                                T.C. Memo. 2018-77



                         UNITED STATES TAX COURT



                 JOSEPH C. GALLAGHER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 18928-16L.                          Filed June 6, 2018.



      Joseph C. Gallagher, pro se.

      Kirsten E. Brimer and Daniel C. Munce, for respondent.



                            MEMORANDUM OPINION


      LAUBER, Judge: In this collection due process (CDP) case, petitioner

seeks review pursuant to section 6330(d)(1)1 of the determination by the Internal



      1
        All statutory references are to the Internal Revenue Code in effect at all rel-
evant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                         -2-

[*2] Revenue Service (IRS or respondent) to uphold two notices of intent to levy.

The IRS issued the notices in an effort to collect trust fund recovery penalties

(TFRPs) assessed against petitioner for six calendar quarters during 2010-2011.

The sole issue for decision is whether the IRS settlement officer (SO) abused her

discretion in declining to accept a $104,478 offer-in-compromise (OIC). Respon-

dent has moved for summary judgment on this question, and we will grant his

motion.

                                    Background

      The following facts are based on the parties’ pleadings, respondent’s mo-

tion, and petitioner’s opposition, including the attached affidavits and exhibits.

Petitioner resided in New Jersey when he filed his petition.

      Petitioner was the sole shareholder of Tabor Acoustical, Inc. (Tabor), a New

Jersey corporation that encountered financial difficulties. It became delinquent on

its employment tax liabilities for the six quarters in question. The IRS assessed

TFRPs against petitioner under section 6672, having determined that he was a “re-

sponsible person” required to collect and pay over the withheld employment taxes.

The aggregate amount of the assessed penalties exceeds $800,000.

      On June 12, 2013, in an effort to collect these unpaid liabilities, the IRS sent

petitioner two Letters 1058, Final Notice of Intent to Levy and Notice of Your
                                          -3-

[*3] Right to a Hearing.2 Petitioner timely requested a CDP hearing, stating that

he sought a collection alternative. He did not indicate an intention to challenge his

underlying liability for any quarter in question.

      After receiving petitioner’s case an SO from the IRS Appeals Office con-

firmed that the TFRPs had been properly assessed and that all other requirements

of applicable law and administrative procedure had been met. During the ensuing

year, the CDP hearing was put on hold to enable the SO to determine whether peti-

tioner’s account should be placed into currently not collectible status and to enable

petitioner to try to sell his principal residence.

      The SO scheduled a telephone CDP hearing for September 25, 2014. She

informed petitioner that, in order for her to consider a collection alternative, he

needed to supply a Form 433-A, Collection Information Statement for Wage Earn-

ers and Self-Employed Individuals, supporting financial information, a copy of his

2012 tax return, and proof of estimated tax payments for 2014. On September 8,

2014, petitioner submitted all of the requested information.

      During the CDP hearing petitioner expressed interest in an OIC, and on Oc-

tober 17, 2014, he submitted a Form 656, Offer in Compromise. After reviewing


      2
       One letter listed an unpaid income tax liability for 2011. That liability has
since been paid in full and is not at issue here.
                                        -4-

[*4] this offer the SO informed petitioner that it was probably not processable.

See Internal Revenue Manual (IRM) pt. 8.23.3.1.1.1 (Oct. 15, 2014) (listing

failure to submit “required initial payment” as a basis for rejecting OIC). Petition-

er then decided to submit a 24-month OIC that would not require a 20% down

payment.

      In December 2014 petitioner submitted a revised Form 656 in which he of-

fered to make installment payments for 24 months for a total of $56,000. That of-

fer was transmitted to the IRS office in Plantation, Florida, for evaluation. In mid-

2015 petitioner received a Form 2751, Proposed Assessment of Trust Fund Recov-

ery Penalty, proposing additional TFRP assessments for certain calendar quarters

in 2012 and 2014.

      In February 2016 petitioner’s OIC was assigned to a new offer specialist in

Jacksonville, Florida, who asked him to submit additional financial information

and completed income tax returns for 2014 and 2015. Petitioner provided some of

the requested documentation in April 2016. After reviewing all of petitioner’s fi-

nancial information, the offer specialist in May 2016 informed the SO that she re-

commended rejection of petitioner’s proposed OIC because his “reasonable collec-

tion potential” (RCP) was $847,326, far exceeding his offer of $56,000.
                                        -5-

[*5] The SO afforded petitioner an opportunity to dispute the specialist’s compu-

tations. In June 2016 he submitted additional financial information and contended

that the specialist had miscalculated his net realizable equity in assets. The SO

agreed and reduced his net equity in assets from $800,000 to $193,745; she deter-

mined the lower value by reducing the value of certain rental properties and by

eliminating half the value of the assets petitioner held jointly with his wife. The

SO further determined that petitioner’s share of future household disposable in-

come was $37,912, after subtracting his wife’s share of their income and expenses.

Taking all of this into account, the SO determined that petitioner’s RCP was

$231,657 ($193,745 + $37,912).

      In July 2016 the SO informed petitioner that his $56,000 offer would be re-

jected because it was substantially below his recalculated RCP. Petitioner then

submitted another OIC, offering to pay $104,478 to compromise his TFRP liabili-

ties for 2012 and 2014 as well as for 2010 and 2011. On August 8, 2016, the SO

informed petitioner that his new OIC would be rejected because it remained sub-

stantially below his recalculated RCP. She allowed petitioner to submit another

offer, but he chose not to do so.
                                         -6-

[*6] On August 19, 2016, the SO closed the case and issued petitioner a notice of

determination sustaining the proposed levies.3 Petitioner timely petitioned this

Court for review of the notice of determination. In July 2017 respondent filed a

motion for summary judgment, which petitioner timely opposed.

        On February 13, 2018, the Court issued an order directing respondent to file

a response addressing the application of section 6751(b)(1) to the TFRPs in ques-

tion in light of this Court’s Opinion in Graev v. Commissioner, 149 T.C. __ (Dec.

20, 2017), supplementing and overruling in part 147 T.C. 460 (2016). Respondent

filed a response attaching a declaration from counsel and a Form 4183, Rec-

ommendation re: Trust Fund Recovery Penalty Assessment. This form shows that

the initial determination of the TFRPs by Revenue Officer (RO) Naidas was ap-

proved in writing by Group Manager Corcoran, whose signature is typed on the

form.




        3
        Because of an apparent typographical error, the notice of determination
states that petitioner’s RCP was $213,657. The documentation in the administra-
tive record shows that his recalculated RCP was $231,657. See Andre v. Commis-
sioner, 127 T.C. 68, 74-75 (2006) (holding that IRS was not bound by apparent
typographical error in notice of determination).
                                        -7-

[*7]                                 Discussion

I.     Summary Judgment Standard and Standard of Review

       The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b), the Court may grant summary judgment

when there is no genuine dispute as to any material fact and a decision may be

rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from them in the

light most favorable to the nonmoving party. Ibid. However, the nonmoving par-

ty may not rest upon the mere allegations or denials of his pleadings but instead

must set forth specific facts showing that there is a genuine dispute for trial. Rule

121(d); see Sundstrand Corp., 98 T.C. at 520. We find that no material facts are in

dispute and that this case may appropriately be adjudicated summarily.

       Where (as here) there is no challenge to the amounts of the taxpayer’s un-

derlying liabilities,4 we review the IRS determination for abuse of discretion.

       4
       Petitioner did not challenge his liability for the TFRPs during the CDP
hearing or in his petition. He is thus precluded from challenging those liabilities
here. See Rule 331(b)(4) (“Any issue not raised in the assignments of error shall
be deemed to be conceded.”); Thompson v. Commissioner, 140 T.C. 173, 178
                                                                        (continued...)
                                         -8-

[*8] Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Abuse of discretion

exists when a determination is arbitrary, capricious, or without sound basis in fact

or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d

27 (1st Cir. 2006).

II.   Analysis

      In deciding whether the SO abused her discretion in sustaining the proposed

levies, we review the record to determine whether she: (1) properly verified that

the requirements of applicable law or administrative procedure had been met;

(2) considered any relevant issues petitioner raised; and (3) considered “whether

any proposed collection action balances the need for the efficient collection of tax-

es with the legitimate concern of * * * [petitioner] that any collection action be no

more intrusive than necessary.” See sec. 6330(c)(3).

      Section 7122(a) authorizes the IRS to compromise an outstanding tax liabil-

ity on grounds that include doubt as to collectibility, the ground that petitioner

urged. See sec. 301.7122-1, Proced. & Admin. Regs. The Secretary may compro-

mise a tax liability on this basis where the taxpayer’s assets and income render full


      4
       (...continued)
(2013) (“A taxpayer is precluded from disputing the underlying liability if it was
not properly raised in the CDP hearing.”); sec. 301.6330-1(f)(2), Q&A-F3, Proced.
& Admin. Regs.
                                         -9-

[*9] collection unlikely. Id. para. (b)(2). Conversely, the IRS may reject an OIC

when the taxpayer’s RCP exceeds the amount he proposes to pay. See Johnson v.

Commissioner, 136 T.C. 475, 486 (2011), aff’d, 502 F. App’x 1 (D.C. Cir. 2013).

Generally, Appeals officers are directed to reject any offer substantially below the

taxpayer’s RCP unless special circumstances justify acceptance of such an offer.

See Fairlamb v. Commissioner, T.C. Memo. 2010-22; Rev. Proc. 2003-71, sec.

4.02(2), 2003-2 C.B. 517, 517.

      We do not independently assess the reasonableness of the taxpayer’s pro-

posed offer. Rather, our review is limited to ascertaining whether the decision to

reject his offer was arbitrary, capricious, or without sound basis in fact or law.

Murphy, 125 T.C. at 320. We do not substitute our judgment for the SO’s as to

the acceptability of any particular offer. See, e.g., Johnson, 136 T.C. at 488.

      Petitioner first contends that the SO erred in declining to consider his TFRP

liabilities for 2012 and 2014. Those liabilities were not properly before the Ap-

peals Office because the IRS had not yet sent petitioner a collection notice ad-

vising him of his hearing rights for those periods. See Kraft v. Commissioner, 142

T.C. 259, 265 (2014). In any event, the IRS had not issued petitioner, at the time

he filed his petition, a notice of determination for 2012 or 2014. We thus lack

jurisdiction to consider them. See, e.g., Pietanza v. Commissioner, 92 T.C. 729,
                                        - 10 -

[*10] 735 (1989), aff’d, 935 F.2d 1282 (3d Cir. 1991); Pyo v. Commissioner, 83

T.C. 626, 632 (1984); Anson v. Commissioner, T.C. Memo. 2010-119, 99 T.C.M.

(CCH) 1504, 1506.5

      Petitioner next contends that the SO miscalculated his RCP. He does not

dispute the SO’s determination that his share of future household disposable in-

come was $37,912. Rather, he focuses on the SO’s recalculation of his net equity

in assets. Employing the customary “quick sale” methodology, see IRM pt.

5.15.1.20 (Oct. 2, 2012), the SO calculated petitioner’s asset equity as $387,489,

then reduced this amount by 50% because his wife, a non-liable party, had a 50%

ownership interest in the assets. Combining asset equity of $193,745 with future

income of $37,912, the SO determined that petitioner’s RCP was $231,657.6




      5
        We do have jurisdiction to review an SO’s rejection of an OIC that encom-
passes liabilities for both CDP years and non-CDP years. See, e.g., Sullivan v.
Commissioner, T.C. Memo. 2009-4. Indeed, that is precisely the situation here:
the SO considered petitioner’s TFRP liabilities for 2012 and 2014, as well as his
TFRP liabilities (exceeding $800,000) for the 2010 and 2011 CDP years, in evalu-
ating his global OIC of $104,478. We clearly have jurisdiction to consider (and in
the text we do consider) whether the SO abused his discretion in rejecting that of-
fer. What we lack jurisdiction to do is to consider any challenge to petitioner’s un-
derlying tax liabilities for the non-CDP years.
      6
        Petitioner asserts that the SO erred in failing to adjust his RCP to account
for the fact that his wife is a non-liable spouse. As explained in the text, the SO
fully accounted for that fact.
                                        - 11 -

[*11] Petitioner contends that the SO overvalued one of his business assets, an

LLC that held various rental properties. According to petitioner, the SO should

have assigned zero asset value to this LLC because it was an asset “used for the

production of income.” See IRM pt. 5.8.5.15 (Sept. 30, 2013). If an SO deter-

mines that an asset is necessary for the production of income, “it may be appropri-

ate to adjust the income or expense calculation * * * to account for the loss of in-

come stream if the asset were either liquidated or used as collateral to secure a

loan.” Id. pt. 5.15.1.22 (Oct. 2, 2012). But the IRM advises SOs to make no ad-

justment to income, and to include the asset equity in the taxpayer’s RCP, if the

asset is not producing income. Ibid.; see id. pt. 5.8.5.15(2) (Sept. 30, 2013).

      On the Form 433-A that petitioner submitted to the SO, the only income he

reported consisted of pension and Social Security payments. He reported no in-

come associated with the LLC mentioned above. The SO therefore did not abuse

her discretion in including the equity value of that LLC in her RCP calculation.

      Petitioner also contends that the IRS abused its discretion by taking too long

to evaluate his offers. Petitioner submitted multiple OICs, which were considered

by multiple IRS officials in multiple IRS locations. Although this process was

protracted, petitioner has not identified any prejudice that he suffered, apart from

“a great deal of stress and disruption” for himself and his family. Stress and dis-
                                          - 12 -

[*12] ruption often accompany tax controversies and do not justify setting aside

otherwise appropriate IRS collection actions.

          “Absent a showing of special circumstances, Appeals officers are directed to

reject offers substantially below the taxpayer’s RCP where the OIC is premised on

doubt as to collectibility.” Clifford v. Commissioner, T.C. Memo. 2014-248, 108

T.C.M. (CCH) 597, 598. Petitioner’s final offer of $104,478 was substantially be-

low his RCP of $231,657. The SO did not abuse her discretion in rejecting that

offer.7

          Section 6330(c)(1) and (3)(A) required the SO to verify that all applicable

legal and administrative requirements had been met. One potentially applicable

requirement is that imposed by section 6751(b)(1), which provides: “No penalty

under this title shall be assessed unless the initial determination of such assess-

ment is personally approved (in writing) by the immediate supervisor of the indi-

vidual making such determination or such higher level official as the Secretary

may designate.”


          7
       Petitioner contends that the IRS misapplied refunds from 2012 and 2014 to
a TFRP liability for 2009. Neither petitioner’s 2009 TFRP liability nor his refunds
for 2012 or 2014 are currently before us. Regardless, section 6402(a) allows the
IRS to credit an overpayment against any liability owed by a taxpayer. See Savage
v. Commissioner, 112 T.C. 46 (1999); Boyd v. Commissioner, T.C. Memo. 2000-
16.
                                       - 13 -

[*13] In Blackburn v. Commissioner, 150 T.C. __ (Apr. 5, 2018), the IRS argued

that section 6751(b) does not apply to TFRPS at all. We found no need to decide

that question because the record included a Form 4183 reflecting supervisory ap-

proval of the TFRPs in question. We determined that the Form 4183 was suffic-

ient to enable the SO to verify that the requirements of section 6751(b)(1) had

been met with respect to the TFRPs, assuming the IRS had to meet those require-

ments in the first place.

      Here, respondent submitted a declaration that attached a Form 4183 show-

ing that the TFRPs assessed against petitioner had been approved in writing by

Group Manager Corcoran, the immediate supervisor of RO Naidas. In Blackburn,

we held that an actual signature is not required; the form need only show that the

TFRPs were approved by the RO’s supervisor. Accordingly, we find there to be a

sufficient record of prior approval of the TFRPs in question.

      To reflect the foregoing,


                                                An appropriate order and decision

                                      will be entered for respondent.
