                           T.C. Memo. 2011-113



                         UNITED STATES TAX COURT



                    JOHN R. CURRIER, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 8970-07L.              Filed May 31, 2011.



        Jon Noel Dowat, for petitioner.

     Karen Lynne Baker, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


        FOLEY, Judge:   The issue for decision is whether respondent

abused his discretion in determining to proceed with collection

of petitioner’s income tax liabilities relating to 1994 through

2000.
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                         FINDINGS OF FACT

     From 1995 through 2001, respondent assessed against

petitioner income tax deficiencies relating to 1994, 1995, 1996,

1997, 1998, 1999, and 2000 (years in issue).    These deficiencies,

together with interest and penalties, totaled more than $160,000.

On March 2, 2005, respondent received from petitioner an offer-

in-compromise (OIC) of $11,500 ($11,500 OIC).   On March 10, 2005,

respondent accepted the $11,500 OIC for processing.   On October

4, 2005, respondent sent petitioner a letter rejecting the

$11,500 OIC (2005 rejection letter).   The 2005 rejection letter

provided that if petitioner, within 30 days from the date of the

letter, submitted an executed Form 656, Offer in Compromise,

increasing his offer to $59,413, respondent would “recommend

acceptance” of the $59,413 OIC.   Respondent filled out a Form 656

(i.e., typed in petitioner’s name and address, checked the

relevant boxes, identified the years in issue, and listed the

amount offered as $59,413) and enclosed it with the rejection

letter.

     From October 7, 2005, to March 13, 2006, Lloyd S. Myster,

petitioner’s certified public accountant and attorney, sent

respondent multiple faxes in which Myster offered to increase the

OIC to $50,000 ($50,000 offer) and asked whether another Form 656

was necessary.   On March 13, 2006, respondent sent petitioner a

Letter 1058, Final Notice of Intent to Levy and Notice of Your
                                - 3 -

Right to a Hearing.   In a fax sent March 29, 2006, respondent

explained that the $50,000 offer was not sufficient because it

was less than the acceptable $59,413 amount set forth in the 2005

rejection letter.

     On April 10, 2006, petitioner timely sent respondent a

Request for a Collection Due Process Hearing (CDP request).

Petitioner attached to the CDP request a $60,000 cashier’s check.

In the CDP request, Myster wrote:   “taxpayer has enclosed the

check for $60,000 for full settlement of the compromised periods”

and “attached is a check to full pay the taxpayers [sic] Offer in

Compromise.”   Respondent applied the $60,000 payment to

petitioner’s unpaid income tax liabilities relating to the years

in issue.

     On July 13, 2006, petitioner submitted a $60,000 OIC based

on doubt as to collectibility ($60,000 OIC) to the Holtsville,

New York, office.   On August 11, 2006, respondent sent petitioner

a letter accepting the 2006 OIC for processing and stating that

the $60,000 OIC would be sent to the Appeals employee handling

his CDP request.    In October 2006, petitioner’s CDP request was

transferred to respondent’s St. Paul, Minnesota, office.   In

December 2006, petitioner’s tax liability, including interest and

penalties, had risen to more than $240,000.   Respondent, on

December 21, 2006, sent Myster a fax explaining that the $60,000

check was applied to petitioner’s tax account because no OIC was
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pending and the check was not submitted with a Form 656.     The fax

also included a rejection letter relating to the $60,000 OIC.     In

the letter respondent stated that, based on petitioner’s

reasonable collection potential in 2006, $184,211 would be an

acceptable offer for an amended OIC.

     On March 27, 2007, respondent issued petitioner a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 sustaining the proposed collection action relating to

the years in issue.   On April 23, 2007, petitioner, while

residing in Minnesota, filed his petition with the Court.

                              OPINION

     Petitioner does not dispute the underlying tax liabilities.

Where the validity of the liability is not at issue, the Court

reviews the Commissioner’s administrative determination for abuse

of discretion.   Goza v. Commissioner, 114 T.C. 176, 182 (2000).

To establish that the Commissioner abused his discretion, the

taxpayer must show that the Commissioner’s actions were

arbitrary, capricious, or without sound basis in law or fact.

See Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral

v. Commissioner, 112 T.C. 19, 23 (1999).   Section 6330(c)(3)1

provides that in making a determination, the Appeals officer must

verify that the requirements of applicable law and administrative



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code.
                                 - 5 -

procedure have been met, consider the issues raised by the

taxpayer, and consider whether the proposed collection action

balances the need for the efficient collection of taxes with the

taxpayer’s legitimate concern that any collection be no more

intrusive than necessary.     Petitioner contends that respondent

abused his discretion by not treating the $60,000 payment either

as an acceptance of, or as a deposit relating to, petitioner’s

OIC.2

        Section 7122 provides the exclusive method of effectuating

an OIC.     Luxton v. United States, 340 F.3d 659, 663 (8th Cir.

2003) (citing Botany Worsted Mills v. United States, 278 U.S.

282, 288-289 (1929)).     Payments submitted with, or during the

pendency of, an OIC are considered deposits and will not be

applied to the liability until the offer is accepted.     Sec.

301.7122-1(h), Proced. & Admin. Regs.     If an OIC is withdrawn or

deemed nonprocessable, any deposit will be returned to the

taxpayer.     Id.

        For the following reasons, respondent’s application of the

payment to petitioner’s outstanding income tax liabilities was

not an abuse of discretion.     First, petitioner, through Myster,



        2
      Petitioner also contends that his right to due process was
violated when respondent knew that petitioner was represented by
counsel but called petitioner directly. Petitioner contends that
respondent violated subsec. (a)(2) of sec. 6304, Fair Tax
Collection Practices, and is subject to a sec. 7433 claim. We do
not have jurisdiction over such claims. See sec. 7433(a).
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did not follow the proper procedure for submitting the $60,000

payment.   See sec. 301.7122-1(h), Proced. & Admin. Regs.; Rev.

Proc. 2002-26, 2002-1 C.B. 746.    Respondent, in the 2005

rejection letter, stated that an amended OIC should be submitted

on a Form 656.    To facilitate the process, respondent attached to

the letter an OIC of $59,413 for petitioner to simply sign, date,

and return.    Petitioner failed to do so.3

     Second, respondent and petitioner simply did not have an

agreement.    See Dorchester Indus. Inc. v. Commissioner, 108 T.C.

320, 330 (1997) (stating that “‘A prerequisite to the formation

of a contract is an objective manifestation of mutual assent to

its essential terms’” (quoting Manko v. Commissioner, T.C. Memo.

1995-10)), affd. without published opinion 208 F.3d 205 (3d Cir.

2000).   Petitioner’s $60,000 check did not constitute full

payment of his tax liabilities and petitioner did not enter into

a binding agreement with respondent to compromise his tax

liabilities relating to the years in issue.   See Baltic v.

Commissioner, 129 T.C. 178, 179 n.3 (2007) (stating that “Cashing

a check does not mean that the IRS has accepted the offer.”)



     3
      Petitioner contends that respondent abused his discretion
by not responding to the $50,000 offer. We disagree.
Petitioner, through Myster, did not follow proper procedures for
submitting the $50,000 offer as an OIC, and respondent, in the
Mar. 29, 2006, fax, explained that the $50,000 offer was not
acceptable because it was less than the acceptable $59,413
amount. See sec. 301.7122-1(c)(1) and (2), (d)(1), Proced. &
Admin. Regs.; Rev. Proc. 2003-71, 2003-2 C.B. 517.
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(citing Colebank v. Commissioner, T.C. Memo. 1977-46, affd.

without published opinion 610 F.2d 999 (D.C. Cir. 1979), and

Howard v. Commissioner, T.C. Memo. 1956-219).       Respondent’s 2005

rejection letter stated that an OIC of $59,413 would be

recommended for acceptance but did not obligate respondent to

accept a $59,413 or $60,000 OIC.

     Third, the payment was not a deposit relating to an OIC

because the check was not submitted with, or during the pendency

of, an OIC.   We note that Rev. Proc. 2002-26, supra, provides

that the Internal Revenue Service will, in certain circumstances,

follow a taxpayer’s specific written directions as to the

application of a voluntary payment.       Respondent, however, could

not have followed petitioner’s instructions (i.e., “to full pay

petitioner’s OIC”) because no pending OIC existed at the time

respondent received the payment.

     In sum, respondent did not abuse his discretion.

Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
