need only have issued a notice of determination stating that the December 24, 2008, offer had been withdrawn, rather than asking for a remand to clarify the calculation of Mr. Johnson's RCP for an offer that respondent knew was no longer pending.
15. The attachment to the supplemental notice of determination misstates Mr. Johnson's proposal at one point by stating, "your proposal was decreased from $400,000
16. According to his 2008 Form W-2, Mr. Johnson received $79,500 as tribal income. Since he had at least this tribal income from which to pay living expenses, we cannot assume that Asiawerks salary was spent on necessary living expenses, which the IRS determined to be $6,509 per month.↩
17. In an exercise of discretion, SO Covey projected Mr. Johnson's gross monthly income over a period of only 48 months, even though, according to
Botany Worsted Mills v. United States ( 1929 )
Charles G. Fargo Elizabeth A. Fargo v. Commissioner of ... ( 2006 )
Alvin v. Graff v. Commissioner of Internal Revenue ( 1982 )
Graff v. Commissioner ( 1980 )
Murphy v. Commissioner of IRS ( 2006 )
Midwest Motor Express, Inc. v. Commissioner of Internal ... ( 1958 )
James L. Lewis v. United States ( 1995 )
Adkins v. United States ( 2021 )
Earnest Mack v. Commissioner ( 2018 )
Joseph C. Gallagher v. Commissioner ( 2018 )
Hinerfeld v. Commissioner ( 2012 )
Estate of Anthony K. Washington, Lenda Washington, Personal ... ( 2022 )
Frierson-Harris v. Comm'r ( 2015 )
W. Zintl Constr., Inc. v. Comm'r ( 2017 )