                  T.C. Memo. 2008-192



                UNITED STATES TAX COURT



             ALBERT M. KUN, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 11988-06L.              Filed August 12, 2008.



     P filed a petition for review pursuant to sec.
6320, I.R.C., in response to a determination by R that
lien action was appropriate.

     Held: R’s determination to proceed with collection
is sustained.



Albert M. Kun, pro se.

Margaret Burow, for respondent.
                                - 2 -

             MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:   This case is before the Court on a petition

for review of a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination).1   The issue for decision is whether respondent

may proceed with collection, in the form of a filed tax lien, for

the total amount of petitioner’s Federal income tax liabilities

for 1994, 2000, 2001, 2002, and 2003.

                         FINDINGS OF FACT

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

The stipulations of the parties, with accompanying exhibits, are

incorporated herein by this reference.

     Petitioner, a self-employed attorney, filed Federal income

tax returns for 1994, 2000, 2001, 2002, and 2003.   For each of

those years petitioner reported a tax liability, which was

assessed, but has not paid any of the tax due.

     On February 4, 2005, respondent sent petitioner a Notice of

Federal Tax Lien Filing and Your Right to a Hearing under IRC

6320 for 1994, 2000, 2001, 2002, and 2003.   Petitioner was

informed that the notice of Federal tax lien had been filed a day

earlier, on February 3, 2005.   On February 25, 2005, petitioner

filed a Form 12153, Request for a Collection Due Process Hearing,


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended.
                              - 3 -

with respect to those 5 taxable years.    As the basis for his

disagreement, he stated “STATUTE OF LIMITATIONS, WAIVER AND

ESTOPPEL.”

     Petitioner and respondent’s settlement officer participated

in an in-person Appeals hearing on May 17, 2005.    That same day

petitioner submitted an offer-in-compromise of $1,000 on the

basis of doubt as to liability and doubt as to collectibility.

Petitioner’s offer-in-compromise covered his Federal income tax

liabilities for 1991 through 2004.    As of the date the lien at

issue was filed, for the 5 taxable years at issue in this case

alone, petitioner’s income tax liabilities exceeded $66,000.     As

to those tax liabilities, petitioner, in his offer-in-compromise,

asserted only that “I DO NOT OWE THE TAX FOR THE YEAR 1994

BECAUSE THE STATUTE OF LIMITATIONS HAS RUN.”

      Petitioner also provided a Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, indicating that he was an unmarried, self-employed

attorney with total monthly income of $2,999 and total monthly

living expenses of $3,206.

     The settlement officer informed petitioner that the offer-

in-compromise could not be considered at that time because some

of the years petitioner listed in the offer were still pending

before the Court of Appeals for the Ninth Circuit.    On November

16, 2005, the Court of Appeals issued a decision affirming this
                                   - 4 -

Court’s decision in Kun v. Commissioner, T.C. Memo. 2004-209, in

which this Court had sustained respondent’s determination that a

notice of Federal tax lien filing was an appropriate enforcement

action with respect to petitioner’s 1995, 1996, 1997, 1998, and

1999 Federal income tax liabilities.2      Kun v. Commissioner, 157

Fed. Appx. 971 (9th Cir. 2005).

       On June 8, 2006, respondent’s Appeals Office sent petitioner

the aforementioned notice of determination.3      Therein, the

Appeals Office determined that all legal and procedural

requirements for filing the notice of Federal tax lien had been

met.       The Appeals Office rejected petitioner’s $1,000 offer-in-

compromise because his reasonable collection potential was

believed, on the basis of his financial statement and supporting

documentation, to be $10,652.4      The Appeals Office further noted


       2
      Petitioner filed a motion to vacate or revise the decision
entered by the Court in accordance with that Memorandum Opinion.
The Court denied that motion in a Supplemental Memorandum
Opinion. See Kun v. Commissioner, T.C. Memo. 2004-273. Therein,
the Court noted that petitioner was merely repeating his argument
“that respondent did not timely assess the liabilities in
question.” Id. The Court then concluded that “Petitioner failed
to present any evidence at trial in support of his contention
that his 1995-99 income tax liabilities were not timely assessed,
and that failure also infects his motion.” Id.
       3
      By that time, the Court of Appeals for the Ninth Circuit’s
decision had become final.
       4
      The $10,652 was petitioner’s “Net Realizable Equity in
assets”. The Appeals Office calculated that number by first
adding together the fair market value of petitioner’s assets,
which included, among other things, a checking account and a car.
                                                   (continued...)
                              - 5 -

that petitioner was not in compliance with the filing and payment

requirements with respect to his 2005 taxable year.5

     On June 23, 2006, petitioner filed a timely petition with

the Court contesting the notice of determination.   At the time

the petition was filed, petitioner resided in California.   A

trial was held on May 15, 2007, in San Francisco, California.

                             OPINION

I.   Collection Action

     A.   Statute of Limitations

     There is a 10-year limitations period for collection that

commences upon the assessment of the tax.   Sec. 6502(a)(1).    If a

hearing is requested under section 6320(a)(3)(B) or

6330(a)(3)(B), the collection action(s) that are the subject(s)

of the requested hearing and the running of any period of

limitations under section 6502 are suspended for the period




     4
      (...continued)
The Appeals Office then reduced the value of the noncash assets
by 20 percent to determine the “Quick Sale Value” and then
further reduced the value of petitioner’s encumbered or exempt
assets by the amount of the encumbrances or exempt amount.
     5
      Pursuant to the Internal Revenue Manual (IRM), an offer-in-
compromise “will be deemed not processable” if “All tax returns
for which the taxpayer has a filing requirement” are not filed.
1 Administration IRM (CCH), pt. 5.8.3.4.1(1), at 16,276 (Sept. 1,
2005). As of June 8, 2006, petitioner had not filed a 2005
Federal income tax return or an extension request. Nor had he
made estimated tax payments or had any tax withheld for that
year.
                                - 6 -

during which the hearing and appeals thereof are pending.     See

secs. 6320(c), 6330(e)(1).

     Petitioner alleges in his petition that “respondent is

attempting to collect taxes for years in which the statute of

limitations has clearly run.”    Petitioner is incorrect.

     A Federal income tax deficiency and additions to tax were

assessed for each of the 5 tax years now at issue.    The first

such assessment was for 1994 and was made on September 11, 1995.

Respondent filed the notice of Federal tax lien with respect to

the 5 taxable years now at issue, which included 1994, on

February 3, 2005, within the 10-year limitations period for

collection.   In addition, on February 25, 2005, petitioner

requested a hearing with respect to his 1994, 2000, 2001, 2002,

and 2003 tax years.   That request suspended (and continues to

suspend) the period of limitations on collection for 1994 and the

other tax years at issue.    Respondent therefore is not time

barred from taking collection action with respect to 1994 (and

the other 4 years at issue).

     Petitioner’s entire statute-of-limitations argument focuses

on whether the limitations period was also tolled by an offer-in-

compromise that he submitted on April 22, 2002, which he contends

was for 1995 and 1996, not 1994.6   That entire issue is a red


     6
      This is in response to a statement by the settlement
officer and an argument by respondent that the limitations period
                                                   (continued...)
                                  - 7 -

herring because, as explained above, the limitations period for

collection action as to 1994 remains open whether or not that

limitations period was tolled by petitioner’s April 2002 offer-

in-compromise.

     B.   General Rules Regarding an Appeals Hearing

     If a taxpayer liable to pay taxes fails to do so after

demand for payment, the tax liability becomes a lien in favor of

the United States against all of the taxpayer’s real and personal

property and rights to such property.      Sec. 6321.   The lien

arises at the time the assessment is made and continues until the

liability is satisfied or becomes unenforceable by reason of

lapse of time.    Sec. 6322.    The Secretary is obliged to notify

the taxpayer within 5 business days that a notice of a Federal

tax lien has been filed and that administrative appeals are

available to the taxpayer.      Sec. 6320(a).   Upon timely request a

taxpayer is entitled to a hearing before the Internal Revenue

Service Office of Appeals regarding the propriety of the filing

of the lien.    Sec. 6320(b).    This hearing is conducted in

accordance with the procedural requirements of section 6330.

Sec. 6320(c).




     6
      (...continued)
for collection with respect to 1994 was tolled under sec. 6331(k)
and (i)(5) from April 2002 until 90 days after the Court of
Appeals for the Ninth Circuit’s November 2005 decision.
                                  - 8 -

     The taxpayer is entitled to appeal the determination of the

Appeals Office, made on or before October 16, 2006, to the Tax

Court or a U.S. District Court, depending on the type of tax at

issue.     Sec. 6330(d).7   Where the validity of the underlying tax

liability is properly at issue, the Court will review the matter

de novo.     Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000).        The Court reviews

any other administrative determination for an abuse of

discretion.     Sego v. Commissioner, supra at 610; Goza v.

Commissioner, supra at 182.      An abuse of discretion has occurred

if the “Commissioner exercised * * * [his] discretion

arbitrarily, capriciously, or without sound basis in fact or

law.”     Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

         Aside from his statute of limitations argument, petitioner

raises no argument as to the underlying tax liabilities for the 5

taxable years at issue.      See Boyd v. Commissioner, 117 T.C. 127,

130 (2001) (noting that an argument that the limitations period

on collection has run is a challenge to the underlying tax

liability that we review de novo).        The only issue left to be

addressed is the rejection of petitioner’s offer-in-compromise.




     7
      Determinations made after Oct. 16, 2006, are appealable
only to the Tax Court. See Pension Protection Act of 2006, Pub.
L. 109-280, sec. 855, 120 Stat. 1019.
                                - 9 -

     C.   Petitioner’s Offer-in-Compromise

     Among the issues that may be raised at the Appeals Office

and are reviewed for an abuse of discretion are “offers of

collection alternatives” such as an offer-in-compromise.     Sec.

6330(c)(2)(A)(iii).   The Court reviews the Appeals officer’s

rejection of an offer-in-compromise to decide whether the

rejection was arbitrary, capricious, or without sound basis in

fact or law and therefore an abuse of discretion.     Murphy v.

Commissioner, 125 T.C. 301, 320 (2005), affd. 469 F.3d 27 (1st

Cir. 2006); Woodral v. Commissioner, supra at 23.

     Section 7122(a) authorizes the Secretary to compromise any

civil case arising under the internal revenue laws.    In general,

the decision to accept or reject an offer, as well as the terms

and conditions agreed to, are left to the discretion of the

Secretary.   Sec. 301.7122-1(c)(1), Proced. & Admin. Regs.

However, regulations promulgated under section 7122 provide that

“No offer to compromise may be rejected solely on the basis of

the amount of the offer without evaluating that offer under the

provisions” of the regulations “and the Secretary’s policies and

procedures regarding the compromise of cases.”   Sec. 301.7122-

1(f)(3), Proced. & Admin. Regs.

     The grounds for compromise of a tax liability are doubt as

to liability, doubt as to collectibility, and promotion of

effective tax administration.   Sec. 301.7122-1(b), Proced. &
                               - 10 -

Admin. Regs.    Petitioner based his offer-in-compromise on doubt

as to collectibility, which “exists in any case where the

taxpayer’s assets and income are less than the full amount of the

liability.”8   Sec. 301.7122-1(b)(2), Proced. & Admin. Regs.   In

determining the taxpayer’s ability to pay, the individual facts

and circumstances of the taxpayer’s case are considered and the

taxpayer is permitted “to retain sufficient funds to pay basic

living expenses.”   Sec. 301.7122-1(c)(2), Proced. & Admin. Regs.

     Petitioner contends that it was an abuse of discretion for

respondent’s settlement officer to reject his offer-in-compromise

without considering “the Bankruptcy Exemption”, apparently a

California statute that allegedly exempts from creditors certain

property belonging to a debtor in bankruptcy.9   Respondent

asserts that because petitioner raised the issue of a potential

bankruptcy filing for the first time at trial, the issue is not

relevant as to whether respondent’s settlement officer abused his

discretion.    As to the merits of petitioner’s argument,

respondent asserts that any State law exemption is not effective

against a Federal tax lien and that, in any event, because the



     8
      In the interest of completeness, petitioner also based his
offer-in-compromise on doubt as to liability with respect to the
1994 taxable year on the basis that the applicable limitations
period on collections had run with respect to that taxable year.
We have already addressed that issue.
     9
      The statute referred to by petitioner is Cal. Civ. Proc.
Code sec. 703.140(b)(1) (West Supp. 2008).
                              - 11 -

notice of Federal tax lien was filed before petitioner would have

filed a bankruptcy petition, the Federal tax lien would continue

to attach to any exempt property.

     In reviewing the Commissioner’s decision to reject an offer-

in-compromise for abuse of discretion, we cannot consider issues

that were not raised before the Commissioner’s Appeals Office.

See Giamelli v. Commissioner, 129 T.C. 107, 115 (2007) (“We hold

today that we do not have authority to consider section

6330(c)(2) issues that were not raised before the Appeals

Office”); Magana v. Commissioner, 118 T.C. 488, 493 (2002) (“in

our review for an abuse of discretion under section 6330(d)(1) of

respondent’s determination, generally we consider only arguments,

issues, and other [matters] that were raised at the collection

hearing or otherwise brought to the attention of the Appeals

Office”); sec. 301.6330-1(f)(2), Q&A-F5, Proced. & Admin. Regs.

     There is nothing in the record reflecting that petitioner

raised the issue of a potential bankruptcy filing before the

Appeals Office, nor does petitioner assert, at least in a

comprehensible manner, to the contrary.10   Moreover, respondent

is correct that the notice of Federal tax lien filed in February



     10
      In his reply brief petitioner appears to point to
respondent’s brief, or some other document, in what might
constitute an effort to demonstrate that petitioner raised the
bankruptcy issue before the Appeals Office. We remain
unpersuaded that petitioner raised the issue before the Appeals
Office.
                               - 12 -

2005 would survive a subsequent bankruptcy filing by petitioner,

regardless of any California statute.      See 11 U.S.C. sec.

522(c)(2)(B) (2006) (providing that exempt property remains

subject to a properly filed tax lien even though the underlying

tax claim may have been discharged); Iannone v. Commissioner, 122

T.C. 287, 293 (2004) (“Federal tax liens are not extinguished by

personal discharge in bankruptcy.”).

        Because the settlement officer based his decision on an

analysis of financial information provided by petitioner

indicating a reasonable collection potential in excess of $1,000,

see supra p. 4, and on the fact that petitioner was not in

compliance with Federal income tax laws, see supra note 5,

respondent’s settlement officer did not abuse his discretion in

rejecting petitioner’s offer-in-compromise.      We shall therefore

sustain respondent’s determination to proceed with collection by

lien.

II.   Section 6673(a)(1) Penalty

      Although respondent does not ask the Court to impose a

penalty upon petitioner under section 6673(a)(1), the Court may

impose such a penalty sua sponte.    See Pierson v. Commissioner,

115 T.C. 576, 581 (2000).

      Petitioner is an attorney with a longstanding habit of

failing to pay Federal income tax.      As an attorney, he knew or

should have known that he was instituting this case primarily for
                              - 13 -

delay.   Indeed, both of his arguments--the argument regarding the

statute of limitations and the argument regarding bankruptcy--are

clearly groundless in light of the relevant statutes and this

Court’s caselaw.   His dilatory tactics are further evidenced by

the fact that he raised an unsupported statute-of-limitations

argument in his prior Tax Court case.   See supra note 2.   Because

we are convinced that petitioner instituted this case primarily

in order to delay collection, we shall impose upon petitioner a

$1,500 penalty pursuant to section 6673(a)(1).

     The Court has considered all of petitioner’s contentions,

arguments, requests, and statements.    To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

     To reflect the foregoing,


                                          An appropriate order and

                                    decision will be entered.
