                        T.C. Memo. 2008-26



                      UNITED STATES TAX COURT



            ROBERT M. SCHARRINGHAUSEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4427-06L.             Filed February 12, 2008.



     Richard L. Fahey, for petitioner.

     Karen Sommers, for respondent.



                        MEMORANDUM OPINION


     HOLMES, Judge:   Robert Scharringhausen files income tax

returns but does not always pay the tax due, a habit that finds

him owing more than $30,000 for the tax years 2001-03.   The

Commissioner assessed the amount due, and filed a notice of

federal tax lien (NFTL) to protect the government’s interest

against the many other creditors Scharringhausen has accumulated.
                               - 2 -

Scharringhausen offered to compromise his tax bill for $750, but

the IRS returned his offer because he hadn’t paid his 2004 tax

bill either.   His main argument is that this was an abuse of

discretion.

                             Background

     Scharringhausen’s history of not paying his taxes reaches

back at least to the early ’90s--there is an outstanding judgment

against him for nearly $500,000 for unpaid income taxes for 1991

and 1992, and for trust-fund-recovery-penalty taxes for 1990 and

1991.1   He and some of the firms he controlled also had other

problems, and later in the decade he served a short sentence for

bankruptcy fraud.   After being released, he went back into

business, but failed to file returns in 1999 and 2000.   See

Scharringhausen v. United States, 91 AFTR 2d 651, 2003-1 USTC

par. 50,224 (S.D. Cal. 2003) (enforcing summons for records of

offshore credit card use).




     1
       Taxes that employers withhold from their employees’ wages
are known as “trust fund taxes” because they are deemed a special
fund in trust for the United States under section 7501(a).
Slodov v. United States, 436 U.S. 238, 243 (1978). The
Commissioner may collect unpaid employment taxes from a
“responsible person” within the company; i.e., someone who was
required to pay over the tax. The money that’s collected is
called a trust-fund-recovery-penalty tax. Sec. 6672. (Unless
otherwise indicated, all section references are to the Internal
Revenue Code and Regulations for the years at issue, and the one
Rule reference is to Rule 122 of the Tax Court Rules of Practice
and Procedure.)
                                 - 3 -

     In 2001 he filed an untimely return showing that he owed no

tax, but the Commissioner later assessed a deficiency for that

year of slightly more than $1000.    For 2002 and 2003,

Scharringhausen filed timely returns that showed tax due, but he

had not made estimated tax payments and did not pay the taxes

with the return.   The Commissioner assessed the tax shown on the

returns for those years along with additions and interest for a

total balance of over $30,000.     For his 2004 year,

Scharringhausen again filed a return--this one showing more than

$16,000 owed--but again made no estimated tax payments and no

payment with the return.

     About the same time he filed his 2004 return,

Scharringhausen offered to settle his 2001-03 tax debt for a mere

$750, citing “doubt as to collectibility.”    The Commissioner

returned this offer as “nonprocessable” because Scharringhausen

was “noncompliant” in that he had failed to pay his 2004 taxes.

After rejecting the compromise offer, the Commissioner filed an

NFTL for the years 2001-03.   Scharringhausen received a

Collection Due Process (CDP) Notice of the NFTL and then timely

requested a CDP hearing.   He also submitted a new offer-in-

compromise (OIC), offering to settle his unpaid 2004 tax bill as

well, again on grounds of doubtful collectibility.      This time he

submitted a Form 433-A Collection Information Statement for Wage

Earners and Self-employed Individuals reflecting 21 creditors’
                                 - 4 -

judgments against him totaling nearly $1.3 million.    But he

refused to have the settlement officer conducting the CDP hearing

consider this new offer, preferring to have it “worked on” by the

IRS Appeals office in Tennessee to which he had sent it.

     This left the settlement officer conducting the hearing with

nothing to do but review Scharringhausen’s IRS records and the

transcripts reflecting the IRS’s rejection of Scharringhausen’s

first offer (for 2001-03), verify whether all applicable legal

and administrative requirements had been met, and consider

Scharringhausen’s contention that the tax lien was improperly

filed and should be withdrawn.    She concluded the hearing by

sustaining the lien and issuing a notice of determination.

     Scharringhausen, a resident of California when he filed his

petition, appeals.   The parties stipulated the facts and

submitted the case for decision without trial under Rule 122.

                             Discussion

     Once a taxpayer fails to pay taxes after the IRS has sent

him a demand for payment, his tax liability becomes a lien in

favor of the United States against all of his real and personal

property.   Sec. 6321.   Filing a notice of that lien is

nevertheless important because it gives the lien priority against

later-filing competing creditors.    See sec. 6323(a); Behling v.

Commissioner, 118 T.C. 572, 575 (2002).    It also opens a short

window of time during which a taxpayer may demand a hearing to
                               - 5 -

check whether the Commissioner properly filed the lien, and take

a second look at whether the filing should be sustained.    This

hearing is also a taxpayer’s chance to raise an innocent-spouse

defense, offer collection alternatives, or demonstrate that the

Government’s collection effort is overly intrusive even after

taking into account the need to efficiently collect taxes.

     Scharringhausen isn’t challenging his underlying tax

liability, so we review the Commissioner’s determination to see

if he abused his discretion.   See Sego v. Commissioner, 114 T.C.

604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000).

Courts generally hold that a decisionmaker abuses his discretion

“when [he] makes an error of law * * * or rests [his]

determination on a clearly erroneous finding of fact * * * [or]

‘applies the correct law to facts which are not clearly erroneous

but rules in an irrational manner’.”   United States v. Sherburne,

249 F.3d 1121, 1125-26 (9th Cir. 2001) (quoting Friedkin v.

Sternberg, 85 F.3d 1400, 1405 (9th Cir. 1996)); see also Cooter &

Gell v. Hartmarx Corp., 496 U.S. 384, 402-03 (1990) (same).

     We can distill Scharringhausen’s objections to the notice of

determination into two: that the Commissioner didn’t follow

correct procedures in filing the lien, and that the Commissioner

should have accepted his first offer to compromise the taxes

involved.
                               - 6 -

A.   Was the Lien Properly Filed?

     The federal tax lien is imposed automatically once the

assessment is made.   Sec. 6321.   No one disputes that the

Commissioner properly assessed Scharringhausen’s 2001-03 taxes

before the NFTL’s filing in May 2005, that he mailed notice-and-

demand letters to Scharringhausen within 60 days of each

assessment’s date, and that the taxes remain unpaid.    Thus the

settlement officer correctly found that the NFTL was not filed

prematurely, or in violation of IRS procedures.    Scharringhausen

(as best we can tell) argues that the NFTL was nevertheless

procedurally improper because section 6323(j)(1) gives discretion

to the Commissioner to withdraw a lien if, for example, it would

facilitate tax collection.   Sec. 6323(j)(1)(C).   This is a true

statement, but we’re hard pressed to see how withdrawing the NFTL

could possibly help collect the tax, given that Scharringhausen

had over $1 million in other outstanding judgments against him.

     Nor did Scharringhausen satisfy the other provision of

section 6323 that he cited in the record--section 6323(j)(1)(D)--

which allows the NFTL to be withdrawn if doing so would be in the

best interests of the taxpayer and the United States.    Though we

don’t doubt that the withdrawal of the lien would benefit

Scharringhausen, we’re equally hard pressed to see how it would

benefit the United States, since the 21 judgment liens already in

place against Scharringhausen make it much more likely that
                                - 7 -

withdrawing the lien would simply cause the government to lose

its priority status against other creditors.2

B.   Was It an Abuse of Discretion Not To Reconsider
     Rejection of Scharringhausen’s First OIC?

     Scharringhausen also contends that his offer to compromise

his 2001-03 taxes was improperly returned as “nonprocessable”

because he failed to pay his 2004 taxes.   He cites Chavez v.

United States, 93 AFTR 2d 2004-2386, at 2004-2391 (W.D. Tex.

2004) to support his contention that a “blanket” refusal to

process an OIC for noncompliance is an abuse of discretion.     We,

however, have held that “reliance on a failure to pay current

taxes in rejecting a collection alternative does not constitute

an abuse of discretion.”    Giamelli v. Commissioner, 129 T.C. 107,

111-12 (2007).   And at least the Fifth, Sixth, and Seventh

Circuits agree with us.    Christopher Cross, Inc., v. United

States, 461 F.3d 610, 613 (5th Cir. 2006); Orum v. Commissioner,

412 F.3d 819, 821 (7th Cir. 2005), affg. 123 T.C. 1 (2004);

Living Care Alternatives of Utica, Inc. v. United States, 411

F.3d 621, 630-31 (6th Cir. 2005).



     2
       The two other reasons for granting relief from the filing
of a NFTL are that the IRS didn’t follow proper procedures, sec.
6323(j)(1)(A), and that the taxpayer involved is current on an
installment agreement, sec. 6323(j)(1)(B). The first is not
present here--the settlement officer reviewed the procedural
checklist and found the IRS had done its job correctly; the
second doesn’t apply because Scharringhausen had no installment
agreement.
                               - 8 -

     In Orum v. Commissioner, 412 F.3d at 821, Judge Easterbrook

explained:

            It would not do the Treasury any good if
          taxpayers used the money owed for 2004 to pay
          taxes due for 1998, the money owed for 2005
          to pay taxes for 1999, and so on. That would
          spawn more collection cycles yet leave a
          substantial unpaid balance. The Service’s
          goal is to reduce and ultimately eliminate
          the entire tax debt, which can be done only
          if current taxes are paid while old tax debts
          are retired. * * *

     Scharringhausen nevertheless claims that the Commissioner

violated his own Internal Revenue Manual (IRM) procedures in not

reconsidering the rejection of his OIC.   The IRM, however, has no

force of law and gives no rights to taxpayers.   Fargo v.

Commissioner, 447 F.3d 706, 713 (9th Cir. 2006), affg. T.C. Memo.

2004-13; Thoburn v. Commissioner, 95 T.C. 132, 141 (1990).     And

we are puzzled by Scharringhausen’s insistence that the lien was

improperly sustained because his 2001-03 OIC was improperly

rejected, when he refused to have his 2001-04 offer considered as

a collection alternative.   It is no abuse of discretion not to

consider what a taxpayer asks not to be considered.

     Scharringhausen’s final argument is that “[t]he IRS’[s]

current processes continue to prevent taxpayers from utilizing

the Offer in Compromise by imposing barriers to entry and

unnecessarily returning offers.”   This is not reason for finding

an abuse of discretion in this case--establishing a general

procedure for deciding when to accept OIC and when to proceed by
                                - 9 -

lien or levy is, as Judge Easterbrook concluded, “the sort of

decision committed to executive officials.”       Orum, 412 F.3d at

821.    That the IRS has exercised that discretion by limiting

compromises based on doubt as to collectibility to those

taxpayers suffering from real financial hardship, rather than to

those trying to give the IRS tsuris by making multiple lowball

offers and frustrating efforts to chase assets that have possibly

moved offshore is perfectly reasonable.

       Because there are no grounds on which to overturn the filing

of the NFTL, it is sustained and


                                        Decision will be entered for

                                respondent.
