                               T.C. Memo. 2013-273



                         UNITED STATES TAX COURT



                FINCOURT B SHELTON PC, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 1769-11L.                         Filed December 2, 2013.



      Fincourt B. Shelton (an officer), for petitioner.

      Harry J. Negro, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      RUWE, Judge: This proceeding was commenced in response to a Notice of

Determination Concerning Collection Action(s) Under Section 6320 and/or 6330.1



      1
       All section references are to the Internal Revenue Code in effect at all
relevant times, unless otherwise indicated.
                                        -2-

[*2] The issues for decision are: (1) whether there was a valid offer-in-

compromise; (2) whether a compromise should be imputed under the concept of

accord and satisfaction; (3) whether equitable estoppel should be applied against

respondent; and (4) whether the settlement officer abused her discretion in

determining petitioner was not eligible for currently not collectible (CNC) status.

                               FINDINGS OF FACT

      Some of the facts have been stipulated and are so found. The stipulation of

facts and the attached exhibits are incorporated herein by this reference.

      At the time the petition was filed, petitioner’s principal place of business

was in Pennsylvania.

      Fincourt B. Shelton is an attorney and has been practicing law since 1980.

Fincourt B Shelton PC (hereinafter petitioner) is a professional corporation under

the laws of the Commonwealth of Pennsylvania. Petitioner was incorporated on

December 23, 1996. Mr. Shelton is the president and sole owner of petitioner.

      Petitioner filed Forms 941, Employer’s Quarterly Federal Tax Return, for 12

periods ending between March 31, 2003 and 2006, but failed to make timely

payments of the amounts due. Petitioner owed approximately $140,000.

      On January 24, 2007, the revenue officer received a Form 656, Offer in

Compromise, from petitioner offering to pay $70,000 to compromise the balance
                                        -3-

[*3] owed. However, petitioner did not submit the $150 application fee or 20% of

the amount offered that are required to be submitted with Form 656. On January

24, 2007, the revenue officer called Mr. Shelton and left a voice mail message

informing him that she did not make offer-in-compromise determinations and that

any decision with respect to the offer would be made by an offer specialist. On

January 29, 2007, Mr. Shelton called the revenue officer, who informed him that

petitioner would need to submit the $150 application fee and 20% of the amount

offered before the revenue officer could forward the offer-in-compromise to an

offer specialist. The parties stipulated that this offer-in-compromise was not

accepted by the Commissioner.

      On February 13, 2007, Mr. Shelton called the revenue officer and stated that

he was closing his business and that he would make a $120,000 payment to take

care of the tax due. Mr. Shelton said that he was closing petitioner because he

could no longer run the business. The revenue officer informed Mr. Shelton that

once she received the $120,000 payment she would close the case as a defunct

corporation. On February 20, 2007, the revenue officer received the $120,000

payment from petitioner. After the revenue officer applied the $120,000 payment,

petitioner still had outstanding employment tax balances due for the periods

ending December 31, 2005, and March 31, 2006. The parties stipulated that the
                                        -4-

[*4] $120,000 payment made by petitioner on February 20, 2007, was not part of a

term or condition of a Form 656. Petitioner never received a Form 656, or any

written acceptance, that was signed by an employee of the Commissioner. In other

words, petitioner did not submit the $120,000 payment in conjunction with a Form

656. After receiving the payment, the revenue officer closed petitioner’s case as a

CNC defunct corporation.

      Despite Mr. Shelton stating to the revenue officer that he intended to close

petitioner, petitioner filed Forms 1120, U.S. Corporation Income Tax Return, for

the taxable years 2008 and 2009. Additionally, petitioner made Federal tax

deposits for Form 941 for the period ending September 30, 2010. Because

petitioner was still operating and accruing tax liabilities, the CNC defunct

corporation status was reversed.

      Respondent sent petitioner a Letter 1058, Final Notice of Intent to Levy and

Notice of Your Right to a Hearing, dated April 15, 2010, advising petitioner that

respondent intended to levy to collect its unpaid employment tax liabilities for the

periods ending December 31, 2005, and March 31, 2006, as well as a civil penalty

for the period ending December 31, 2006, and that petitioner could request a

hearing with respondent’s Office of Appeals. As of April 15, 2010, petitioner

owed $9,361.16 for the period ending December 31, 2005, $14,267.85 for the
                                         -5-

[*5] period ending March 31, 2006, and $1,215.35 for the period ending

December 31, 2006. Petitioner timely submitted a Form 12153, Request for a

Collection Due Process or Equivalent Hearing, in which it stated that the

underlying tax liabilities had been compromised by the payment made in 2007.

      By letter dated May 19, 2010, respondent’s settlement officer acknowledged

receipt of petitioner’s collection due process (CDP) hearing request and scheduled

a telephone conference call for June 9, 2010. Mr. Shelton did not call the

settlement officer on June 9, 2010. By letter dated June 9, 2010, the settlement

officer informed Mr. Shelton that he had failed to call the settlement officer for the

scheduled CDP hearing. On June 11, 2010, a CDP hearing was held. Mr. Shelton

informed the settlement officer that petitioner had previously paid $120,000 and

that petitioner was dissolved and had no assets.

      Respondent issued to petitioner a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330, dated December 17, 2010,

sustaining the levy action. Petitioner timely filed a petition with this Court.

                                      OPINION

      Section 6331(a) provides that if any person liable to pay any tax neglects or

refuses to pay the tax within 10 days after notice and demand for payment, then

the Secretary is authorized to collect the tax by levy upon the person’s property.
                                         -6-

[*6] Section 6331(d) provides that, at least 30 days before enforcing collection by

way of a levy on the person’s property, the Secretary is obliged to provide the

person with a final notice of intent to levy, including notice of the administrative

appeals available to the person. If a taxpayer requests a CDP hearing, he may

raise at that hearing any relevant issue relating to the unpaid tax or the proposed

levy. Sec. 6330(c)(2). Relevant issues include requests for collection alternatives.

See sec. 6330(c)(2)(A)(iii).

1. Whether petitioner’s tax liabilities were compromised

       Petitioner argues that the $120,000 payment compromised all of its tax

liabilities. Respondent disagrees.

       Offer-in-compromise

       Respondent argues that there was never a valid offer-in-compromise;

therefore, petitioner’s $120,000 payment did not compromise its remaining tax

liabilities.

       The settlement of disputed tax liabilities is governed by sections 7121 and

7122, which authorize the Secretary to settle any tax disputes and compromise any

civil or criminal case arising under the internal revenue laws. Regulations under

section 7122 clarify the procedures required with respect to an offer-in-

compromise. “These procedures are exclusive and must be satisfied in order to
                                        -7-

[*7] effectuate a compromise or settlement which will be binding on both the

taxpayer and the Government.” Rohn v. Commissioner, T.C. Memo. 1994-244,

1994 Tax Ct. Memo LEXIS 248, at *12; see also Broz v. Commissioner, 137 T.C.

46, 56 (2011), aff’d, 727 F.3d 621 (6th Cir. 2013); Harbaugh v. Commissioner,

T.C. Memo. 2003-316, 2003 Tax Ct. Memo LEXIS 317, at *7 (“It is well settled

that section 7122 and the regulations thereunder provide the exclusive method of

effectuating a valid compromise of assessed tax liabilities.”).

      Section 301.7122-1(d)(1), Proced. & Admin. Regs., provides that an “offer

to compromise a tax liability pursuant to section 7122 must be submitted

according to the procedures, and in the form and manner, prescribed by the

Secretary. An offer to compromise a tax liability must be made in writing, must be

signed by the taxpayer under penalty of perjury, and must contain all of the

information prescribed or requested by the Secretary.” Rev. Proc. 2003-71, sec.

4.01, 2003-2 C.B. 517, 517, provides that an “offer to compromise a tax liability

must be submitted in writing on the Service’s Form 656, Offer in Compromise.”

See also Godwin v. Commissioner, T.C. Memo. 2003-289, 2003 Tax Ct. Memo

LEXIS 292, at *32 (“Taxpayers who wish to propose an offer in compromise must

submit a Form 656”.), aff’d, 132 Fed. Appx. 785 (11th Cir. 2005). The $120,000
                                        -8-

[*8] payment was not part of a term or condition of a Form 656. Petitioner failed

to submit a Form 656 with the payment.

      Section 301.7122-1(e)(1), Proced. & Admin. Regs., specifically provides

that “[a]n offer to compromise has not been accepted until the IRS issues a written

notification of acceptance to the taxpayer or the taxpayer’s representative.” See

also Rev. Proc. 2003-71, sec. 8.01, 2003-2 C.B. at 519. We cannot find that a

valid compromise was made if there is no written acceptance of the purported

agreement from the Commissioner. See Harbaugh v. Commissioner, 2003 Tax Ct.

Memo LEXIS 317, at *8; Ringgold v. Commissioner, T.C. Memo. 2003-199, 2003

Tax Ct. Memo LEXIS 196, at *4. Petitioner never received any written

acceptance from the Commissioner. At trial Mr. Shelton testified that the

Commissioner “never accepted the Offer in Compromise.”

      Petitioner failed to submit a Form 656 with the $120,000 payment, and the

Commissioner did not issue a written notice of acceptance. As a result we find

that the Commissioner and petitioner did not enter into a valid offer-in-

compromise. See Harbaugh v. Commissioner, 2003 Tax Ct. Memo LEXIS 317, at

*8; Godwin v. Commissioner, 2003 Tax Ct. Memo LEXIS 292, at *32.
                                         -9-

[*9] Accord and satisfaction

      On its two-page opening brief, petitioner argues that Mr. Shelton informed

the revenue officer that he would make the $120,000 payment, which would take

care of all the tax due. Petitioner argues that the revenue officer agreed to this.

Petitioner asks the Court to impute a compromise under the concept of accord and

satisfaction.

      “The regulations and procedures under section 7122 provide the exclusive

method of effectuating a compromise.” Ringgold v. Commissioner, 2003 Tax Ct.

Memo LEXIS 196, at *3. “Because of this exclusive method, no theory founded

upon general concepts of accord and satisfaction can be used to impute a

compromise settlement”. Bowling v. United States, 510 F.2d 112, 113 (5th Cir.

1975) (citing Moskowitz v. United States, 285 F.2d 451, 453 (Ct. Cl. 1961)); see

also Dormer v. Commissioner, T.C. Memo. 2004-167, 2004 Tax Ct. Memo LEXIS

172, at *15. Accordingly, we will not impute a compromise.

      Equitable estoppel

      In its opening brief petitioner briefly argued: “The Service is estopped from

attempting to collect the debt”. Petitioner did not cite any cases supporting this

argument.
                                        - 10 -

[*10] “[T]he doctrine of equitable estoppel is applied against the Government

‘with the utmost caution and restraint.’” Boulez v. Commissioner, 76 T.C. 209,

214-215 (1981), aff’d, 810 F.2d 209 (D.C. Cir. 1987). In the Court of Appeals for

the Third Circuit, to which this case is appealable, for equitable estoppel to apply

the aggrieved party must prove: “(1) a misrepresentation by another party; (2)

which he reasonably relied upon; (3) to his detriment.” United States v. Asmar,

827 F.2d 907, 912 (3d Cir. 1987); see also Reuben v. Commissioner, T.C. Memo.

2001-193, 2001 Tax Ct. Memo LEXIS 226, at *3. Additionally, in asserting a

claim of equitable estoppel against the Government, the aggrieved party must

prove affirmative misconduct on the part of the Government. See Asmar, 827

F.2d at 912. The burden of proof is on the party claiming estoppel. Id.

      We note that there was no affirmative misconduct on the part of the

Government. The revenue officer informed Mr. Shelton that she did not make

offer-in-compromise determinations.

      Furthermore, “those who deal with the Government are expected to know

the law”. Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 63

(1984). Section 301.7122-1(e)(1), Proced. & Admin. Regs., provides that an

offer-in-compromise is not accepted until the Commissioner issues a written

notification of acceptance to the taxpayer. Petitioner never received a written
                                       - 11 -

[*11] notice of acceptance. Mr. Shelton is an attorney and has been practicing law

since 1980. Knowledge of the requirement for a written notice of acceptance is

imputed to petitioner.

      Finally, petitioner suffered no detriment that is legally recognizable.

Petitioner is required to pay only the tax that was lawfully owing. Petitioner did

not change a position to its detriment. See Reuben v. Commissioner, 2001 Tax Ct.

Memo LEXIS 226, at *3-*4.

      Accordingly, we hold that equitable estoppel should not be applied against

respondent.

      Conclusion

      We have held that there was not a valid offer-in-compromise, we will not

impute a compromise under the concept of accord and satisfaction, and petitioner

did not satisfy the requirements to apply equitable estoppel against respondent. As

a result petitioner’s remaining tax liabilities were not compromised by the

$120,000 payment.

2. CNC status

      Petitioner requested CNC status as an alternative to levy. The settlement

officer determined that petitioner’s account was not eligible for CNC status.
                                       - 12 -

[*12] The Court reviews administrative determinations by the Commissioner’s

Office of Appeals regarding nonliability issues for abuse of discretion. Hoyle v.

Commissioner, 131 T.C. 197, 200 (2008); Goza v. Commissioner, 114 T.C. 176,

182 (2000). The determination of the Office of Appeals must take into

consideration: (1) the verification that the requirements of applicable law and

administrative procedure have been met; (2) issues raised by the taxpayer; and (3)

whether any proposed collection action balances the need for the efficient

collection of taxes with the legitimate concern of the person that any collection be

no more intrusive than necessary. Sec. 6330(c)(3); see also Lunsford v.

Commissioner, 117 T.C. 183, 184 (2001). The settlement officer properly based

her determination on the factors required by section 6330(c)(3).

      In February 2007 Mr. Shelton represented to the revenue officer that he was

closing petitioner. After the $120,000 payment was made on February 20, 2007,

the revenue officer placed petitioner’s account in CNC status and treated petitioner

as a defunct corporation. The notes of the revenue officer indicate that she

received a copy of the dissolution of the business. However, despite the fact that

Mr. Shelton had informed the revenue officer that he was closing petitioner,

petitioner filed Federal income tax returns for the taxable years 2008 and 2009.

Furthermore, petitioner made Federal tax deposits for Form 941 for the period
                                        - 13 -

[*13] ending September 30, 2010. Finally, on June 11, 2010, Mr. Shelton sent a

check for $749.82 to pay petitioner’s 2008 tax liability. We also note that the Web

site for the Pennsylvania Department of State shows that petitioner’s status was

active as of March 8, 2013.

      The filing of tax returns, and payment of taxes, for multiple periods after the

date on which Mr. Shelton informed the revenue officer that he had closed

petitioner indicate that petitioner had not been closed and could have been

operating as of the date of the notice of determination. As a result it was not an

abuse of the settlement officer’s discretion to deny petitioner’s request to be

placed in CNC status.2 Accordingly, respondent’s determination is sustained.

      In reaching our decision, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or

without merit.

      To reflect the foregoing,


                                                       Decision will be entered for

                                                 respondent.


      2
       We note that in its opening brief, petitioner does not argue that the
settlement officer abused her discretion in denying petitioner’s request to be
placed in CNC status.
