                                T.C. Memo. 2016-3



                         UNITED STATES TAX COURT



                    WAYNE REBUCK, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 844-14L.                           Filed January 5, 2016.



      Giovanni V. Alberotanza and Margaret L. Kessler, for petitioner.

      Michael A. Raiken and Nancy M. Gilmore, for respondent.



                           MEMORANDUM OPINION


      RUWE, Judge: Pursuant to section 6330(d)(1),1 petitioner seeks review of

respondent’s determination to proceed with collection by levy of his unpaid



      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for all relevant years, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                                        -2-

[*2] Federal income tax liabilities for the taxable years 1998, 1999, 2000, 2001,

and 2002. Petitioner does not contest the existence or amounts of his underlying

tax liabilities, and the only issue for decision is whether respondent abused his

discretion by sustaining the proposed levy action.

                                    Background

      The parties submitted this case fully stipulated pursuant to Rule 122. The

stipulation of facts and the attached exhibits are incorporated herein by this

reference.

      Petitioner resided in Pennsylvania at the time he filed his petition.

Criminal Judgment and Restitution

      On or about November 28, 2006, a grand jury in the Eastern District of

Pennsylvania filed an indictment against petitioner along with 10 codefendants on

one count of conspiring to defraud the United States pursuant to 18 U.S.C. sec.

371. The grand jury charged that petitioner and 10 codefendants were involved in

an organization that conducted sales seminars throughout the United States and

solicited clients for fraudulent offshore and domestic trust packages by falsely

representing that taxpayers could lawfully avoid paying Federal income tax by

placing income and assets into the organization’s trust packages. Count 1 of the

indictment encompasses activity occurring from “at least January 2000 through at
                                         -3-

[*3] least July 2003”. On July 15, 2008, the U.S. District Court for the Eastern

District of Pennsylvania (District Court) entered a criminal judgment against

petitioner. Petitioner was found guilty on count 1 of the indictment and was

ordered to pay restitution to the Internal Revenue Service (IRS) of $16,339,199 as

a joint and several liability with 10 codefendants.

Civil Penalties and 1996 Tax Liability

      On October 5, 2009, respondent assessed civil penalties against petitioner

for promoting an abusive tax shelter pursuant to section 6700, as follows:

                                                Penalty
                         Year                  sec. 6700

                         1999                   $30,000
                         2000                    27,000
                         2001                    12,000
                         2002                    49,000
                         2003                     9,000

On or about February 19, 2010, petitioner requested a collection due process

(CDP) hearing concerning the assessment of the above-listed civil penalties (2010

CDP hearing).

      On or about November 15, 2010, petitioner filed a Form 1040, U.S.

Individual Income Tax Return, for his 1996 tax year, and on January 10, 2011,

respondent assessed an income tax liability of $13,809 plus penalties and interest.
                                        -4-

[*4] On April 25, 2011, respondent issued a notice of intent to levy to petitioner

indicating that respondent intended to collect petitioner’s unpaid 1996 income tax

liability. On May 6, 2011, respondent filed a notice of Federal tax lien regarding

petitioner’s unpaid tax liability for 1996. Petitioner did not request a CDP hearing

concerning his 1996 income tax liability.

      As a result of the 2010 CDP hearing regarding the section 6700 civil

penalties, on May 11, 2011, petitioner entered into an installment agreement for

his outstanding section 6700 civil penalties and his 1996 income tax liability

(2011 installment agreement).

Taxable Years 1998-2002

      On or about October 14, 2010, petitioner filed Forms 1040 for the taxable

years 1998, 1999, 2000, 2001, and 2002. On May 14, 2012, respondent assessed

income tax, penalties, and interest for these years based upon petitioner’s returns.

Respondent sent to petitioner, in care of petitioner’s representative, a Letter 1058,

Final Notice of Intent to Levy and Notice of Your Right to a Hearing, dated

August 14, 2012, advising petitioner that respondent intended to levy to collect his

unpaid income tax liabilities for the taxable years 1998-2002. On August 16,

2012, petitioner’s representative timely submitted a Form 12153, Request for a

Collection Due Process or Equivalent Hearing, concerning petitioner’s 1998-2002
                                              -5-

[*5] income tax liabilities, checking the boxes for “Installment Agreement”,

“Offer in Compromise”, and “I Cannot Pay Balance”. A typewritten statement

was attached to the CDP hearing request indicating petitioner’s desire to amend

his 2011 installment agreement (which concerned his income tax liability for 1996

and his section 6700 civil penalties for 1999-2003) to include his income tax

liabilities for 1998-2002. The typewritten statement further explained that the

proposed levy “would cause * * * [petitioner] extreme economic hardship.”

       On August 29, 2012, petitioner’s CDP hearing request was referred to the

IRS Office of Appeals (Appeals), and on September 7, 2012, Appeals sent

petitioner a letter acknowledging receipt of his CDP hearing request. On or about

September 10, 2012, Settlement Officer Jeffrey Chambers (SO Chambers) was

assigned to petitioner’s case. SO Chambers had no prior involvement with

petitioner or petitioner’s tax liabilities.

       On October 31, 2012, petitioner’s representative submitted to SO Chambers

a Form 656, Offer in Compromise, for petitioner’s unpaid income tax liabilities for

the taxable years 1996, 1997,2 1998, 1999, 2000, 2001, and 2002 and for

petitioner’s section 6700 civil penalties for the years 1999-2003. Petitioner’s


       2
       On brief respondent acknowledges that petitioner does not have an
outstanding tax liability for 1997.
                                              -6-

[*6] offer-in-compromise (OIC) was for $59,045 and was based on doubt as to

collectibility. Petitioner submitted two checks with his OIC: one for a $150

application fee and the other for the required 20% downpayment of $11,809.

       On November 5, 2012, petitioner’s 2011 installment agreement was

reversed because of default.

       On November 6, 2012, SO Chambers forwarded petitioner’s OIC to

respondent’s Centralized Offer in Compromise Unit (COIC Unit) for

consideration. On April 2, 2013, SO Chambers received petitioner’s OIC from

respondent’s COIC Unit stating that the offer did not meet COIC Unit criteria

because petitioner was still paying restitution to the IRS.

       On or about April 25, 2013, petitioner’s case was assigned to Settlement

Officer Stephen McCarrick (SO McCarrick) of respondent’s Philadelphia,

Pennsylvania, field office. SO McCarrick had no prior involvement with

petitioner or petitioner’s tax liabilities.

       On June 25, 2013, SO McCarrick computed petitioner’s reasonable

collection potential (RCP) and determined the RCP to be higher than the amount

offered in petitioner’s OIC. SO McCarrick and petitioner’s representative held a

telephone conference on June 26, 2013, and discussed petitioner’s OIC and SO

McCarrick’s calculation of petitioner’s RCP. Petitioner’s representative agreed to
                                        -7-

[*7] provide SO McCarrick with an updated Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals, to show that

petitioner’s monthly income had decreased. On August 12, 2013, SO McCarrick

reviewed the updated financial information that petitioner’s representative

provided and determined that petitioner’s RCP was higher than that calculated by

petitioner’s representative.

      On October 24, 2013, after discussing petitioner’s OIC with his Appeals

team manager (ATM) and conducting independent research of the Internal

Revenue Manual (IRM), SO McCarrick concluded that petitioner’s OIC could be

considered only if petitioner paid or will pay as part of the OIC the full amount of

restitution. In early November 2013 petitioner’s representative requested a

conference with SO McCarrick’s ATM to discuss SO McCarrick’s determination

concerning the payment of restitution in relation to the OIC. On November 18,

2013, SO McCarrick’s ATM spoke with petitioner’s representative and explained

that he concurred with SO McCarrick’s determination regarding petitioner’s

restitution and OIC; however, the ATM explained that a partial payment

installment agreement (PPIA) of $540 per month was a viable payment
                                        -8-

[*8] alternative.3 On December 4, 2013, petitioner’s representative informed SO

McCarrick that she disagreed that the payment of restitution was necessary to the

OIC and that petitioner was unable to enter into the proposed PPIA for $540 per

month.

      On December 16, 2013, respondent issued to petitioner a Notice of

Determination Concerning Collection Action(s) Under Section 6320 and/or 6330,

sustaining the proposed levy.

                                     Discussion

      Petitioner invokes our jurisdiction under section 6330(d)(1) to review the

notice of determination issued to him with respect to the proposed levy on his

property. Petitioner contends that respondent abused his discretion in sustaining

the proposed levy by “refusing to consider * * * [his] offer in compromise unless

it provided for full payment of $16,339,199 in joint and several restitution.”4

Petitioner further contends that respondent abused his discretion by not

considering a PPIA amount lower than $540 per month because of petitioner’s


      3
      Although it is not clear from the record, it appears that the proposed $540
per month PPIA was for petitioner’s 1996, 1998, 1999, 2000, 2001, and 2002
income tax liabilities and 1999-2003 sec. 6700 civil penalties.
      4
       On brief petitioner suggests that substantial payments have been made
towards the joint and several criminal restitution. However, petitioner does not
claim that the full amount of the restitution has been satisfied.
                                         -9-

[*9] medical condition and impending retirement. Respondent contends that SO

McCarrick did not abuse his discretion in sustaining the proposed levy because he

followed guidelines set forth in the IRM and carefully calculated the PPIA using

financial information that petitioner provided.

      Section 6330(a)(1) provides that the Secretary may not levy on any property

or right to property of a person unless the Secretary first notifies the person in

writing of the right to a hearing before Appeals. The Appeals officer must verify

at the hearing that the requirements of any applicable law or administrative

procedure have been met. Sec. 6330(c)(1). At the hearing the person may raise

any relevant issue relating to the unpaid tax or the proposed levy, including

appropriate spousal defenses, challenges to the appropriateness of the collection

action, and collection alternatives. Sec. 6330(c)(2)(A). The person is entitled to

raise issues regarding the underlying tax liability “if the person did not receive any

statutory notice of deficiency for such tax liability”. Sec. 6330(c)(2)(B).

Taxpayers are expected to provide all relevant information requested by Appeals,

including financial statements, for its consideration of the facts and issues

involved in the hearing. Sec. 301.6330-1(e)(1), Proced. & Admin. Regs.

      Following the hearing Appeals must determine whether proceeding with the

proposed levy action is appropriate. In making that determination, Appeals is
                                        - 10 -

[*10] required to take into consideration: (1) verification presented by the

Secretary during the hearing process that the requirements of applicable law and

administrative procedure have been met; (2) relevant issues raised by the taxpayer;

and (3) whether the proposed levy action balances the need for efficient collection

of taxes with the taxpayer’s concern regarding the intrusiveness of the proposed

collection action. Sec. 6330(c)(3).

      In the instant case, the notice of determination sets forth the IRS’

verification of compliance with applicable law and administrative procedure, and

petitioner does not challenge this verification. Petitioner does not dispute his

underlying tax liabilities for the taxable years 1998, 1999, 2000, 2001, and 2002.

The issues raised in the petition pertain only to collection alternatives. These

issues were considered by SO McCarrick, who determined that the proposed

collection action balanced the need for the efficient collection of taxes with the

legitimate concern of petitioner that any collection be no more intrusive than

necessary.

      Where a taxpayer’s underlying liability is not in dispute, the Court reviews

the Appeals officer’s determination for abuse of discretion. See Sego v.

Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,

181-182 (2000). Under the abuse of discretion standard, we decide whether the
                                        - 11 -

[*11] determination of the Appeals officer was arbitrary, capricious, or without a

sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005),

aff’d, 469 F.3d 27 (1st Cir. 2006). In reviewing for abuse of discretion, we

generally consider only the arguments, issues, and other matters that were raised at

the CDP hearing or otherwise brought to the attention of Appeals. Giamelli v.

Commissioner, 129 T.C. 107, 115 (2007).

      Petitioner has raised two issues in this case: (1) whether the Appeals officer

abused his discretion in rejecting petitioner’s OIC because it did not include full

payment of petitioner’s criminal restitution and (2) whether the Appeals officer

abused his discretion in proposing to petitioner a PPIA of $540 per month. We

address each of these contentions in turn.

1. Offer in Compromise

      At the time of petitioner’s CDP hearing, guidelines governing OICs where a

taxpayer has outstanding criminal restitution were contained in IRM pt. 5.1.5.24.5

(Aug. 3, 2009). SO McCarrick relied on this IRM section in sustaining the

proposed levy action. IRM pt. 5.1.5.24.5 states, in relevant part:

             (3) There may be situations where the IRS has assessed civil
      tax liabilities, interest and penalties in excess of the amount that was
      awarded as restitution. In this situation, the IRS may consider an
      offer in compromise to pay the additional taxes, penalties, and interest
      for the same tax periods for which restitution was ordered only if the
                                        - 12 -

[*12] defendant has paid or will pay as part of the offer the full amount of
      the restitution. Example: The court orders payment of restitution to
      the IRS for the 2000 tax year in the amount of $50,000. The IRS
      assesses civil tax liabilities, interest, and penalties in the amount of
      $80,000 for the same tax year. The IRS may compromise the
      additional amount assessed as civil tax liabilities ($30,000), only if
      the defendant has paid or will pay the full amount of the restitution
      ($50,000).

             (4) The IRS also will not consider an offer based on Doubt as
      to Collectibility (DATC) or Effective Tax Administration (ETA) for
      “nonrestitution” taxes or years because those offers must include a
      compromise of all unpaid taxes. Example: The court awards
      restitution payable to the IRS in the amount of $50,000 for the tax
      years 2000 and 2001. The IRS assesses civil tax liabilities in the
      amount of $25,000 for tax year 2002. The IRS may not compromise
      the civil tax liability for the 2002 tax year based on doubt as to
      collectibility or effective tax administration because the offer would
      have to include tax years for which restitution was ordered payable to
      the IRS.

             (5) If an offer in compromise is submitted by a taxpayer that
      includes tax periods for which criminal restitution was ordered
      payable to the IRS, the offer should be not be [sic] considered unless
      it provides for full payment of the amount of restitution. Taxpayers
      submitting such offers should be informed that only the district court
      that entered the restitution order can modify it.

      The fundamental problem with petitioner’s OIC is that it did not address his

outstanding court-ordered restitution. Petitioner’s OIC sought to compromise

(1) Federal income tax liabilities for the taxable years 1996, 1998, 1999, 2000,

2001, and 2002 and (2) section 6700 civil penalties for 1999-2003. However,
                                        - 13 -

[*13] petitioner’s OIC did not address his outstanding criminal restitution.5 When

a taxpayer owing restitution submits an OIC to the IRS, IRM pt. 5.1.5.24.5

requires that the offer provide for the full payment of the restitution amount.

Petitioner’s OIC did not address his outstanding criminal restitution as required by

the IRM. Generally, an Appeals officer does not abuse his or her discretion in

rejecting an OIC when following guidelines set forth in the IRM. Veneziano v.

Commissioner, T.C. Memo. 2011-160, 2011 Tax Ct. Memo LEXIS 157, at *11.

      Pursuant to the IRM, when a taxpayer seeks to compromise taxes, penalties,

and interest for the same tax periods for which restitution was ordered, the offer

must provide for full payment of the restitution amount. Petitioner submitted his

OIC based on doubt as to collectibility6 for his 1996, 1998, 1999, 2000, 2001, and

2002 income tax liabilities and his section 6700 civil penalties for 1999-2003.

Petitioner’s joint and several criminal restitution of $16,339,199 resulted from

criminal activities during tax periods 2000, 2001, 2002, and 2003. IRM pt.



      5
        Petitioner did not alternatively contend that his criminal restitution was
satisfied.
      6
       In his opening brief petitioner contends that respondent should have
alternatively determined that the OIC promoted effective tax administration.
However, petitioner did not raise or argue effective tax administration during his
CDP hearing, and therefore it cannot be raised on judicial review. See Giamelli v.
Commissioner, 129 T.C. 107, 115 (2007).
                                         - 14 -

[*14] 5.1.5.24.5(3) states: “[t]he IRS may consider an offer in compromise to pay

the additional taxes, penalties, and interest for the same tax periods for which

restitution was ordered only if the defendant has paid or will pay as part of the

offer the full amount of the restitution.” Petitioner sought to compromise income

tax, civil penalties, and interest for some of the same periods covered by his court-

ordered restitution (i.e., 2000, 2001, 2002, and 2003). The IRM requires a

taxpayer in petitioner’s position to pay--or pay as part of the OIC--the full amount

of outstanding restitution, which petitioner did not do.7 SO McCarrick conducted

independent research and consulted his ATM before ultimately concluding that

petitioner’s OIC must include provision for full payment of his joint and several

restitution. SO McCarrick’s refusal to consider petitioner’s OIC unless it met the

IRM requirement that criminal restitution be satisfied as part of an OIC does not

constitute an abuse of discretion. Indeed, it appears reasonable for the

Commissioner to decline an OIC made by a taxpayer who has committed a crime

related to Federal tax but who fails to satisfy a restitution order by a District Court

in the criminal case. Additionally, SO McCarrick provided petitioner with the

opportunity to provide legal authority contrary to this interpretation of the IRM,

      7
       Internal Revenue Manual pt. 5.1.5.24.5(4) (Aug. 3, 2009), and the example
therein state that a doubt as to collectibility OIC for “nonrestitution” years cannot
be considered unless it includes years for which restitution is payable to the IRS.
                                        - 15 -

[*15] which petitioner did not do. Accordingly, we hold that SO McCarrick’s

rejection of petitioner’s OIC based on the provisions of IRM pt. 5.1.5.24.5 was not

arbitrary, capricious, or without sound basis in fact or law.

2. Installment Agreement

      Section 6159 authorizes the Commissioner to enter into written agreements

allowing taxpayers to pay tax in installment payments if he deems that the

“agreement will facilitate full or partial collection of such liability.” Thompson v.

Commissioner, 140 T.C. 173, 179 (2013). The decision to accept or reject an

installment agreement lies within the discretion of the Commissioner. Sec.

301.6159-1(a), (c)(1)(i), Proced. & Admin. Regs. If an Appeals officer follows all

statutory and administrative guidelines and provides a reasoned and balanced

decision, the Court will not reweigh the equities. Lipson v. Commissioner, T.C.

Memo. 2012-252, at *9.

      Petitioner argues that SO McCarrick abused his discretion by determining

that petitioner had disposable income for a PPIA of $540 per month. Petitioner

also argues that SO McCarrick abused his discretion by not considering

petitioner’s medical condition and how it would affect his ability to earn future

income. Respondent argues that SO McCarrick carefully evaluated petitioner’s
                                        - 16 -

[*16] monthly income and expenses before proposing a PPIA based upon

petitioner’s RCP.

      As a threshold matter, it is not an abuse of discretion for an Appeals officer

to decline to consider a collection alternative where the taxpayer does not place a

specific proposal on the table. See Busche v. Commissioner, T.C. Memo. 2011-

285, 2011 Tax Ct. Memo LEXIS 277, at *35; see also Kendricks v. Commissioner,

124 T.C. 69, 79 (2005). Stated otherwise, it is the obligation of the taxpayer, not

of the reviewing officer, to start negotiations regarding a collection alternative by

making a specific proposal.

      Although petitioner indicated his interest in an installment agreement, he

never proposed a specific amount or set forth a payment schedule. On November

4, 2013, petitioner’s representative requested that SO McCarrick propose a PPIA

based on petitioner’s income and expenses. Although he was not required to do

so, on November 12, 2013, SO McCarrick proposed a PPIA under which

petitioner would pay $540 per month. Petitioner, through his representative,

rejected this offer. Despite arguing before this Court that SO McCarrick did not

consider his medical condition and decreasing future earnings, petitioner did not

make a counteroffer to the $540-per-month proposal. Moreover, petitioner did not

present any other persuasive evidence or arguments demonstrating that SO
                                      - 17 -

[*17] McCarrick abused his discretion. Accordingly, we find that SO McCarrick

did not abuse his discretion in sustaining the proposed levy after proposing a PPIA

of $540 per month.

      We hold that the determination to proceed with collection was not an abuse

of SO McCarrick’s discretion, and the proposed collection action is sustained.

      To reflect the foregoing,


                                                         Decision will be entered

                                                   for respondent.
