                                                 RONALD ISLEY, PETITIONER v. COMMISSIONER                                OF
                                                      INTERNAL REVENUE, RESPONDENT
                                                    Docket No. 5616–11L.                    Filed November 6, 2013.

                                                 P was a founding member of the popular Isley Brothers
                                              singing group, which for many years generated substantial
                                              income from personal appearances and record sales. P failed
                                              to pay Federal income tax on much of that income. The
                                              Commissioner sought to collect unpaid tax for all but five
                                              years within the 1971–95 period by filing proofs of claim in
                                              two bankruptcy proceedings (bankruptcies I & II), which
                                              resulted in his collection of substantial amounts from P. The
                                              United States also obtained P’s criminal conviction for tax
                                              evasion and willful failure to file with respect to 1997–2002
                                              (conviction years), which resulted in his being sentenced, on
                                              Sept. 1, 2009, to 37 months in prison followed by a three-year
                                              probationary period during which P was required to discharge
                                              his liabilities for the conviction years and his tax filing and
                                              payment obligations for the probation years. After bankruptcy
                                              II, P instituted an unsuccessful suit for the refund of amounts
                                              that the Commissioner collected in that bankruptcy pro-
                                              ceeding that P alleged should have been offset by payments
                                              emanating from bankruptcy I. R issued to P two notices of
                                              Federal tax lien (NFTLs) and two notices of levy that together
                                              covered P’s assessed liabilities for the conviction years plus
                                              2003, 2004, and 2006. P requested a collection due process
                                              (CDP) hearing, which resulted in his offer and the Appeals
                                              officer’s preliminary acceptance of an offer-in-compromise
                                              (OIC). The Appeals officer referred the OIC to C, an attorney
                                              in R’s Office of Chief Counsel, for review. C recommended the
                                              OIC be rejected because the conviction years (which were cov-

                                                                                                                                  349




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                                     350                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                              ered by the OIC), had been referred to the Department of Jus-
                                              tice (DOJ) for prosecution so that R was prohibited by I.R.C.
                                              sec. 7122(a) from unilaterally compromising P’s liabilities for
                                              those years, and also because the Appeals officer had over-
                                              looked (1) potential sources for the collection of more than P
                                              had offered and (2) P’s noncompliance with the terms of the
                                              OIC. Following C’s advice, Appeals rejected the OIC and sus-
                                              tained the NFTL filings and the levy notices. P seeks to have
                                              the OIC reinstated on the ground that (1) I.R.C. sec. 7122(a)
                                              did not prohibit Appeals from entering into an OIC pursuant
                                              to I.R.C. sec. 6330(c)(2) and (3); (2) C’s involvement effectively
                                              made him the ‘‘de facto’’ Appeals officer, and, because of his
                                              earlier involvement in bankruptcy II, his involvement in P’s
                                              CDP hearing violated the ‘‘impartial officer’’ requirement of
                                              I.R.C. sec. 6330(b)(3); and (3) as the ‘‘de facto’’ Appeals officer,
                                              his improper ex parte communications with non-Appeals IRS
                                              personnel require that we disregard his rejection of the OIC
                                              and ratify Appeals’ initial acceptance of it. P also renews the
                                              argument, made in his unsuccessful refund suit, that the
                                              assessed liabilities are overstated because the Commissioner
                                              did not properly credit to P’s account payments made to the
                                              Commissioner at the conclusion of bankruptcy I (offset issue).
                                              Lastly, P argues that, should we uphold Appeals’ rejection of
                                              his OIC, we must order a refund of the 20% partial payment
                                              that he made pursuant to I.R.C. sec. 7122(c) because P was
                                              induced to submit the OIC under false pretenses.
                                                 1. Held: I.R.C. sec. 7122(a) barred Appeals’ unilateral
                                              acceptance of P’s OIC.
                                                 2. Held, further, C’s advice was properly requested and fur-
                                              nished to the Appeals officer pursuant to I.R.C. sec. 7122(b).
                                              Thus, his involvement did not cause him to become the ‘‘de
                                              facto’’ Appeals officer and, therefore, could not and did not
                                              result in (1) a violation of the ‘‘impartial officer’’ requirement
                                              of I.R.C. sec. 6330(b)(3), or (2) improper ex parte communica-
                                              tions between Appeals and non-Appeals IRS personnel.
                                                 3. Held, further, because (1) bankruptcy II gave P a prior
                                              opportunity to raise the offset issue, and (2) P’s position with
                                              respect to that issue was rejected in his unsuccessful refund
                                              suit, I.R.C. sec. 6330(c)(2)(B) and (4)(A) alternatively barred
                                              him from raising that issue during his CDP hearing.
                                                 4. Held, further, P was not invited to submit his OIC under
                                              false pretenses. Therefore, pursuant to the normal rules pro-
                                              viding for the nonrefundability of the 20% partial payment
                                              required by I.R.C. sec. 7122(c) (which P does not dispute), P
                                              is not entitled to a refund of that payment.
                                                 5. Held, further, Appeals’ determination not to withdraw the
                                              NFTLs is sustained.
                                                 6. Held, further, Appeals’ determination to sustain the
                                              notices of levy and proceed with collection by levy of the




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                                     (349)                             ISLEY v. COMMISSIONER                                       351


                                               assessed liabilities is rejected and the case is remanded to
                                               Appeals to explore the possibility of a new OIC or installment
                                               agreement, not to be finalized until approved by DOJ pursu-
                                               ant to I.R.C. sec. 7122(a).

                                       Steven Ray Mather, for petitioner.
                                       Cassidy B. Collins, Katherine Holmes Ankeny, and Carolyn
                                     A. Schenck, for respondent.
                                        HALPERN, Judge: This case is before the Court to review
                                     determinations made by the Internal Revenue Service (IRS)
                                     Appeals Office (Appeals) in four notices issued to petitioner
                                     after a collection due process (CDP) hearing conducted pursu-
                                     ant to sections 6320(b) and (c) and 6330(b) and (c). 1
                                     Together, those determinations sustained (1) respondent’s
                                     right to proceed to collect by levy petitioner’s assessed liabil-
                                     ities for 1997 through 2003 and (2) the filing of notices of
                                     Federal tax lien (NFTLs) with respect to those years plus
                                     2004 and 2006. In response thereto, petitioner, pursuant to
                                     section 6330(d)(1), timely filed a petition with this Court in
                                     which he assigns error on the grounds that respondent
                                     should have (1) determined that the assessed liabilities for
                                     the years in issue were overstated and (2) accepted peti-
                                     tioner’s offer-in-compromise (OIC) as a collection alternative.
                                     Petitioner also alleges that (1) if we determine that Appeals
                                     did not err in rejecting his OIC, we should order the return
                                     to petitioner of his 20% partial payment made pursuant to
                                     section 7122(c)(1)(A)(i) (section 7122(c) payment), 2 and (2) we
                                     have jurisdiction to adjudicate his challenge to the under-
                                     lying liabilities based upon respondent’s alleged failure to
                                     properly credit against those liabilities amounts paid to
                                     respondent in prior years that should have been credited to
                                     his delinquent account.


                                           1 Unless
                                                otherwise indicated, all section references are to the Internal
                                     Revenue Code of 1986, as amended and in effect at all relevant times. Dol-
                                     lar amounts have been rounded to the nearest dollar.
                                        2 The Tax Increase Prevention and Reconciliation Act of 2005, Pub. L.

                                     No. 109–222, sec. 509(a), 120 Stat. at 362, enacted new sec. 7122(c), effec-
                                     tive for OICs submitted on or after July 16, 2006. Sec. 7122(c)(1)(A)(i) re-
                                     quires that the submission of any lump-sum OIC ‘‘be accompanied by the
                                     payment of 20 percent of the amount of such offer.’’




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                                     352                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                                                         FINDINGS OF FACT

                                       Some facts are stipulated and are so found. The stipulation
                                     of facts, with accompanying exhibits, is incorporated herein
                                     by this reference.
                                       Petitioner resided in St. Louis, Missouri, when he filed his
                                     petition.
                                     Petitioner’s Musical Career
                                       Petitioner’s musical career generated considerable income.
                                     His failure to pay Federal income tax with respect to much
                                     of it led to his perhaps even more considerable problems with
                                     the law.
                                       Petitioner was the third of six brothers, three of whom
                                     (petitioner and his two older brothers, O’Kelly and Rudolph)
                                     moved to New York as teenagers and launched what became
                                     a successful recording and concert career as the Isley
                                     Brothers. Years later, the group also included two younger
                                     brothers, Ernie and Marvin. Their musical genres included
                                     rhythm and blues, doo-wop, funk, and contemporary R&B.
                                     Various versions of the group had top 40 singles and/or top
                                     20 albums during a period stretching from 1962 to 2006,
                                     which ultimately led to various accolades including the
                                     induction of petitioner and four of his brothers into the Rock
                                     and Roll Hall of Fame. Late in his career, petitioner focused
                                     on solo work, and as late as 2011 he was still performing
                                     with his younger brother Ernie.
                                     The New Jersey Bankruptcy
                                       On August 23, 1984, petitioner and his two older brothers,
                                     O’Kelly and Rudolph, each filed for bankruptcy protection in
                                     a proceeding under chapter 11 of the Bankruptcy Code, with
                                     the U.S. Bankruptcy Court for the District of New Jersey,
                                     subsequently converted to a chapter 7 bankruptcy proceeding
                                     (New Jersey bankruptcy). Upon motion by the trustee, the
                                     three bankruptcy estates were consolidated. Thereafter, the
                                     bankruptcy court issued an order determining the extent,
                                     validity, and priority of respondent’s claims against the three
                                     brothers. Respondent’s approved claims against petitioner
                                     were for tax years 1971–76, 1978, and 1980–83. The trustee
                                     satisfied all of respondent’s prepetition claims against the
                                     consolidated bankruptcy estate, and ordered that, because




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                                     (349)                            ISLEY v. COMMISSIONER                                       353


                                     respondent also had postpetition claims against the consoli-
                                     dated estate, any funds left in the estate after discharge of
                                     the prepetition claims would also be paid to respondent.
                                     Respondent applied almost all of those postpetition liability
                                     payments in discharge of O’Kelly’s outstanding liabilities,
                                     with little or nothing applied to the outstanding liabilities of
                                     petitioner and Rudolph.
                                     The California Bankruptcy
                                        On April 2, 1997, petitioner filed a voluntary petition for
                                     bankruptcy protection in a proceeding under chapter 11 of
                                     the Bankruptcy Code (also subsequently converted to a
                                     chapter 7 bankruptcy proceeding) with the U.S. Bankruptcy
                                     Court for the Central District of California (California bank-
                                     ruptcy). Respondent filed proofs of claim in the California
                                     bankruptcy for tax years 1976, 1978, 3 1985, 1986, 1988,
                                     1989, and 1991–95. The bankruptcy court approved a settle-
                                     ment agreement whereby a number of petitioner’s ‘‘song-
                                     writer interests’’ (then belonging to the bankruptcy estate)
                                     were sold, and, on June 23, 2000, $2 million was paid to
                                     respondent (June 23, 2000, payment) and applied to peti-
                                     tioner’s outstanding liabilities to respondent for all of the
                                     foregoing years except 1992. During the bankruptcy pro-
                                     ceeding, neither petitioner nor the trustee objected to
                                     respondent’s proofs of claim (satisfied by the June 23, 2000,
                                     payment) on the basis that respondent had misapplied (to
                                     O’Kelly’s account) payments received from the New Jersey
                                     bankruptcy trustee.
                                     Petitioner’s Suit For Refund
                                       On June 19, 2002, petitioner filed a claim with respondent
                                     for refund of the June 23, 2000, payment, and, on March 1,
                                     2005, he filed a suit for refund of that payment in the U.S.
                                     District Court for the Central District of California. In his
                                     refund suit, petitioner alleged that, pursuant to the June 23,
                                     2000, payment, respondent ‘‘illegally and unlawfully collected
                                     the full balance of tax, penalty and interest determined by
                                     [respondent] for the [p]eriods in [i]ssue.’’ The Government
                                       3 For both 1976 and 1978, respondent sought post-(New Jersey) petition

                                     interest not covered by the consent order terminating the New Jersey
                                     bankruptcy.




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                                     354                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     moved to dismiss the complaint and/or for summary judg-
                                     ment, in part, on the ground that petitioner’s claims (1) were
                                     barred by the doctrine of res judicata because the New
                                     Jersey and California bankruptcies finally determined the
                                     amounts owed to respondent and (2) were untimely. The
                                     Government also argued that petitioner could not challenge
                                     respondent’s application of payments from the New Jersey
                                     bankruptcy ‘‘because * * * [the IRS] was entitled to apply
                                     the payments as it saw fit.’’ In granting the Government’s
                                     motion for summary judgment, the court first stated that
                                     petitioner was barred by the doctrine of res judicata from
                                     challenging his liabilities to respondent for 1976 and 1978 as
                                     determined in the New Jersey bankruptcy. The court further
                                     stated that petitioner’s challenge to respondent’s claims in
                                     the California bankruptcy was barred by that same doctrine
                                     because (1) during the California bankruptcy, ‘‘neither the
                                     Chapter 7 trustee nor * * * [petitioner] objected to the IRS’
                                     claims that were satisfied by the June 23, 2000 payment’’, (2)
                                     ‘‘[p]roofs of claim to which no objection is filed are ‘deemed
                                     allowed’ ’’, and (3) ‘‘ ‘deemed allowed’ claims are themselves
                                     entitled to res judicata effect’’. The court also determined
                                     that petitioner lacked standing to assert the refund claim
                                     because both the assets sold and the amounts received
                                     therefor, which funded the June 23, 2000, payment, were
                                     assets of the bankruptcy estate. Therefore, the court con-
                                     cluded that ‘‘the bankruptcy estate, and not * * * [peti-
                                     tioner], made the alleged overpayment’’ and was the party
                                     with standing to pursue the refund claim.
                                        The Court of Appeals for the Ninth Circuit affirmed the
                                     District Court’s decision and, in particular, that court’s deter-
                                     mination that the California bankruptcy estate, not peti-
                                     tioner, had standing to pursue the refund. Isley v. United
                                     States, 272 Fed. Appx. 640 (9th Cir. 2008). The Court of
                                     Appeals further determined that (1) petitioner’s claim ‘‘also
                                     fails to state a basis for refund’’ because the IRS has ‘‘the
                                     right to apply payments in the manner it chooses’’ and (2)
                                     even if petitioner has standing to pursue the refund, his
                                     claim would be barred by res judicata because the bank-
                                     ruptcy court’s allowance of the Government’s claim ‘‘nec-
                                     essarily decided the legality of the tax claim at issue in this
                                     appeal’’. Id. at 641–642.




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                                     (349)                             ISLEY v. COMMISSIONER                                       355


                                     Criminal Proceedings Against Petitioner
                                        Petitioner was indicted, tried, and convicted in the District
                                     Court for the Central District of California on five counts of
                                     tax evasion and one count of willful failure to file a tax
                                     return covering tax years 1997–2002 (conviction years). Fol-
                                     lowing the guilty verdict, the court, on September 1, 2006,
                                     issued a judgment and probation commitment order (JPC
                                     order) sentencing petitioner to 37 months’ imprisonment and,
                                     upon release from imprisonment, placing petitioner on
                                     ‘‘supervised release for a term of three years’’ (three-year
                                     probationary period). The JPC order set forth a number of
                                     terms and conditions with respect to the three-year proba-
                                     tionary period, including the following:
                                           2. The defendant shall truthfully and timely file and pay taxes owed for
                                           the years of conviction; and shall truthfully and timely file and pay taxes
                                           during the period of community supervision. Further, the defendant
                                           shall show proof to the Probation Officer of compliance with this order;

                                                                   *   *    *   * * *   *
                                           10. The Defendant shall pay all taxes when due, and, if necessary, sell
                                           assets to satisfy his tax obligations.

                                     The JPC order also provided for the adjustment of peti-
                                     tioner’s restitution obligation as follows:
                                             The defendant shall notify the Court through the Probation Office, and
                                           notify the United States Attorney of any material change in the defend-
                                           ant’s economic circumstances that might affect the defendant’s ability to
                                           pay a fine or restitution, as required by 18 U.S.C. § 3664(k). The Court
                                           may also accept such notification from the government or the victim, and
                                           may, on its own motion or that of a party or the victim, adjust the
                                           manner of payment of a fine or restitution—pursuant to 18 U.S.C.
                                           § 3664(k).

                                       On February 11, 2008, the Court of Appeals for the Ninth
                                     Circuit affirmed the District Court’s 37-month sentence.
                                     Respondent’s Notices of Lien and Levy
                                       Between December 12, 2006, and August 31, 2007,
                                     respondent issued to petitioner two NFTLs and two notices
                                     of intent to levy (each including a notice of petitioner’s right
                                     to a hearing) covering the assessed liabilities for the years in




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                                     356                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     issue. Together, the notices covered the conviction years
                                     (1997–2002), plus 2003, 2004, and 2006. 4
                                     The CDP Hearing
                                        In 2007, while in prison, petitioner timely filed Forms
                                     12153, Request for a Collection Due Process or Equivalent
                                     Hearing, with respect to all of the tax years covered by the
                                     NFTLs and levy notices. In each of his hearing requests,
                                     petitioner alleged one or more of the following: (1) the
                                     assessed liability is excessive, (2) the penalties should be
                                     abated for reasonable cause, (3) prior payments were applied
                                     to the wrong periods, and (4) the liability for one of the years
                                     (2006) was paid. In each hearing request, in the section
                                     denominated ‘‘Collection Alternative’’, petitioner checked the
                                     boxes for ‘‘Installment Agreement’’ and ‘‘Offer in Com-
                                     promise’’. Petitioner requested and received (via his counsel,
                                     Mr. Mather) a ‘‘face-to-face’’ hearing, which was conducted by
                                     Settlement Officer Nathan August (Appeals officer or Mr.
                                     August) on April 27, 2009, with additional meetings between
                                     June 4, 2009, and February 3, 2011. 5 During one or more of
                                     those meetings, petitioner’s counsel renewed petitioner’s
                                     argument (rejected by the California Federal courts in
                                     connection with petitioner’s refund suit) that respondent had
                                     improperly applied the payments emanating from the New
                                     Jersey consolidated bankruptcy by not crediting petitioner’s
                                     account for a portion thereof (offset issue).
                                        As part of the CDP hearing, Mr. August verified that the
                                     liabilities listed in the lien and levy notices were validly
                                     assessed and that all legal and administrative procedure
                                     requirements were met. At the conclusion of Mr. August’s
                                     consideration of the case, petitioner’s total assessed liabil-
                                     ities, including tax, interest, and penalties, exceeded $9 mil-
                                     lion, which included penalty assessments under section
                                     6651(f) for fraudulent failure to file totaling $1,811,983. The
                                     section 6651(f) penalty assessments were not part of peti-
                                       4 As noted supra, the levy notices covered 1997–2003, and the NFTLs

                                     covered 1997–2004 and 2006.
                                       5 Petitioner did not specifically request a face-to-face hearing in his re-

                                     sponse to the NFTL covering 2002–04. Nevertheless, Mr. August treated
                                     the face-to-face hearing with petitioner’s counsel as covering that NFTL as
                                     well as the other NFTL and the two levy notices.




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                                     (349)                             ISLEY v. COMMISSIONER                                       357


                                     tioner’s CDP hearing because respondent had not yet issued
                                     CDP notices with respect to those assessments.
                                        The face-to-face meetings, telephone conversations, and
                                     correspondence between Mr. August and petitioner’s counsel
                                     eventually resulted in petitioner’s July 31, 2009, submission
                                     of a Form 656, Offer in Compromise, in the sum of $1 mil-
                                     lion, which covered all of the CDP hearing years plus 2007,
                                     accompanied by a $200,000 (20%) section 7122(c) payment.
                                     On September 29, 2009, after further review of petitioner’s
                                     existing and potential postincarceration financial cir-
                                     cumstances, Mr. August told petitioner’s counsel to submit
                                     an amended OIC for $1,047,216 and an additional section
                                     7122(c) payment so that the total section 7122(c) payment
                                     would equal 20% of the new OIC amount. On October 30,
                                     2009, Mr. August received the amended OIC for $1,047,216
                                     and checks totaling $9,444 representing the additional sec-
                                     tion 7122(c) payment. 6 In submitting the original and
                                     amended OICs, petitioner undertook to ‘‘comply with all
                                     provisions of the Internal Revenue Code relating to filing
                                     * * * [his] returns and paying * * * [his] required taxes for
                                     5 years or until the offered amount is paid in full, whichever
                                     is longer.’’
                                        On November 4, 2009, Mr. August recommended accept-
                                     ance of the amended OIC in conjunction with a Future
                                     Income Collateral Agreement (FICA) of five years’ duration,
                                     from 2010 through 2014. The FICA called for payments equal
                                     to percentages of petitioner’s annual income for those years
                                     in excess of $750,000, which increased as petitioner’s income
                                     (in excess of $750,000) increased. On November 5, 2009, the
                                     Appeals team manager preliminarily approved both the OIC
                                     and the FICA.
                                        On November 13, 2009, Mr. August submitted the OIC and
                                     the FICA to IRS Chief Counsel Attorney Ronald Chun for a
                                     legal sufficiency determination.
                                        Mr. Chun was no stranger to petitioner’s Federal income
                                     tax difficulties. He had been one of four IRS attorneys who,
                                     at one time or another, were assigned to work on respond-
                                     ent’s proofs of claim filed in connection with the California
                                     bankruptcy. Much of his involvement in that bankruptcy pro-
                                     ceeding stemmed from a March 25, 2002, letter from peti-
                                           6 The   amended OIC did not cover 2004.




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                                     358                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     tioner’s counsel, Mr. Mather, to him in which Mr. Mather
                                     challenged respondent’s amended proof of claim in two
                                     respects: (1) he raised the offset issue, alleging that pay-
                                     ments related to respondent’s ‘‘secured [priorities] claim’’ had
                                     been misapplied, most prominently, by applying the entire
                                     payment from the New Jersey bankruptcy to O’Kelly Isley’s
                                     account rather than to the accounts of all three Isley
                                     brothers involved in the bankruptcy, one-third each, and (2)
                                     he alleged that respondent’s ‘‘unsecured priority claim’’,
                                     which was based upon a bank deposits analysis, was ‘‘grossly
                                     and demonstrably inflated.’’ Mr. Chun’s involvement appears
                                     to have been confined to working with Mr. Mather in order
                                     to resolve the second issue, which was ultimately resolved to
                                     their mutual satisfaction in March 2003 by respondent’s
                                     agreement to file amended proofs of claim based upon (mutu-
                                     ally agreed-to) deficiency computations for tax years 1992–94
                                     in sharply reduced amounts as compared with respondent’s
                                     previously filed unsecured priority claim.
                                        Mr. Chun furnished his recommendation to Mr. August in
                                     a memorandum dated January 10, 2011. He recommended
                                     rejection of petitioner’s OIC (and, by implication, the FICA)
                                     on the ground that the IRS ‘‘lacks settlement authority to
                                     compromise the liabilities under * * * Section 7122(a).’’ In
                                     reaching that conclusion, Mr. Chun relied on section 7122(a),
                                     the regulations thereunder, and provisions of the Internal
                                     Revenue Manual. He also pointed to what he considered
                                     impermissible inconsistencies between the JPC order and the
                                     OIC.
                                        Alternatively, Mr. Chun determined that petitioner’s OIC
                                     should be rejected ‘‘because the Realizable Collection Poten-
                                     tial exceeds the proposed offer amount of $1,047,216, * * *
                                     [petitioner] provided incomplete or inaccurate information to
                                     the Settlement Officer, and * * * [petitioner] is not in
                                     compliance with his filing obligations.’’ Mr. Chun’s finding of
                                     noncompliance was based upon his finding that petitioner
                                     had not timely filed his 2009 return. In connection with his
                                     alternative determination that petitioner’s offer was insuffi-
                                     cient in the light of the realizable collection potential, Mr.
                                     Chun found that petitioner had understated the values of his
                                     assets and omitted potential sources of future income. He
                                     suggested that petitioner provide additional information to
                                     Mr. August, including an amended Form 433–A, Collection




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                                     (349)                            ISLEY v. COMMISSIONER                                       359


                                     Information Statement for Wage Earners and Self-Employed
                                     Individuals, and an amended Form 433–B, Collection
                                     Information Statement for Businesses.
                                        Mr. Chun secured the assistance of the revenue officer
                                     assigned to petitioner’s case in obtaining an appraisal of peti-
                                     tioner’s residence and spoke to the appraiser. He also mailed
                                     a copy of his recommendation to Mr. August to the revenue
                                     officer and to a special agent.
                                        On the basis of both Mr. Chun’s factual findings and his
                                     legal conclusion that section 7122(a) precluded the accept-
                                     ance of petitioner’s amended OIC, and upon his own finding
                                     confirming that petitioner had failed to comply with the
                                     terms of the OIC by not filing his 2009 return and, also, by
                                     underpaying his 2010 estimated taxes, Mr. August rejected
                                     the amended OIC and recommended sustaining the proposed
                                     levies and the NFTL filings. He also rejected petitioner’s
                                     argument that respondent misapplied the payments he
                                     received from the Isley brothers’ New Jersey bankruptcy
                                     estate by not applying a pro rata share to petitioner’s liabil-
                                     ities (the offset issue) on the ground that ‘‘the IRS had the
                                     authority to apply the payment as it chose.’’ A copy of his
                                     ‘‘Summary and Recommendation’’ was attached to each of the
                                     four notices of determination issued to petitioner sustaining
                                     the levy notices and NFTLs and rejecting petitioner’s
                                     amended OIC.
                                                                                 OPINION

                                     I. Introduction
                                        The parties have raised a number of issues for us to con-
                                     sider in deciding whether to sustain the challenged notices of
                                     determination: (1) whether section 7122(a) barred the
                                     Appeals officer’s acceptance of petitioner’s amended OIC
                                     (preemption issue); (2) whether Mr. Chun, in recommending
                                     rejection of the amended OIC, attained the status of the de
                                     facto Appeals or settlement officer in this case so that his
                                     prior involvement in the California bankruptcy resulted in a
                                     violation of the section 6330(b)(3) requirement that a CDP
                                     hearing be ‘‘conducted by an officer or employee who has had
                                     no prior involvement with respect to the unpaid tax’’ (impar-
                                     tiality issue); (3) whether Mr. Chun’s communications with
                                     the revenue officer assigned to petitioner’s case and with an




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                                     360                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     IRS special agent constituted improper ex parte communica-
                                     tions requiring that we disregard Mr. Chun’s determination
                                     to reject the OIC and ratify Mr. August’s determination to
                                     accept it (ex parte communication issue); (4) whether we
                                     should exercise jurisdiction to decide the offset issue and, if
                                     so, whether we should resolve it in petitioner’s favor; and (5)
                                     should we sustain the Appeals officer’s rejection of the
                                     amended offer-in-compromise, whether we should order
                                     respondent to return to petitioner the section 7122(c) pay-
                                     ment (section 7122(c) payment issue). Superimposed over
                                     issues (1) through (4) is the overall question of whether the
                                     Appeals officer, Mr. August, abused his discretion in
                                     rejecting the amended OIC and sustaining the NFTLs and
                                     the collection, by levy, of petitioner’s outstanding assessed
                                     liabilities for the tax years at issue. We will separately con-
                                     sider each of the foregoing issues.
                                     II. Sections 6320, 6330, and 6331
                                       Section 6331(a) authorizes the Secretary to levy against
                                     property and property rights when a taxpayer liable for taxes
                                     fails to pay those taxes within 10 days after notice and
                                     demand for payment. Section 6331(d) requires the Secretary
                                     to send to the taxpayer written notice of the Secretary’s
                                     intent to levy, and section 6330(a) requires the Secretary to
                                     send the taxpayer written notice of his right to a hearing
                                     before Appeals at least 30 days before any levy begins. A tax-
                                     payer receiving an NFTL has hearing rights similar to the
                                     hearing rights accorded to a taxpayer receiving a notice of
                                     intent to levy. See sec. 6320(c). At the hearing, the taxpayer
                                     may raise any relevant issue including collection alter-
                                     natives, which may include an OIC. After the hearing, an
                                     Appeals officer must determine whether and how to proceed
                                     with collection, taking into account, among other things,
                                     collection alternatives the taxpayer proposed and whether
                                     any proposed collection action balances the need for the effi-
                                     cient collection of taxes with the legitimate concern of the
                                     taxpayer that the collection action be no more intrusive than
                                     necessary. See sec. 6330(c)(3). The taxpayer may contest the
                                     underlying tax liability at the hearing if he or she did not
                                     receive any statutory notice of deficiency for the liability or
                                     did not otherwise have an opportunity to dispute it. Sec.




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                                     (349)                            ISLEY v. COMMISSIONER                                       361


                                     6330(c)(2)(B). Where the underlying tax liability is properly
                                     at issue, we review the Appeals officer’s determination de
                                     novo. E.g., Goza v. Commissioner, 114 T.C. 176, 181–182
                                     (2000). Where the underlying tax liability is not properly at
                                     issue, we review the determination for abuse of discretion.
                                     Id. at 182. In reviewing for abuse of discretion, we must
                                     uphold the Appeals officer’s determination unless it is
                                     arbitrary, capricious, or without sound basis in fact or law.
                                     See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
                                     III. The Preemption Issue
                                           A. Section 7122(a) and the Pertinent Regulations
                                        Section 7122(a) provides: ‘‘The Secretary may compromise
                                     any civil or criminal case arising under the internal revenue
                                     laws prior to reference to the Department of Justice for
                                     prosecution or defense; and the Attorney General or his dele-
                                     gate may compromise any such case after reference to the
                                     Department of Justice for prosecution or defense.’’
                                        Section 301.7122–1(d)(2), Proced. & Admin. Regs., states in
                                     pertinent part: ‘‘The IRS may not accept for processing any
                                     offer to compromise a liability following reference of a case
                                     involving such liability to the Department of Justice for
                                     prosecution or defense.’’
                                           B. The Parties’ Arguments
                                        On the basis of the foregoing provisions, respondent argues
                                     that Appeals was without authority to accept (or, indeed,
                                     even to process) petitioner’s amended OIC because it sought
                                     to compromise tax liabilities for the conviction years, which
                                     had been referred to the Department of Justice (DOJ) for
                                     prosecution. Respondent attempts to harmonize section
                                     7122(a) and section 6330(c)(2)(A), which permits a taxpayer
                                     to ‘‘raise at * * * [a CDP] hearing any relevant issue relating
                                     to the unpaid tax or the proposed levy, including * * *
                                     (iii) offers of collection alternatives, which may include
                                     * * * an offer-in-compromise’’ (emphasis added), by arguing
                                     that, in the light of section 7122(a), the propriety of an OIC
                                     in this case is not a ‘‘relevant issue’’. Respondent also argues
                                     that, because the Appeals officer’s consideration of collection
                                     alternatives ‘‘may include’’ an OIC, there was ‘‘Congressional




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                                     recognition that not every collection alternative will be * * *
                                     available in every hearing.’’
                                        Petitioner argues that, pursuant to section 6330(c)(2)(A),
                                     he had an absolute right to submit an OIC and that, pursu-
                                     ant to section 6330(c)(3)(B), respondent was required to take
                                     petitioner’s OIC into consideration. 7 Petitioner argues that
                                     section 7122(a) prohibits respondent to compromise only tax
                                     liabilities that are subject to ‘‘pending’’ criminal prosecutions
                                     and that, because the criminal case against petitioner was
                                     complete with his sentencing on September 6, 2006, more
                                     than eight months before petitioner’s liabilities for all but
                                     one of the years at issue herein were assessed, section
                                     7122(a) is inapplicable to this case. Petitioner also argues
                                     that respondent’s position is unjustified because ‘‘acceptance
                                     of petitioner’s offer in compromise in fact has no effect what-
                                     soever on petitioner’s sentence and probation.’’ Petitioner
                                     posits that his ‘‘compliance with the terms of the Judgment
                                     and Probation Commitment Order * * * is a matter that lies
                                     within the exclusive jurisdiction of the federal district court,
                                     the Department of Justice and the United States Probation
                                     Office.’’ Lastly, petitioner notes that neither the prosecutor in
                                     the criminal case nor petitioner’s probation officer actually
                                     objected to the acceptance of petitioner’s OIC.
                                           C. Analysis
                                           1. Introduction
                                       Both parties attempt to resolve the potential conflict
                                     between sections 6330(c) and 7122(a). Respondent argues
                                     that, after the taxpayer’s nonpayment of tax has been
                                     referred to DOJ for prosecution or defense, consideration of
                                     the taxpayer’s OIC is no longer a ‘‘relevant issue’’ at a CDP
                                     hearing. Petitioner argues that only where a criminal
                                     prosecution against the taxpayer is still pending (i.e., where
                                     the outcome is still in doubt) is the Appeals officer at a CDP
                                     hearing prohibited from considering the taxpayer’s OIC. The
                                     parties’ efforts to harmonize the two provisions are consistent
                                     with the Supreme Court’s admonition that ‘‘when two stat-
                                           7 As
                                             noted in the text, sec. 6330(c)(2)(A)(iii) permits the taxpayer to make
                                     ‘‘offers of collection alternatives, which may include * * * an offer-in-com-
                                     prise.’’ Sec. 6330(c)(3)(B) requires the Appeals officer to ‘‘take into consider-
                                     ation * * * issues raised * * * [at the hearing]’’.




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                                     (349)                            ISLEY v. COMMISSIONER                                       363


                                     utes are capable of co-existence, it is the duty of the courts,
                                     absent a clearly expressed congressional intention to the con-
                                     trary, to regard each as effective.’’ Morton v. Mancari, 417
                                     U.S. 535, 551 (1974); see also BLAK Invs. v. Commissioner,
                                     133 T.C. 431, 439–440 (2009) (‘‘The various sections of the
                                     Code should be construed so that one section will explain and
                                     support and not defeat or destroy another section.’’). We do
                                     not subscribe to either party’s rationale for reconciling the
                                     two provisions, however; and although we agree with
                                     respondent that, once a case has been referred to DOJ for
                                     prosecution or defense, section 7122(a) trumps section
                                     6330(c), we conclude that the former provision does not pro-
                                     hibit the Appeals officer in a CDP hearing from at least nego-
                                     tiating the terms of a potential OIC with a taxpayer after
                                     referral of his or her case to DOJ for prosecution. It only pre-
                                     vents Appeals from unilaterally approving the OIC.
                                           2. Impact of Section 7122(a)
                                       The Courts of Appeals for both the Third Circuit and the
                                     Ninth Circuit have held, albeit in unpublished opinions, that,
                                     pursuant to section 7122(a), from the moment a taxpayer’s
                                     case is referred to DOJ for prosecution (or defense), the
                                     Commissioner loses his authority to compromise the tax-
                                     payer’s tax liabilities unless authorized by DOJ. See United
                                     States v. Jackson, 511 Fed. Appx. 200, 203 (3d Cir. 2013);
                                     Faust v. United States, 28 F.3d 105, 1994 WL 327584, at *2,
                                     74 A.F.T.R.2d 94–5194, at 94–5196 (9th Cir. 1994). 8 In Jack-
                                        8 Pursuant to Fed. R. App. P. 32.1(a) (applicable to and adopted by all

                                     Federal Courts of Appeals), ‘‘[a] court may not prohibit or restrict the cita-
                                     tion of federal judicial opinions * * * that have been: (i) designated as ‘un-
                                     published,’ ‘not for publication,’ ‘non-precedential,’ ‘not-precedent,’ or the
                                     like; and (ii) issued on or after January 1, 2007.’’ That rule is applicable
                                     to the opinion of the Court of Appeals for the Third Circuit in United
                                     States v. Jackson, 511 Fed. Appx. 200 (3d Cir. 2013). The advisory com-
                                     mittee notes accompanying the promulgation of Fed. R. App. P. 32.1 make
                                     clear, however, that the rule ‘‘says nothing about what effect a court must
                                     give to one of its unpublished opinions’’. The local appellate rules adopted
                                     by the Court of Appeals for the Third Circuit on November 20, 2008, do
                                     not specifically address the precedential value of its unpublished opinions.
                                     The Court of Appeals for the Ninth Circuit does not generally treat its
                                     post-January 1, 2007, unpublished opinions as precedent. See 9th Cir. R.
                                     36–3. Barring written stipulation to the contrary, the venue for appeal of
                                                                                                      Continued




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                                     364                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     son, which was decided after the enactment of section 6330
                                     in 1998, the court further stated that ‘‘the DOJ retains
                                     authority to compromise even if a judgment has been
                                     obtained and the case has been returned to the IRS for
                                     collection.’’ Jackson, 511 Fed. Appx. at 203; accord Chief
                                     Counsel Notice CC–2011–020 (Sept. 15, 2011).
                                        As respondent notes: ‘‘The language of section 7122(a) is
                                     clear on its face * * * [and] there is no evidence, statutory
                                     or otherwise, that Congress intended for sections 6320 and
                                     6330 to supersede section 7122(a).’’ As respondent also notes,
                                     to treat section 6330(c) as carving out an exception to the
                                     application of section 7122(a) would be to violate an estab-
                                     lished rule of statutory construction that amendments by
                                     implication are not to be favored. See Estate of Morgens v.
                                     Commissioner, 133 T.C. 402, 421 (2009) (citing United States
                                     v. Welden, 377 U.S. 95, 103 n.12 (1964)), aff ’d, 678 F.3d 769
                                     (9th Cir. 2012).
                                        Moreover, it makes perfect sense from a policy standpoint
                                     that DOJ’s primacy in compromising tax liabilities that have
                                     been referred to the Attorney General for prosecution should
                                     continue until the terms of the court’s judgment (or of any
                                     settlement authorized by the Attorney General or his dele-
                                     gate) have been satisfied. In this case, any compromise by
                                     respondent of petitioner’s liabilities would have violated the
                                     express terms of the JPC order, which requires that, during
                                     the three-year probationary period, petitioner make full pay-
                                     ment of ‘‘taxes owed for the years of conviction’’. 9
                                        It is also clear that there is nothing in section 7122(a) that
                                     would have prevented petitioner, either on his own or in
                                     conjunction with Mr. August acting on behalf of respondent,
                                     from asking the District Court and/or the Attorney General
                                     this case would be the Court of Appeals for the Eighth Circuit. See sec.
                                     7482(b). We are not so much concerned with the application of the prin-
                                     ciples of stare decisis to the two cases as we are with the persuasiveness
                                     of their reasoning.
                                        9 Although the record does not indicate the exact dates of petitioner’s in-

                                     carceration, it appears that he entered prison on or shortly after December
                                     1, 2006, and was released at the end of December 2009 or in early 2010.
                                     Therefore, the three-year probationary period could not have terminated
                                     until December 2012, at the earliest, with the result that it was nec-
                                     essarily in effect during Mr. August’s consideration of petitioner’s OIC, in
                                     2010 and 2011, and when respondent issued the notices of determination
                                     on February 10 and 11, 2012.




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                                     (349)                             ISLEY v. COMMISSIONER                                       365


                                     or his delegate to modify the full payment requirement con-
                                     tained in the JPC order, which, by its terms, provides that
                                     the court, upon notification by the defendant (i.e., petitioner),
                                     the Government, or the victim (respondent, in either case), or
                                     on its own motion ‘‘may * * * adjust the manner of payment
                                     of * * * restitution’’. Although that provision, arguably, does
                                     no more than permit the payment terms in the JPC order to
                                     be revised, we do not doubt the Attorney General’s or the
                                     District Court’s right to settle or compromise (as well as
                                     extend the time for payment of) a defendant’s restitution
                                     obligation. 10 See Creel v. Commissioner, 419 F.3d 1135,
                                     1140–1142 (11th Cir. 2005). In Creel, the Court of Appeals
                                     for the Eleventh Circuit affirmed our decision rejecting an
                                     Appeals officer’s determination, after a CDP hearing, to sus-
                                     tain a proposed levy where a restitution order, arising out of
                                     the taxpayer’s prior criminal case, that required the taxpayer
                                     to pay the IRS ‘‘$83,830 plus any applicable penalties and
                                     interest’’ was deemed, by the U.S. Attorney’s Office, to have
                                     been satisfied after the taxpayer’s payment of $83,830. The
                                     Commissioner had sought approval of a levy to collect the
                                     unpaid penalties and interest. On the basis of what we had
                                     found, the Court of Appeals found that the U.S. Attorney’s
                                     Office
                                           believed that the receipt of petitioner’s civil taxes (exclusive of penalties
                                           and interest) in the amount of $83,830 was the most that it could
                                           recover from petitioner and agreed with him following his sentencing
                                           that his timely payment of that amount would serve to settle his civil
                                           tax liability of $83,830 plus related penalties and interest. * * * Thus,
                                           although not compelled to do so, the government discharged Creel’s civil
                                           tax liabilities as part of the criminal case. [Id. at 1141.]

                                        Thus, we do not consider section 7122(a) to be an absolute
                                     bar to an Appeals officer’s consideration, pursuant to section
                                     6330(c), of an offer to compromise a taxpayer’s assessed
                                     liabilities, after referral of those liabilities to DOJ for
                                     prosecution. It does, however, require prior approval by the
                                     Attorney General or his delegate of the proposed compromise,
                                     which, in this case, was not sought by either petitioner or the
                                     Appeals officer.
                                        10 Sec. 7122(a) appears to explicitly grant that right to the Attorney Gen-

                                     eral or his delegate where the case has been referred to DOJ for prosecu-
                                     tion or defense.




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                                     366                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                        As noted supra, section 301.7122–1(d)(2), Proced. & Admin.
                                     Regs., provides: ‘‘The IRS may not accept for processing any
                                     offer to compromise a liability following reference of a case
                                     involving such liability to the Department of Justice for
                                     prosecution or defense.’’ (Emphasis added.) The emphasized
                                     language makes clear that the Attorney General’s exclusive
                                     right of compromise applies only to liabilities that have been
                                     referred to DOJ for prosecution or defense, in this case, peti-
                                     tioner’s assessed liabilities for the conviction years. But the
                                     notices of levy cover 2003 in addition to the conviction years,
                                     and the NFTLs cover 2003, 2004, and 2006. Therefore, sec-
                                     tion 7122(a) did not negate Mr. August’s authority, pursuant
                                     to section 6330(c), to compromise petitioner’s assessed liabil-
                                     ities for 2003, 2004, and 2006. Nonetheless, because both
                                     petitioner’s OIC and his amended OIC would have com-
                                     promised his unpaid liabilities for the conviction years as
                                     well for the subsequent years, section 7122(a) barred Mr.
                                     August from unilaterally accepting either.
                                           D. Conclusion
                                       Section 7122(a) barred Appeals from unilaterally accepting
                                     petitioner’s amended OIC. On the basis of that limitation and
                                     upon Mr. August’s finding of petitioner’s noncompliance with
                                     the tax filing and payment requirements of the OIC, Appeals
                                     did not abuse its discretion by rejecting that OIC.
                                     IV. Mr. Chun’s Involvement: The Impartiality and Ex Parte
                                         Communication Issues
                                           A. Introduction
                                       Because section 7122(a) barred Appeals from unilaterally
                                     accepting petitioner’s amended OIC as a matter of law, Mr.
                                     Chun’s involvement in Mr. August’s determination to reject
                                     that OIC, whether or not proper, is of no consequence. There-
                                     fore, both the impartiality and ex parte communication
                                     issues are technically moot. Nonetheless, assuming there
                                     were a need to decide those issues herein, we would resolve
                                     both in respondent’s favor.




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                                           B. Analysis and Conclusion
                                           1. Mr. Chun’s Involvement Did Not Result in a Violation of
                                             the Section 6330(b)(3) Impartial Officer Requirement.
                                       Section 7122(b) provides, in pertinent part, that, in the
                                     case of a decision to compromise a taxpayer’s liability in
                                     excess of $50,000, ‘‘there shall be placed on file in the office
                                     of the Secretary the opinion of the [Treasury’s] General
                                     Counsel * * * or his delegate, with his reasons therefor’’. See
                                     also section 301.7122–1(e)(6), Proced. & Admin. Regs., pro-
                                     viding that, where an OIC involving a liability in excess of
                                     $50,000 is accepted, ‘‘there will be placed on file the opinion
                                     of the Chief Counsel for the IRS with respect to such com-
                                     promise, along with the reasons therefor.’’
                                       Because Mr. August initially recommended acceptance of
                                     and the Appeals team manager preliminarily approved the
                                     amended OIC, it was incumbent upon them to obtain the
                                     Chief Counsel opinion required by section 7122(b) and the
                                     regulations thereunder, and they acted appropriately in
                                     referring the matter to Chief Counsel for that purpose. Mr.
                                     Chun, as a member of respondent’s Office of Chief Counsel,
                                     was assigned to handle that referral, and he recommended
                                     rejection of the amended OIC in that capacity. Mr. Chun’s
                                     involvement did not cause him to become, as petitioner
                                     argues, the de facto Appeals officer in the case. As a result,
                                     the section 6330(b)(3) requirement that petitioner’s CDP
                                     hearing ‘‘be conducted by an officer or employee who has had
                                     no prior involvement with respect to * * * [petitioner’s]
                                     unpaid tax’’ does not apply to Mr. Chun, and his prior
                                     involvement in the California bankruptcy, which, in any
                                     event, concerned petitioner’s unpaid taxes for different tax
                                     years, could not have resulted in a violation of that require-
                                     ment.
                                           2. Mr. Chun Was Not Subject to the Rule Prohibiting Ex
                                              Parte Communications.
                                       The Internal Revenue Service Restructuring and Reform
                                     Act of 1998, Pub. L. No. 105–206, sec. 1001(a)(4), 112 Stat.
                                     at 689, requires that the mandated plan to reorganize the
                                     IRS ‘‘ensure an independent appeals function within the
                                     Internal Revenue Service, including the prohibition * * * of




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                                     368                  141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     ex parte communications between appeals officers and other
                                     Internal Revenue Service employees to the extent that such
                                     communications appear to compromise the independence of
                                     the appeals officers.’’
                                       Rev. Proc. 2000–43, sec. 3, Q&A–1, 2000–2 C.B. 404, 405,
                                     makes clear that the prohibition against ex parte commu-
                                     nications extends to communications between ‘‘Appeals and
                                     another Service function’’. Because, as discussed supra, Mr.
                                     Chun was not an Appeals employee, his communications
                                     with the revenue officer and the special agent did not con-
                                     stitute prohibited ex parte communications.
                                     V. The Offset Issue
                                           A. Introduction
                                        On February 27, 2012, we denied petitioner’s motion to
                                     raise the offset issue (which had been raised at his CDP
                                     hearing) by amending his petition in order to add an allega-
                                     tion challenging ‘‘the amount of the liability based on
                                     Respondent’s unlawful application [to petitioner’s brother
                                     O’Kelly’s account] of payments [made in connection with the
                                     New Jersey bankruptcy] in prior years’’. During the trial,
                                     petitioner renewed that motion. We sustained respondent’s
                                     objection to that motion but ruled that petitioner was still
                                     free ‘‘to ask leave to amend the petition, to assign error to
                                     * * * [Mr. August’s] failure to credit the payments * * *
                                     [but] without recourse to * * * facts [beyond the administra-
                                     tive record]’’.
                                           B. Analysis
                                       Regardless of whether the offset issue presents a challenge
                                     to petitioner’s ‘‘underlying liability’’ within the meaning of
                                     section 6330(c)(2)(B) (subject to de novo review) as petitioner
                                     argues, or constitutes a ‘‘relevant issue relating to the [alleg-
                                     edly] unpaid tax’’ within the meaning of section 6330(c)(2)(A)
                                     (subject to review for abuse of discretion) as respondent
                                     argues, petitioner is barred from raising the issue. 11
                                           11 See
                                              Kovacevich v. Commissioner, T.C. Memo. 2009–160, 2009 WL
                                     1916351, at *5–*6, for a discussion of the caselaw involving the classifica-
                                     tion, under sec. 6330(c)(2), of challenges to the proper crediting of taxpayer
                                     payments to the Commissioner.




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                                     (349)                             ISLEY v. COMMISSIONER                                       369


                                           1. Underlying Liability Analysis
                                         Pursuant to section 6330(c)(2)(B), a taxpayer may chal-
                                     lenge his underlying liability at a CDP hearing if the tax-
                                     payer ‘‘did not receive * * * [a] statutory notice of deficiency
                                     for * * * [the] liability or did not otherwise have an oppor-
                                     tunity to dispute such * * * liability.’’ Here, the District
                                     Court for the Central District of California, in denying peti-
                                     tioner’s refund claim based upon the Commissioner’s
                                     misapplication of funds paid into the New Jersey bankruptcy
                                     proceeding, specifically found that the Isleys (including peti-
                                     tioner) were in a position to, but did not, object to respond-
                                     ent’s proofs of claim in the California bankruptcy, which
                                     claims necessarily included amounts that, in petitioner’s
                                     view, would not have been due but for respondent’s allegedly
                                     improper application of the New Jersey bankruptcy funds.
                                     The court held that, as a result of that failure to object,
                                     respondent’s claims were ‘‘deemed allowed’’, entitling them to
                                     res judicata effect. It is sufficient for us to decline to consider
                                     the offset issue on the ground that the California bankruptcy
                                     afforded to petitioner a prior opportunity to dispute his liabil-
                                     ities. See Kendricks v. Commissioner, 124 T.C. 69, 77 (2005)
                                     (‘‘[W]hen the * * * [bankruptcy] provides the taxpayer the
                                     opportunity to object to the IRS’s proof of claim for an unpaid
                                     Federal tax liability, the taxpayer is afforded an opportunity
                                     to dispute the liability, as contemplated by Congress in sec-
                                     tion 6330(c)(2)(B).’’).
                                           2. Unpaid Tax Analysis
                                       If we assume, however, that the offset issue does not
                                     involve a challenge to petitioner’s underlying liabilities but,
                                     instead, constitutes a ‘‘relevant issue relating to the unpaid
                                     tax’’ within the meaning of section 6330(c)(2)(A), 12 we agree
                                     with respondent that our consideration of the issue is barred
                                     by section 6330(c)(4)(A). That provision states, in pertinent
                                     part, that ‘‘[a]n issue may not be raised at the hearing if
                                     * * * the issue was raised and considered * * * [in a] pre-
                                     vious administrative or judicial proceeding; and * * * the
                                           12 See
                                              Freije v. Commissioner, 125 T.C. 14, 26 (2005) (‘‘[A] ‘relevant issue
                                     relating to the unpaid tax * * *’ surely includes a claim * * * that the
                                     ‘unpaid tax’ has in fact been satisfied by a remittance that the Commis-
                                     sioner improperly applied elsewhere.’’).




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                                     person seeking to raise the issue participated meaningfully
                                     in such hearing or proceeding’’.
                                        As noted supra, petitioner raised the offset issue in his
                                     refund suit before the District Court for the Central District
                                     of California, which rejected petitioner’s claim of offset on the
                                     grounds that (1) it was barred by the doctrine of res judicata
                                     and (2) petitioner lacked standing to sue for the refund, the
                                     liabilities at issue having been discharged by proceeds from
                                     the sale of assets belonging to the bankruptcy estate. The
                                     Court of Appeals for the Ninth Circuit affirmed on both
                                     grounds and on the further ground that the IRS ‘‘ ‘enjoys the
                                     right to apply payment in the manner it chooses.’ ’’ Isley v.
                                     United States, 272 Fed. Appx. 640 (9th Cir. 2008) (quoting
                                     United States v. Plummer (In re Plummer), 174 B.R. 284, 286
                                     (Bankr. C.D. Cal. 1992)).
                                        Petitioner argues that the holding at both the trial and
                                     appellate court levels was that petitioner lacked standing to
                                     sue for a refund (i.e., that his suit was procedurally defi-
                                     cient), a position implying that those courts’ alternative
                                     bases for denying relief were dicta. Petitioner concludes that
                                     ‘‘in none of these prior proceedings was * * * [he] allowed to
                                     reach a determination on the merits * * * [so that he has]
                                     had no opportunity in those proceedings to dispute the
                                     liability.’’ We disagree. Each of the courts’ alternative bases
                                     for the denial of petitioner’s refund claims was sufficient, by
                                     itself, to sustain that result. Where there are multiple bases
                                     for the result in a case, they constitute alternative holdings.
                                     See Superior Trading, LLC v. Commissioner, T.C. Memo.
                                     2012–110, 2012 WL 1319748, at *2 (‘‘These are all alter-
                                     native holdings, each by itself sufficient to sustain respond-
                                     ent’s adjustments.’’), aff ’d, 728 F.3d 676 (7th Cir. 2013).
                                     Moreover, it is a long-established principle of law that each
                                     alternative rationale for the result in a case has precedential
                                     value. See, e.g., Massachusetts v. United States, 333 U.S. 611,
                                     623 (1948) (‘‘[A]s we were asked to do and rightly could do
                                     * * * we decided both issues, and the judgment rested as
                                     much upon the one determination as the other. In such a
                                     case the adjudication is effective for both.’’); Richmond Screw
                                     Anchor Co. v. United States, 275 U.S. 331, 340 (1928) (‘‘It
                                     does not make a reason given for a conclusion in a case
                                     obiter dictum, because it is only one of two reasons for the
                                     same conclusion.’’). Thus, it is clear that, during the refund




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                                     litigation in the District Court for the Central District of
                                     California and the Court of Appeals for the Ninth Circuit,
                                     the offset issue ‘‘was raised and considered’’ and that peti-
                                     tioner ‘‘participated meaningfully’’ in that litigation as
                                     required by section 6330(c)(4)(A).
                                        Nor is the application of section 6330(c)(4)(A) as a bar to
                                     petitioner’s raising the offset issue herein compromised by
                                     the fact that that issue was improperly addressed during
                                     petitioner’s CDP hearing. See sec. 301.6330–1(e)(3), Q&A–
                                     E11, Proced. & Admin. Regs. (‘‘Any determination * * *
                                     made by the Appeals officer with respect to * * * a pre-
                                     cluded issue shall not be treated as part of the Notice of
                                     Determination * * * and will not be subject to any judicial
                                     review * * * it is not reviewable by the Tax Court because
                                     the precluded issue is not properly part of the CDP
                                     hearing.’’); see also Swanson v. Commissioner, 121 T.C. 111,
                                     118 (2003); Behling v. Commissioner, 118 T.C. 572, 579
                                     (2002).
                                           C. Conclusion
                                        Section 6330(c)(2)(B) and (4)(A) alternatively preclude peti-
                                     tioner from raising the offset issue herein. 13




                                        13 In his opening brief, petitioner seeks credit (offset), not only for the

                                     allegedly misapplied payments made to the Commissioner in connection
                                     with the New Jersey bankruptcy, but also for some $900,000 ‘‘in fees paid
                                     to the [California] bankruptcy trustee, the trustee’s attorney, the trustee’s
                                     accountant and the debtor’s attorney.’’ Petitioner argues that those expend-
                                     itures were ‘‘needlessly wasted’’ because proper application of a portion of
                                     the New Jersey bankruptcy payments to his account would have elimi-
                                     nated the need for the California bankruptcy proceeding, and the $900,000
                                     ‘‘would have been available to pay the tax liabilities’’ that were satisfied
                                     by the June 23, 2000, payment. We agree with respondent that petitioner’s
                                     failure to make this novel argument during his CDP hearing bars him
                                     from making it here. See sec. 301.6330–1(f)(2), Q&A–F3, Proced. & Admin.
                                     Regs. (‘‘In seeking Tax Court review of a Notice of Determination, the tax-
                                     payer can only ask the court to consider an issue * * * that was properly
                                     raised in the taxpayer’s CDP hearing.’’); see also Giamelli v. Commissioner,
                                     129 T.C. 107, 112–115 (2007).




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                                     372                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     VI. The Section 7122(c) Payment Issue
                                           A. Analysis
                                        As noted supra note 2, section 7122(c)(1)(A)(i) requires that
                                     the submission of any lump-sum OIC ‘‘be accompanied by the
                                     payment of 20 percent of the amount of such offer.’’ H.R.
                                     Conf. Rept. No. 109–455 (2006), 2006 U.S.C.C.A.N. 234, is
                                     the report of the committee of conference to accompany H.R.
                                     4297, 109th Cong. (2006), which, when enacted as the Tax
                                     Increase Prevention and Reconciliation Act of 2005, Pub. L.
                                     No. 109–122, sec. 509(a), 120 Stat. at 362, added the new
                                     section 7122(c). The report’s explanation of the new provision
                                     refers to the 20% payment as a ‘‘partial payment’’ or ‘‘down
                                     payment’’ of the taxpayer’s liability. H.R. Conf. Rept. No.
                                     109–455, at 234, 2006 U.S.C.C.A.N. at 420–421. Notice 2006–
                                     68, sec. 1.02, 2006–2 C.B. 105, states: ‘‘The Service will treat
                                     the required 20-percent payment as a payment of tax, rather
                                     than a refundable deposit under section 7809(b) or Treas.
                                     Reg. § 301.7122–1(h).’’ Moreover, the amended OIC that peti-
                                     tioner submitted to respondent contained the following rep-
                                     resentation and acknowledgment by petitioner: ‘‘I * * * vol-
                                     untarily submit all tax payments made on this offer,
                                     including the mandatory payments of tax required under sec-
                                     tion 7122(c). These tax payments are not refundable even if
                                     I * * * withdraw the offer prior to acceptance or the IRS
                                     returns or rejects the offer.’’
                                        Thus, it is clear that, in the normal circumstances of a tax-
                                     payer’s submission of an OIC to the IRS, the section 7122(c)
                                     payment constitutes a nonrefundable, partial payment of the
                                     taxpayer’s liability, and petitioner does not argue to the con-
                                     trary. Petitioner does argue, however, that his amended OIC
                                     was neither submitted nor rejected under normal cir-
                                     cumstances, and that he is entitled, therefore, to a refund of
                                     his section 7122(c) payment.
                                        Petitioner notes that Mr. August assured his counsel that
                                     his OIC ‘‘would be based on collectibility.’’ He argues that,
                                     because his amended OIC was rejected on grounds (e.g., sec-
                                     tion 7122(a)) other than doubt as to collectibility, Mr.
                                     August’s assurance to the contrary constituted, under prin-
                                     ciples of contract law, a ‘‘false representation and inducement
                                     [that] voids the terms of the offer in compromise and makes




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                                     (349)                            ISLEY v. COMMISSIONER                                       373


                                     the deposited funds refundable.’’ Respondent argues that we
                                     lack jurisdiction to order a refund of the section 7122(c) pay-
                                     ment, and that ‘‘the proper means of requesting [a] return of
                                     the funds is to file * * * [a] claim for refund and, if nec-
                                     essary, a refund suit in federal court.’’ In the alternative, he
                                     argues that, because there is no evidence that Mr. August
                                     was aware of either the JPC order or the section 7122(a) bar
                                     to his acceptance of an OIC when he agreed to make collect-
                                     ibility the sole determining factor in connection with his
                                     consideration thereof, he did not ‘‘fraudulently misrepresent
                                     material facts to petitioner in order to induce him to submit
                                     the * * * [section 7122(c)] payment.’’
                                        We need not address respondent’s first alternative ground
                                     since we agree with his second; i.e., there is no evidence of
                                     false representations or fraudulent inducement. Moreover,
                                     petitioner overlooks the fact that among Mr. August’s
                                     grounds for ultimately rejecting the amended OIC was his
                                     finding, based upon Mr. Chun’s memorandum, that peti-
                                     tioner had understated the value of his assets and the
                                     amount of his anticipated future income, which, in his view,
                                     raised ‘‘multiple collectibility issues’’. Also, Mr. August made
                                     a finding that petitioner had violated the terms of the OIC
                                     by failing to remain in compliance with his tax filing and
                                     payment obligations (i.e., he failed to timely file his 2009
                                     return or pay sufficient estimated taxes for 2009 and 2010),
                                     a finding that petitioner’s counsel admitted to Mr. August
                                     was correct.
                                           B. Conclusion
                                        In the light of Mr. August’s good-faith processing of the
                                     amended OIC, the presence of issues regarding collectibility,
                                     and petitioner’s noncompliance with his ongoing tax obliga-
                                     tions, we find that Appeals did not abuse its discretion in
                                     retaining the section 7122(c) payment in conjunction with its
                                     rejection of the amended OIC.
                                     VII. Conclusion
                                        We conclude that Mr. August and his Appeals team man-
                                     ager did not abuse Appeals’ discretion in rejecting peti-
                                     tioner’s OIC and retaining his section 7122(c) payment. Still
                                     unresolved, however, is the question of whether it was an




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                                     374                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     abuse of discretion for Appeals to refuse to withdraw the
                                     NFTLs and to sustain the levies.
                                           A. The NFTLs
                                        Pursuant to section 6323(j)(1), the Commissioner is author-
                                     ized to withdraw an NFTL if (A) the notice is premature or
                                     otherwise violates administrative procedures, (B) the tax-
                                     payer has entered into an installment payment agreement to
                                     satisfy the liability for which the lien was imposed, (C) the
                                     withdrawal will facilitate collection of the liability, or (D) the
                                     withdrawal would be ‘‘in the best interests of the taxpayer
                                     * * * and the United States.’’ There is no evidence in the
                                     record, nor any claim by petitioner, that any of those condi-
                                     tions has been satisfied. Moreover, Mr. August’s ‘‘Case
                                     Activity Record’’ states that petitioner’s counsel told him he
                                     did not care about the liens and that the IRS is entitled to
                                     its liens. It was not an abuse of discretion for Appeals to sus-
                                     tain the NFTLs.
                                           B. The Levies
                                        Pursuant to section 6330(c)(3)(C), the determination by the
                                     Appeals officer conducting the CDP hearing must ‘‘take into
                                     consideration * * * 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.’’ (Emphasis added.)
                                        While Mr. Chun may have been correct in concluding that
                                     the OIC of $1,047,216 was below the realizable collection
                                     potential from petitioner and, therefore, insufficient, he sug-
                                     gested, in his January 10, 2011, memorandum to Mr. August,
                                     that Mr. August ‘‘obtain more updated information’’; that
                                     Appeals reiterate its ‘‘requests for accounting information
                                     and accounting statements covering the last five years’’; and
                                     that ‘‘Appeals or the revenue officer obtain the assistance of
                                     an IRS engineer to value Isley Brothers LLC.’’ Mr. Chun’s
                                     suggestions that Mr. August obtain additional information
                                     regarding petitioner’s assets and future income potential, and
                                     his repeated references to potential sources of both that peti-
                                     tioner had failed to include in the financial statements
                                     (Forms 433A and B) that he submitted to Mr. August in
                                     connection with his OICs, indicate his view (which appears




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                                     (349)                            ISLEY v. COMMISSIONER                                       375


                                     reasonable) that further negotiations with petitioner might
                                     have proven fruitful and that petitioner had (or would have)
                                     the financial wherewithal to submit another OIC in a larger
                                     amount or, perhaps, enter into an installment agreement
                                     with respondent to pay his assessed liabilities over time.
                                     Either alternative would have needed the prior approval of
                                     DOJ, pursuant to section 7122(a), but, as noted supra, either
                                     or both petitioner and Appeals could have solicited such prior
                                     approval. Also, if petitioner is correct that neither the pros-
                                     ecutor in the criminal case nor petitioner’s probation officer
                                     actually objected to the acceptance of petitioner’s OIC, such
                                     approval likely would have been forthcoming.
                                        Moreover, it would appear that petitioner’s 2009 and 2010
                                     compliance shortcomings were not intentional and were
                                     readily curable. Mr. August’s case activity report indicates
                                     that the failure to file petitioner’s 2009 return was due to a
                                     mixup between his advisers as to who had that responsi-
                                     bility, and that the estimated tax payment shortfall was due
                                     to the fact that estimated tax payments had been based
                                     inadvertently upon petitioner’s ‘‘touring income’’ but not his
                                     ‘‘royalty income’’.
                                        Under the circumstances, a referral to DOJ being required,
                                     we conclude that Appeals acted prematurely in sustaining
                                     the levies. Moreover, such an action might very well have
                                     been ‘‘more intrusive than necessary’’. Therefore, we will
                                     remand the case to Appeals for further consideration and
                                     instruct Appeals to reexamine petitioner’s financial position,
                                     and if, in Appeals’ view, it warrants petitioner’s submission
                                     of another OIC or of an installment agreement (and petition-




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                                     376                 141 UNITED STATES TAX COURT REPORTS                                    (349)


                                     er is amenable thereto), to seek approval thereof from DOJ
                                     before entering into or processing either. 14
                                                                                An appropriate order will be issued.
                                                                               f




                                        14 The three-year probationary period appears to have expired at or

                                     shortly after the end of 2012. If petitioner has fully complied with its
                                     terms, which include the obligation to discharge his liabilities for both the
                                     conviction years and the three-year probationary period, or if those liabil-
                                     ities have been discharged by means of a settlement between petitioner
                                     and DOJ, there will be nothing more to collect for those years, making the
                                     issues of compromise and the continued application of sec. 7122(a) to the
                                     conviction years moot. Not having been so notified by the parties, we sus-
                                     pect that that is not the case and that there are still uncollected assessed
                                     liabilities. If that is true, DOJ’s prior approval of any compromise with re-
                                     spect to the conviction years still will be necessary.




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