                        T.C. Memo. 2002-210



                      UNITED STATES TAX COURT



     W. RICHARD MORGAN AND JANICE J. MORGAN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10641-00L.               Filed August 20, 2002.



     Lori J. Sellers and Michael C. Phillips, for petitioners.

     Michael L. Boman, for respondent.



                        MEMORANDUM OPINION

     COHEN, Judge:   The within proceeding was commenced in

response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330.     We must decide whether

respondent should be permitted to levy on petitioners’ assets to

collect a tax liability owed by petitioners for 1983.    Unless
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otherwise indicated, all section references are to the Internal

Revenue Code in effect for the years in issue.

                            Background

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in Raymore, Missouri, at the time they filed

their petition.   Assessments were made against petitioners for

Federal income tax for 1981, 1982, and 1983; the assessments were

related to petitioners’ investments in the early 1980's in tax

shelter activities.

     Petitioners filed for bankruptcy on July 29, 1994.   The

Internal Revenue Service (IRS) filed a proof of claim in the

bankruptcy case for 1981, 1982, and 1983 Federal income taxes.

Petitioners objected to the IRS proof of claim related to the

1983 tax liability in the bankruptcy case but later withdrew that

objection.

     On December 22, 1994, the Bankruptcy Court granted

petitioners a discharge.   Petitioners’ tax liability for 1981 and

1982 was not discharged in the bankruptcy.   Petitioners’ tax

liability for 1983 was discharged in the bankruptcy, but the

discharge does not prevent the collection of the 1983 liability

from property that was exempt from the bankruptcy estate.

Petitioners were aware that the IRS retained the right to levy on

their exempt assets.   Petitioners’ withdrawal of their objection
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to the proof of claim of the IRS for the 1983 tax liability

stated:

           3. The Debtors [Morgans] and the United States
     agree that, notwithstanding the fact that the
     underlying debt is dischargeable for the 1983 tax year,
     a federal tax lien filed by the Internal Revenue
     Service encumbers all of the Debtors’ property,
     including any exempt property, to the extent it exists.
     * * *

The only asset that petitioners had that was exempt from the

discharge order was the pension plan of petitioner W. Richard

Morgan (petitioner).

     In the bankruptcy proceedings, petitioners were represented

by an attorney.   Petitioners were also represented by a tax

attorney with respect to their 1981, 1982, and 1983 income tax

liabilities.   Petitioners’ tax attorney had been engaged in the

practice of tax law since 1959 and had experience in tax

controversies and transactions planning.   Petitioners’ tax

attorney had reviewed the law, regulations, and procedures on

installment agreements.

     In March 1995, petitioners submitted an offer-in-compromise

to the IRS, which was later rejected.   After the rejection of the

offer-in-compromise, petitioners’ delinquent tax accounts were

assigned to Revenue Officer Elizabeth Cooper (Cooper).   Between

July 1997 and May 1998, Cooper advised petitioners’ attorney on

numerous occasions that petitioners needed to commence monthly

payments immediately while petitioners prepared a second offer-
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in-compromise.    In May 1998, Cooper issued a wage levy to

petitioner’s employer.

     On May 19, 1998, Cooper mailed to petitioners’ attorney a

letter regarding the submission of another offer-in-compromise

and establishing an installment agreement.    The letter also

stated:   “regarding the 1983 [tax liability], Special Procedures

Branch is in the process of getting it abated”.    Cooper’s

representation was based on her knowledge that the 1983 tax

liability was discharged in bankruptcy, her lack of knowledge

that the pension plan was an exempt asset in the bankruptcy, and

her communications with the Special Procedures Branch that told

her that 1983 would be abated.

     At the time of the installment agreement, Cooper believed

that there would be no levies and no collection for 1983.     An

installment agreement for 1981 and 1982 was executed by

petitioners on May 27, 1998, and on behalf of respondent on

June 4, 1998.    The amount owed under the installment agreement

was $499,710.73, and the agreement required payments of $1,000

per month.    There was no provision regarding 1983 in the

installment agreement.

     The installment agreement was meant to be an interim

situation until petitioners could submit another offer-in-

compromise.    In June 1998, Cooper advised petitioners’ attorney

to have petitioners send money directly to her until 1983 could
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be abated and the installment agreement could be entered into the

computer records.   By entering into the installment agreement,

petitioners were able to secure release of the wage levy.

Petitioners have continued to make payments of $1,000 per month

under the installment agreement.

     During the summer of 1998, Cooper continued to have

discussions with the Special Procedures Branch concerning the

abatement of the 1983 tax liability and the pension plan.    On

August 17, 1998, Special Procedures instructed Cooper to obtain

additional information regarding the pension plan.    On

September 11, 1998, petitioners’ attorney forwarded the pension

plan information and an attached letter to Cooper.    The letter

from petitioners’ attorney explained his understanding of the

effect of the installment agreement, which was that the IRS would

not commence additional collection procedures so long as the

Morgans complied with the terms of the installment agreement.

     Petitioners were sent a Final Notice of Intent to Levy and

Notice of Your Right to a Hearing on December 27, 1999.    The

taxes owed with penalties and interest, as set forth in the final

notice, were $360,629.03, $309,937.93, and $379,581.83, for 1981,

1982, and 1983, respectively.   Petitioners filed a Request for a

Collection Due Process Hearing on January 26, 2000.    The hearing

was held in or about September 2000.    At the hearing, petitioners

argued that the 1983 tax was discharged in bankruptcy and that
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the IRS was precluded from levy while an installment agreement

was in effect.

     The notice of determination was mailed to petitioners on

September 15, 2000, in which the Appeals officer determined that

the IRS may enforce by levy the 1983 tax lien against assets that

were exempt from the bankruptcy.   The determination also stated

that, as long as petitioners comply with the terms of the

installment agreement, there would be no collection or levies to

collect taxes owing for 1981 and 1982.

                            Discussion

     Petitioners contend that they entered into the installment

agreement for 1981 and 1982 based on the representation by the

IRS that taxes owed for 1983 would be abated, and, therefore,

there would be no levy action while the installment agreement was

in effect.   Petitioners argue that, absent the representation by

the IRS, they would have included the 1983 tax liabilities in the

installment agreement.   Petitioners’ position is that the IRS is

estopped from levying on petitioners’ assets for the 1983 tax

liability while the installment agreement is in effect.

     The amount of the tax liability is not in dispute in this

case; thus, we shall review respondent’s administrative

determination for an abuse of discretion.   Goza v. Commissioner,

114 T.C. 176, 182 (2000).   Equitable estoppel is a judicial

doctrine that precludes a party from denying its own
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representations which induced another to act to his or her

detriment.    Hofstetter v. Commisioner, 98 T.C. 695, 700 (1992).

This Court has recognized that estoppel is applied against the

Commissioner “with the utmost caution and restraint.”          Id.;

Kronish v. Commissioner, 90 T.C. 684, 695 (1988); Boulez v.

Commissioner, 76 T.C. 209, 214-215 (1981), affd. 810 F.2d 209

(D.C. Cir. 1987); Estate of Emerson v. Commissioner, 67 T.C. 612,

617 (1977).   The taxpayer must establish the following elements

before equitable estoppel will be applied against the Government:

(1) A false representation or wrongful, misleading silence by the

party against whom the estoppel is claimed; (2) an error in a

statement of fact and not in an opinion or statement of law;

(3) the taxpayer’s ignorance of the true facts; (4) the

taxpayer’s reasonable reliance on the acts or statements of the

one against whom estoppel is claimed; and (5) adverse effects

suffered by the taxpayer from the acts or statements of the one

against whom estoppel is claimed.        Norfolk S. Corp. v.

Commissioner, 104 T.C. 13, 60 (1995), affd. 140 F.3d 240 (4th

Cir. 1998).

     Estoppel requires a finding that the taxpayer relied on the

Government’s representations and suffered a detriment because of

that reliance.    Id.   The Court of Appeals for the Eighth Circuit,

to which this case is appealable, has also held that estoppel
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against the Government also requires a showing of “affirmative

misconduct”.    Rowden v. Warden, 89 F.3d 536, 537 (8th Cir. 1996).

     Petitioners present their estoppel case as follows:

(1) Cooper made false representations to petitioners when she

represented that the tax liabilities for 1983 would be abated and

that there would be no more levies if petitioners signed the

installment agreement; (2) Cooper’s representations were

misstatements of fact, not of law; (3) petitioners believed that

the IRS was going to abate the tax liability for 1983, and, thus,

there would be no levies or collection so long as the installment

agreement was in effect; (4) petitioners entered into the

installment agreement for the 1981 and 1982 tax liabilities based

on their reliance on the representations of Cooper; and

(5) petitioners relied on Cooper’s statements to their detriment

because, absent the representation, petitioners would have

included 1983 in the installment agreement and there would be no

levy on the pension plan assets.    Respondent argues that

petitioners have not satisfied the traditional requirements of

estoppel, much less shown affirmative misconduct, because there

was no reasonable reliance and no detriment to petitioners.

     Petitioners’ claim of reliance on Cooper’s statements is not

reasonable.    Petitioners were aware that, even though the 1983

tax liability was discharged in bankruptcy, the IRS retained the

right to levy on their exempt assets and that there was a lien
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attached to the pension plan assets.   Petitioners were

represented by an attorney in bankruptcy and were also

represented by a tax attorney in their dealings with the IRS.

Petitioners’ attorney knew that 1983 was not included in the

installment agreement and also knew that the IRS retained a right

to levy the pension plan assets for the 1983 tax liability.    The

knowledge of petitioners’ attorney is imputed to them.    See Nolte

v. Commissioner, T.C. Memo. 1995-57, affd. 99 F.3d 1146 (9th Cir.

1996).

     Petitioners have not suffered a detriment as a result of

executing the installment agreement.   Petitioners’ claim only

that they would have included the 1983 tax year in the

installment agreement if they had known that the 1983 liability

was not going to be abated, and, thus, the IRS would not be

allowed to levy on petitioners’ pension plan assets because

petitioners have not defaulted on their installment agreement.

     In Nolte v. Commissioner, supra, the taxpayer had been

erroneously advised that his account had been paid in full.    The

taxpayer alleged that the existence of a deficiency and interest

was a detriment.   The Court held that the taxpayer would owe the

deficiency whether or not respondent made the misstatement.

     Petitioners have been paying $1,000 per month on a tax

liability that they are legally obligated to pay.   See Hudock v.

Commissioner, 65 T.C. 351, 364 (1975) (making payments on a
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legally due tax does not constitute detrimental reliance).

Petitioners have the ability to withdraw from the installment

agreement at any time.   The monthly payment does not even cover

the interest accruing on their liabilities.   Rather than a

detriment, petitioners have received the benefit of a favorable

installment agreement for 1981 and 1982, a release of the wage

levy, and a delay in the collection of their 1983 tax liability

for several additional years.    An agent’s promise to abate or not

collect the tax does not create a legal right.   See United States

v. Asmar, 827 F.2d 907, 915 (3d Cir. 1987) (no detriment where a

taxpayer is not legally entitled to benefit from an agent’s

promise not to collect).

     In another case commenced by petitioners that related to the

collection of their tax liabilities, Morgan v. United States, 89

AFTR 2d 2002-1501, 2002-1 USTC par. 50,416 (W.D. Mo. 2001), the

District Court held that petitioners could not rely upon the oral

representations of Cooper to vary the terms of their installment

agreement.   In that case, petitioners maintained that Cooper had

represented to them that “the IRS would not take further

collection efforts so long as Plaintiffs remained current on

their payments.”   Id.   The IRS applied an overpayment from 1999

to petitioners’ total unpaid account.    The District Court granted

summary judgment for the Government, noting that the Government

had the right to retain the refund with or without the agreement,
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so petitioners suffered no prejudice.   The same rationale applies

here.

     We conclude that respondent’s determination was not an abuse

of discretion.   We sustain respondent’s administrative

determination to proceed with collection of the 1983 tax

liability.

                                         Decision will be entered

                                    for respondent.
