                    United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 02-4138
                                   ___________

W. Richard Morgan, and Janice J.     *
Morgan,                              *
                                     *
          Petitioners,               *
                                     * Appeal from a decision of the
    v.                               * United States Tax Court.
                                     *
Commissioner of Internal Revenue,    *
                                     *
          Respondent.                *
                                ___________

                             Submitted: September 8, 2003

                                 Filed: October 3, 2003
                                  ___________

Before SMITH, LAY, and BRIGHT, Circuit Judges.
                            ___________


LAY, Circuit Judge.


I. BACKGROUND

       This case arises out of tax assessments made against W. Richard Morgan and
Janice J. Morgan (collectively “Morgan”) for federal income tax deficiencies for the
years 1981, 1982, and 1983 resulting from investments in a tax shelter later
invalidated by the Internal Revenue Service. As a result of these deficiencies,
Morgan filed for bankruptcy. On December 22, 1994, the bankruptcy court issued
an order in which it refused to discharge Morgan’s tax liabilities for 1981 and 1982,
but granted a discharge as to Morgan’s 1983 tax liability. The bankruptcy court also
ruled, however, that the IRS retained the right to collect the 1983 liability from any
assets that were exempt from the bankruptcy estate, which were limited to a pension
plan held in the name of W. Richard Morgan.

        In March of 1995, Morgan submitted an offer-in-compromise to the IRS, which
was later rejected. Some time in 1997, Morgan’s account was assigned to Revenue
Officer Elizabeth Cooper, who sought on several occasions to convince Morgan to
begin repaying his delinquent taxes. In May of 1998, the IRS issued a wage levy to
Morgan’s employer. On May 19, 1998, Cooper wrote a letter to Morgan’s attorney,
expressing the need for Morgan to submit another offer-in-compromise and to attempt
to negotiate an installment agreement for the payment of all unpaid taxes. In this
letter, Cooper also wrote: “regarding the 1983 [tax liability], Special Procedures
Branch is in the process of getting it abated.” Cooper wrote this based upon her
conversations with the Special Procedures Branch of the IRS.

        The wage levy provided an impetus for Morgan to enter into negotiations for
an installment agreement. On June 4, 1998, Morgan and the IRS finalized an
agreement covering only Morgan’s 1981 and 1982 tax liabilities. Morgan’s 1983 tax
liability was not included in the installment agreement because at the time of its
execution, both Morgan and Cooper believed that it would be abated. Shortly after
the execution of this agreement, however, the Special Procedures Branch decided not
to abate Morgan’s 1983 liability. On September 11, 1998, Morgan’s attorney sent a
letter to Cooper explaining his understanding of the effect of the installment
agreement, which was that the IRS would not commence additional collection
procedures (including any pertaining to the 1983 liability) so long as Morgan
remained current on payments. Morgan’s attorney asked Cooper to verify or, if
necessary, correct his understanding of the agreement. Although Cooper was aware

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at the time she received this letter that the IRS had decided not to grant an abatement
of the 1983 liability, she did not respond to this letter.1

       On December 27, 1999, the IRS notified Morgan of its intent to levy to recover
all unpaid taxes and penalties for the 1981, 1982, and 1983 tax years. Following a
Collection Due Process hearing, the IRS Office of Appeals ruled that the IRS could
not enforce by levy the 1981 and 1982 liabilities so long as Morgan complied with
the terms of the installment agreement. The Office of Appeals also ruled, however,
that the IRS could enforce by levy the 1983 tax liability against assets exempt from
the bankruptcy.

       Morgan filed an appeal in United States Tax Court, arguing that the IRS was
estopped from enforcing by levy the 1983 tax liability based on its previous
representations that the 1983 liability would be abated, and further that there would
be no attempts at collection while the installment agreement remained in effect.
Morgan argued that as a result of these representations, he suffered a detriment by
entering into an installment agreement that failed to include his 1983 liability. The
tax court affirmed the decision of the Commissioner. It held that it was not
reasonable for Morgan to rely on Cooper’s statements that his 1983 liability would
be abated for two reasons. First, Morgan knew that the IRS could levy on his exempt
assets to recover his 1983 liability.2 Second, Morgan was represented by attorneys
in the bankruptcy proceeding and in his dealings with the IRS. The tax court also
held that Morgan had not relied on Cooper’s statements to his detriment, but had


      1
        In the tax court, Cooper testified that she called Morgan’s attorney on
September 16, 1998, but that she did not recall mentioning anything about the effect
of the installment agreement.
      2
       During the course of the bankruptcy proceeding, Morgan acknowledged that
a federal tax lien encumbered all of his property, including any exempt property, to
the extent it existed.

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instead gained a benefit insofar as the payment of his 1983 liability had been delayed,
and that he also received a favorable installment agreement for his 1981 and 1982
liabilities.3 Morgan now appeals.

II. DISCUSSION

       The IRS argues, as an initial matter, that Morgan failed to raise his estoppel
claim before the Office of Appeals, and that he should therefore be precluded from
raising it on appeal. The tax court considered this argument, and determined that
Morgan had adequately raised the factual circumstances underlying a claim of
estoppel.4 Although this is a close question, we assume, as did the tax court, that the
facts underlying Morgan’s claim of estoppel were sufficiently presented to the Office
of Appeals to preserve the issue for our review. See Ohio v. EPA, 838 F.2d 1325,
1329 (D.C. Cir. 1988) (finding exhaustion doctrine satisfied where agency had the
“opportunity to consider the very argument pressed” on judicial review) (internal
quotations and citations omitted). We therefore turn to consider the merits of
Morgan’s claim of equitable estoppel.

     Morgan argues that the tax court erred by refusing to apply estoppel against the
IRS. Although the Supreme Court has explicitly left undecided the question of
whether a private party can ever estop the government, “it is well settled that the


      3
       The installment required Morgan to make monthly payments in the amount of
$1,000, an amount which, given the magnitude of Morgan’s total tax liability, failed
even to cover the interest accruing on the debt.
      4
          In particular, the tax court concluded:

      Well, I think I agree with [Morgan] that if the matter of the effect of the
      installment agreement on collections for 1983 was discussed [during the
      Collection Due Process hearing], the failure to put a legal label on it is
      not fatal so that we’re going to have to consider that estoppel issue.

                                           -4-
Government may not be estopped on the same terms as any other litigant.” Heckler
v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51, 60 (1984) (footnote
omitted). In addition to establishing the traditional elements of estoppel, a party
seeking to estop the government must first establish that it engaged in affirmative
misconduct. See INS v. Miranda, 459 U.S. 14, 19 (1982) (per curiam) (when
evaluating estoppel claim asserted against government, courts should inquire
“whether, as an initial matter, there was a showing of affirmative misconduct”); see
also Rutten v. United States, 299 F.3d 993, 995-96 (8th Cir. 2002). This is a heavy
burden to carry. See Office of Personnel Mgmt v. Richmond, 496 U.S. 414, 422
(1990) (noting that “we have reversed every finding of estoppel [against the
government] that we have reviewed”).

       Morgan claims that affirmative misconduct on the part of the IRS is
demonstrated by the “totality of the circumstances.” Morgan notes that Cooper’s
representations regarding the abatement of the 1983 liability were made both orally
and in writing. See Heckler, 467 U.S. at 65 (expressing concern over estoppel claims
against government based solely on alleged oral misrepresentations). Morgan also
notes that the actions of the IRS violated its own internal policies. Specifically,
Internal Revenue Manual § 5.14.1.5(1)(b) provides that no levy may be made on
taxpayer accounts while installment agreements are in effect.

       Morgan directs a majority of his affirmative misconduct argument, however,
to the fact that Cooper failed to respond to his attorney’s letter of September 11,
1998. He argues that she knew at the time that the 1983 liability would not be abated
and that collection attempts were forthcoming. In this regard, Morgan principally
relies upon Fredericks v. Comm’r, 126 F.3d 433 (3d Cir. 1997). Fredericks involved
a tax assessment made by the IRS against a taxpayer some time after the three year
statute of limitations to file such assessments had expired. The taxpayer agreed to file
Form 872-A (Special Consent to Extend Time to Assess Taxes), thereby permitting
the IRS to extend the statute of limitations indefinitely unless the taxpayer revoked

                                          -5-
his consent. The IRS represented to the taxpayer that it never received Form 872-A,
and successfully sought on three separate occasions to extend the statute of
limitations for an additional year, the last of which expired on June 30, 1984.
Sometime prior to this date, however, the IRS located Form 872-A, yet failed to
inform the taxpayer of this fact. On July 9, 1992, eleven years after informing the
taxpayer that Form 872-A did not exist, and eight years after the final one-year
extension of the statute of limitations expired, the IRS mailed a notice of deficiency
to the taxpayer. Based upon these facts, the Third Circuit concluded that the taxpayer
had “mounted the high hurdle” of establishing equitable estoppel against the
government. Id. at 435.

       We hold the present case to be distinguishable from Fredericks. Between the
date on which Cooper failed to correct Morgan’s misunderstanding of the effect of
the installment agreement, and the date the IRS notified Morgan of its intent to levy,
nearly seventeen months had passed. While not insubstantial, this is a far shout from
the eight-year period involved in Fredericks. See id. at 442 (“The IRS’ decision to
lie doggo, and induce the taxpayer into thinking all was well, coupled with its
additional eight-year delay in producing a document it previously represented as
non-existent, compels us to conclude that the IRS was guilty of affirmative
misconduct . . . .”) (emphasis added); see also In re Charter Behavioral Health Sys.,
LLC, 292 B.R. 36, 44 (Bankr. D. Del. 2003).

       However, in Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir. 2001), this
court encountered a claim made by homeowners for flood insurance benefits pursuant
to the National Flood Insurance Act, 42 U.S.C. § 4001 et seq. The proof of loss form
submitted by the homeowners did not contain their signatures, as was required under
the terms of the policy. After their claim was denied, the homeowners’ attorney wrote
to the insurance company, specifically asking whether they intended to take the
position that the homeowners had failed to submit a proper proof of loss. Although
the insurance company responded to this letter, it did not address the proof of loss

                                         -6-
issue. Id. at 733. Thereafter, the homeowners filed suit for benefits under the policy,
arguing that the insurance company, by virtue of its failure to respond to their
attorney’s letter, should be estopped from arguing that the proof of loss was defective.
This court disagreed, ruling that the government could not be estopped on the facts
of the case. Id. at 735. We see no reason why a different result should obtain under
the facts of the present case. In fact, both at trial and on appeal Morgan conceded that
Cooper’s conduct was not intended to purposely mislead him. The “negligence and
possible bad faith” of the IRS in this case is insufficient grounds for estoppel. Wang
v. Att’y Gen., 823 F.2d 1273, 1277 (8th Cir. 1987).

III. CONCLUSION

       To be sure, the conduct of the IRS in this case falls short of that which should
be expected of an agency of the government, especially one touching on the financial
affairs of its citizens. But as the Supreme Court has instructed, “not even the
temptations of a hard case,” Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 386
(1947), can justify the application of estoppel against the government.

      For the foregoing reasons, the judgment of the tax court is AFFIRMED.
                      ______________________________




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