                              T.C. Memo. 2014-214



                         UNITED STATES TAX COURT



                  BRUCE A. HAUPTMAN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 29857-07L, 29868-07L.             Filed October 9, 2014.



      Donald Jay Pols, for petitioner.

      Shawna A. Early, for respondent.



                           MEMORANDUM OPINION


      JACOBS, Judge: Pursuant to section 6330(d)(1),1 petitioner seeks review of

the determination by the Internal Revenue Service (IRS or respondent) to proceed


      1
      Unless otherwise indicated all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practices and Procedure.
                                         -2-

[*2] with collection of petitioner’s unpaid Federal income tax liabilities for 1992,

1993, 1994, 1995, and 1996 (years involved) by way of levy. The merits of the

underlying tax liabilities are not at issue. The issue for decision is whether the

IRS abused its discretion in rejecting petitioner’s offer-in-compromise. For the

reasons set forth infra, we hold that the IRS did not.

      The parties have submitted these consolidated cases fully stipulated under

Rule 122.2 The parties’ stipulation of facts, with accompanying exhibits, is

incorporated by this reference.

      Petitioner resided in Iowa at the time he filed his petitions.

                                    Background

      Petitioner failed to timely file Federal income tax returns for the years

involved; as a consequence the IRS prepared substitutes for returns pursuant to

section 6020(b). Petitioner subsequently filed untimely Federal income tax

returns3 but failed to pay the full amounts of tax shown as due. Respondent



      2
       These cases were consolidated for purposes of trial, briefing, and opinion
pursuant to Rule 141(a). Docket No. 29857-07L relates to 1992, 1993, and 1994;
docket No. 29868-07L relates to 1995 and 1996.
      3
       Petitioner filed untimely joint returns for 1992 and 1993 with his then, but
now former, wife, Anne Hauptman. He filed an untimely return for 1994 on the
basis of married filing separately. He filed untimely joint returns for 1995 and
1996 with his then and current wife, Danielle Hauptman.
                                        -3-

[*3] assessed the amounts self-reported on the untimely returns as well as

penalties as follows: tax and penalties for 1992 and 1993 were assessed on April

7, 1997; tax and penalties for 1994 were assessed on May 19, 1997; tax and

penalties for 1995 were assessed on December 8, 1997; and tax and penalties for

1996 were assessed on November 24, 1997. The IRS also began levying on

petitioner’s property. In response, petitioner began submitting offers-in-

compromise, the last of which is the subject of this proceeding. As of March 30,

2007, petitioner’s unpaid income tax liabilities for the years involved

approximated $13 million.

      Respondent issued two separate final notices of intent to levy (levy notices),

one for 1992, 1993, and 1994 and another for 1995 and 1996, to petitioner on

February 28, 2007. On March 29, 2007, petitioner filed two separate Forms

12153, Request for a Collection Due Process or Equivalent Hearing (section 6330

hearing), one for 1992, 1993, and 1994 and another for 1995 and 1996. On

November 19, 2007, the Milwaukee Appeals Office issued two separate notices of

determination sustaining the proposed levy action. On December 19, 2007,

petitioner filed two petitions with this Court (one for 1992, 1993, and 1994 and

another for 1995 and 1996) seeking review of the determinations of the

Milwaukee Appeals Office.
                                          -4-

[*4] I.         Petitioner’s Background

          During the years involved petitioner was a successful investment consultant.

He began his investment career in 1976 with Merrill Lynch & Co. in New York

City as a account executive. He later worked at Bache & Co. and Butcher &

Singer. In 1984 he founded B. Hauptman & Associates, LLC (BHA), a private

investment management firm providing advice to high net worth individuals,

pension funds, and institutions. From 1985 through 1988 while managing BHA

petitioner held a seat on the Chicago Mercantile Exchange, trading in the S&P 500

futures pit.

          In 1989 BHA formed Juniper Capital Management, Inc., later renamed

Genesis Capital Fund, LP (Genesis or the fund), a limited partnership. Genesis

employed various hedged investment strategies in managing client funds. Genesis

Management was formed to be the general partner of Genesis. Petitioner, through

his 100% ownership of Georgica Pond, Ltd., an S corporation (Georgica Pond),

owned 60% of Genesis Management.

          Genesis began operations on December 6, 1989, with $5.1 million under

management; by 1993 the amount under management grew to, and peaked at, $179

million. From that point onward the fund sustained a decline in the amount under
                                        -5-

[*5] management, which affected the earnings of Genesis Management. Genesis

ceased operations at the end of 1999. From 1997 through 2002 BHA sustained a

dramatic decline in revenues to the point where it began to experience losses,

forcing petitioner to personally fund the operations of BHA. By 2006 the number

of BHA’s full-time employees had declined from 14 to 1.

II.   Petitioner’s Offers-in-Compromise

      Petitioner’s first offer-in-compromise was made in August 1997, his second

was made in March 1998, and a third offer was made in July 2005. The first two

offers were rejected as inadequate; the third offer was returned as “solely to delay

collection activity.”

      Petitioner submitted the offer-in-compromise at issue in this matter, his

fourth, by submitting a Form 656, Offer in Compromise, on February 10, 2010.

He offered to settle his outstanding Federal income tax liabilities for $500,000.

The offer was based on doubt as to collectibility. The required 20% of the amount

of the offer (i.e., $100,000) was sent with the Form 656. Petitioner stated he

would pay the balance (i.e., $400,000) within four months of IRS acceptance and

that the funds would come from a third party.

      Before filing Form 656 petitioner filed Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals, and several Forms
                                        -6-

[*6] 433-B, Collection Information Statement for Businesses. Petitioner reported

a monthly income of $15,284 and personal monthly expenses of $10,873.55 on

Form 433-A.

      Petitioner’s case was assigned to Offer Specialist R. Taylor. Offer

Specialist Taylor reviewed petitioner’s financial information, including documents

presented with petitioner’s offers-in-compromise. He compared these documents

with financial information he had received from third parties4 and determined that

petitioner had understated the value of his property and businesses by as much as

$13 million. Offer Specialist Taylor stated the following in a report he prepared:

(1) petitioner’s personal expenses were primarily paid by Georgica Pond;

(2) Georgica Pond paid petitioner’s and his former wife’s personal credit card

bills, personal utility bills, personal mortgage payments and property taxes; and

(3) the 20% deposit of $100,000 paid with petitioner’s $500,000 offer-in-

compromise came from Georgica Pond. Petitioner does not deny the truth of these

statements.




      4
        For example, in response to a summons, Central State Bank provided a
financial statement that petitioner had submitted to the bank when he sought a
$350,000 loan to be used to settle his outstanding Federal income tax liabilities.
Petitioner later asserted to Settlement Officer Randy J. Allen that he “puffed up
the figures.” See infra.
                                          -7-

[*7] Offer Specialist Taylor reviewed petitioner’s tax history and observed that

petitioner had filed 27 Appeals cases regarding his outstanding tax liabilities. In

reviewing petitioner’s financial information, Offer Specialist Taylor determined

that petitioner had realized millions of dollars in gains from stock transactions but

had chosen to reinvest the assets and make substantial charitable contributions

rather than paying his outstanding tax liabilities.5

      In a fax dated August 18, 2011, sent to Settlement Officer Curtis Megyesi

(who was then assigned to the cases, see infra) petitioner acknowledged that he

had intentionally failed to pay his outstanding tax liabilities, believing all parties

would be better served if he used funds for investment. The fax stated:

      When you are down 12 runs in the ninth inning bunting is not a
      realistic option if you want to finally resolve the issue. It was hoped
      and expected that such investments would provide the means to pay
      all the taxes due. * * * If taxes and penalties equaled in excess of $10
      million and I had $3 million in assets then the IRS would take all of
      the funds and I would still be left with a huge tax problem and have
      no means to invest in hopes of paying the balance due.

Petitioner’s “conviction was that all that was needed was one good year and the

ability to pay all taxes due would be achieved.” That conviction was never

justified as petitioner never had that “one good year”.

      5
       By June 22, 2010, the date of Offer Specialist Taylor’s report, petitioner’s
outstanding tax liabilities for the years involved totaled approximately $15.5
million.
                                         -8-

[*8] In his report Offer Specialist Taylor concluded that petitioner lived a “lavish

lifestyle”, petitioner had not reported income for several years, and petitioner’s

personal expenses had been paid by his companies. Offer Specialist Taylor

calculated that petitioner’s reasonable collection potential was $3,329,508. Offer

Specialist Taylor’s report concludes that “[w]ith such an egregious history of non-

compliance with paying his required tax, it would be detrimental to the interests of

fair tax administration to accept an offer from this individual.”

      Offer Specialist Taylor’s report was reviewed by Compliance Manager,

OIC, Terrie Miller. She concurred with Offer Specialist Taylor’s rejection of

petitioner’s $500,000 offer as not in the best interest of the Government. The

rejection of petitioner’s offer was referred to the San Bernardino, California,

Appeals Office for an independent review. That office concurred with Offer

Specialist Taylor.

      On August 12, 2010, the IRS sent petitioner SB Letter 238 (AOIC)

informing him that his offer-in-compromise had been rejected as not being in the

best interest of the Government and that he was entitled to contact the Appeals

Office within 30 days from the date of the letter. Petitioner timely filed an appeal.

On October 12, 2010, petitioner’s appeal was assigned to Settlement Officer

Randy J. Allen of the Peoria, Illinois, Appeals Office.
                                        -9-

[*9] On April 6, 2011, Settlement Officer Allen sent petitioner a letter in which

he calculated the minimum offer amount acceptable to the IRS to be $3,468,951.

The minimum offer amount was based on the value of petitioner’s businesses,

particularly Georgica Pond. The most valuable asset of Georgica Pond was a

$2,596,885 receivable arising from a series of loans from Georgica Pond to BHA.

Petitioner disagreed with Settlement Officer Allen’s calculation. Petitioner

maintained the receivable was worthless because BHA was not in a position to

repay the loan. Settlement Officer Allen stated in the IRS case activity record that

he disagreed with petitioner, noting that the loans were made when petitioner’s

taxes were due and that the loan funds could have been used to settle petitioner’s

outstanding tax liabilities. Settlement Officer Allen later wrote in the IRS case

activity record that both Georgica Pond and BHA remained operating concerns

and that he assumed both were in business to make a profit.

      On May 13, 2011, in response to new information petitioner provided,

Settlement Officer Allen reduced petitioner’s reasonable collection potential to

$2,900,000. At a time not in the record, petitioner’s case was reassigned from

Settlement Officer Allen to Settlement Officer Curtis M. Megyesi. Settlement

Officer Megyesi contacted petitioner and his representative, Alvin Brown. The

IRS case activity record reveals that Settlement Officer Megyesi and petitioner
                                        - 10 -

[*10] met and discussed petitioner’s offer. Petitioner was asked how he was able

to pay his living expenses. Petitioner replied that he supported himself with

proceeds of bank loans and money borrowed from individuals. Settlement Officer

Megyesi asked petitioner why he donated $400,000 to the Maharishis of Iowa

when his offer-in-compromise was pending. Petitioner replied he was confident

that an investment he then was concluding would permit him to pay his taxes in

full.

        Settlement Officer Megyesi raised concerns as to discrepancies between the

stated values of assets set forth in financial information petitioner provided the

IRS and the stated values of the same assets set forth in petitioner’s loan

application with Central State Bank. See supra note 4. Petitioner replied that the

figures submitted on the loan application were “puffed up.” Settlement Officer

Megyesi, however, believed the asset values set forth in the loan application were

accurate and that petitioner had understated the value of his assets as set forth in

the IRS forms.

        Settlement Officer Megyesi also reviewed copies of various promissory

notes evidencing alleged loans to petitioner and his businesses. He observed that

some of the notes identified the obligators only by their first names, that the

lenders had not signed several of the notes, and that the notes did not contain any
                                      - 11 -

[*11] default language. Settlement Officer Megyesi calculated the amount of the

loans to be $1,335,000. He expressed concern that the only collateral for these

loans was petitioner’s equity in an investment company which had not yet begun

operating (B. Hauptman Holdings, LLC). Settlement Officer Megyesi’s review

showed a substantial part of the borrowed money was deposited into the bank

account of B. Hauptman Holdings, LLC. Settlement Officer Megyesi was able to

track a $500,000 tranche of loan proceeds deposited into the account of B.

Hauptman Holdings, LLC. Thereafter, $247,000 was transferred to Georgica

Pond’s bank account. The money was used to pay BHA expenses as well as

petitioner’s personal expenses. Settlement Officer Megyesi notes in the case

activity record that

      [t]he money has been spent. I didn’t see where Mr. Hauptman
      [petitioner] invested the money to make money. I don’t know how he
      will pay it back. The loan is secured with Mr. Hauptman’s personal
      guarantee and the equity in B. Hauptman Holdings. Again, as far as I
      knew from prior conversations with Mr. Hauptman this company did
      not exist not [sic] does it have any assets. * * * In other words, Mr.
      Hauptman states, this company does not exist yet it is able to transfer
      half a million dollars to a company he calls his nominee [Georgica
      Pond].

      Settlement Officer Megyesi reviewed petitioner’s business dealings. The

IRS case activity record reveals an individual named Paul Winer paid petitioner or

Grand Teton Capital Management, LLC, more than $50,000 on July 26, 2011, for
                                       - 12 -

[*12] future investment advisory services to be provided over the subsequent five

years, with services to be limited to 25 hours per year. In the IRS activity record

Settlement Officer Megyesi expressed concern as to this transaction, observing:

      Wouldn’t it be better to pay by the hour when needed? Could he pay
      only a year at a time? What about a default is [sic] service? The
      agreement contains no default clause. What if Mr. Winer is not
      happy with the service after one year? Again, it doesn’t seem likely
      that someone would enter into this type of agreement that highly
      favors the other party.

      On December 20, 2011, Settlement Officer Megyesi spoke with petitioner’s

representative, Alvin Brown. Settlement Officer Megyesi asked why the loans

were made to B. Hauptman Holdings, LLC, a company not yet in operation. Mr.

Brown agreed the loans did not make sense, but he assumed the loans were to fund

the soon-to-be operational company.

      Settlement Officer Megyesi reviewed the $500,000 tranche of loan proceeds

he had traced with Mr. Brown. Mr. Brown agreed that it appeared petitioner was

using the borrowed funds for personal use. Mr. Brown was unable to explain the

incomplete promissory notes, and he agreed that the $50,000 payment by Mr.

Winer to petitioner was “a bad deal.” Mr. Brown stated that he would contact

petitioner and speak with Settlement Officer Megyesi again. The record does not

reveal that any such discussion occurred.
                                        - 13 -

[*13] Because the amount of petitioner’s offer-in-compromise was substantially

less than $2,900,000, the amount that Settlement Officer Allen had determined to

be petitioner’s reasonable collection potential, the Appeals Office sustained the

rejection of petitioner’s $500,000 offer-in-compromise.

      Settlement Officer Megyesi prepared a detailed Appeals Case Memorandum

(ACM) on January 12, 2012. In the ACM Settlement Officer Megyesi stated that

the rejection of petitioner’s offer-in-compromise was based on the provisions of

Policy Statement P-5-100. Specifically, he (as well as Settlement Officer Allen)

determined that acceptance of the offer was not in the best interest of the

Government, in part because petitioner was not reporting all the income he was

earning. The ACM set forth a detailed review of the facts of the case as

established by various IRS offer specialists and settlement officers, including a

calculation of petitioner’s assets, the values of which Settlement Officer Megyesi

believed to be substantially greater than the asset values to which petitioner had

admitted.

      The ACM noted that petitioner had paid no tax for 10 years because the

income he reported was offset by claimed losses. The ACM stated that petitioner

had established layers of business entities, some to make investments, others to

manage them, the effect of which was to divert income and make it difficult for the
                                      - 14 -

[*14] IRS to determine the income attributable to petitioner. The ACM listed six

examples of such layering. The memorandum stated:

      It appears that through this layering of entities, Mr. Hauptman is able
      to divert income from himself to business entities, all of which could
      be considered nominees. Because his investment opportunities are
      continuous in nature, he is able to offset any reported income with
      losses from one or more of his other investment opportunities. It can
      be understood how this could occur on any given year but is difficult
      to understand how someone could sustain enough losses to overcome
      income over a ten year period and still have money to invest.
      Eventually, no money would be left to invest. Based on the
      information reviewed, it is believed that not all income is being
      reported. It also does not appear that all of the LLC’s [i.e., the
      business entities] are properly reporting K-1 income to Mr. Hauptman
      or to each other. Review of the administrative file documents that
      money readily flows between the LLC entities and many of Mr.
      Hauptman’s personal expenses are paid by one or more of the LLC’s.

      The ACM examined $1,335,000 in loans made to petitioner’s companies

and reviewed the complex series of intercompany transactions through which

petitioner’s personal expenses were paid. The ACM stated: “These distributions

are not the debts of B. Hauptman Holdings [i.e., petitioner’s new company]. This

provided further evidence of the co-mingling on money between entities. * * *

What did they do with the money? This example further verifies that income is

not being properly reported.”

      On July 2, 2012, respondent sent petitioner two supplemental notices of

determination (supplemental notices) rejecting petitioner’s offer-in-compromise
                                        - 15 -

[*15] and sustaining the conclusions reached previously in the levy notices. The

supplemental notices essentially repeated the findings set forth in the ACM. The

supplemental notices stated that all legal and procedural requirements had been

met and that the levy appropriately balanced (1) the need for efficient collection of

petitioner’s unpaid Federal income tax liabilities with (2) petitioner’s concern that

the collection action be no more intrusive than necessary.

                                     Discussion

I.    Introduction

      These cases involve a review of respondent’s determination to proceed with

collection of petitioner’s unpaid Federal income tax liabilities for 1992, 1993,

1994, 1995, and 1996 by way of levy. Section 6330 hearings concerning levies

are conducted in accordance with section 6330(c). At the section 6330 hearing a

taxpayer may raise any relevant issues relating to the unpaid tax, including spousal

defenses, challenges to the appropriateness of the collection action, and offers of

collection alternatives. A taxpayer may challenge the existence or amount of the

underlying tax liability only if he/she did not receive a notice of deficiency or

otherwise have an opportunity to dispute the liability. Sec. 6330(c)(2)(B); sec.

301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. Petitioner does not in this

proceeding challenge the existence or amounts of his underlying tax liabilities.
                                        - 16 -

[*16] After the Commissioner issues a notice of determination, a taxpayer may

petition this Court for review thereof. Sec. 6330(d)(1). The Court’s review of the

Commissioner’s determination is subject to the provisions of section 6330.

Because petitioner does not dispute the underlying tax liabilities for the years

involved, we review respondent’s determination for abuse of discretion. See Sego

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

181-182 (2000). An abuse of discretion is defined as any action that is

unreasonable, arbitrary or capricious, clearly unlawful, or lacking a sound basis in

fact or law. Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533

(1979); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

II.   Petitioner’s Arguments

      Petitioner first argues that the IRS erred by rejecting his offer-in-

compromise on the premise that because he is not or has not been in compliance

with his filing and payment obligations, it would not be in the best interest of the

Government to accept the offer-in-compromise. Petitioner maintains (1) such a

determination is contrary to regulations and published IRS policy statements, and

(2) the record does not support the conclusion that petitioner is not in compliance

or has in the past been so. Second, petitioner asserts the IRS erred in adding

dissipated assets to the calculation of his reasonable collection potential. Third,
                                        - 17 -

[*17] petitioner asserts the IRS erred by using asset valuations that have no basis

in fact and are unsupported by the record. And, fourth, petitioner asserts the IRS

erred by failing to use applicable public guidance to calculate the value of his

potential future income.

III.   Respondent’s Rejection of Petitioner’s Offer-in-Compromise as Not in the
       Best Interest of the Government

       The Commissioner may compromise any civil tax case. Sec. 7122(a); sec.

301.7122-1(a)(1), Proced. & Admin. Regs. An outstanding tax liability may be

compromised on one of three grounds: (1) doubt as to liability, (2) doubt as to

collectibility, and (3) promotion of effective tax administration. Sec. 301.7122-

1(b), Proced. & Admin. Regs.

       Petitioner offered to compromise his outstanding tax liabilities for the years

involved on the basis of doubt as to collectibility. The Commissioner may

compromise a tax liability for doubt as to collectibility when “the taxpayer’s assets

and income are less than the full amount of the liability.” Sec. 301.7122-1(b)(2),

Proced. & Admin. Regs. The decision to accept or reject such an offer to

compromise, as well as the terms and conditions agreed to, is in the discretion of

the Commissioner. Id. para. (c)(1). We do not conduct an independent review of

what would be an acceptable offer-in-compromise, and we give due deference to
                                        - 18 -

[*18] the Commissioner’s decision. Murphy v. Commissioner, 125 T.C. 301, 320

(2005), aff’d, 469 F.3d 27 (1st Cir. 2006); Woodral v. Commissioner, 112 T.C. at

23.

      The Commissioner is guided in his consideration of offers-in-compromise

by regulations and policies aimed at similarly treating taxpayers in similar

situations and by considering special facts and circumstances that may be present

in each case. Section 301.7122-1(f)(3), Proced. & Admin. Regs., provides that

“[n]o offer to compromise may be rejected solely on the basis of the amount of the

offer without evaluating that offer under the provisions of this section and the

Secretary’s policies and procedures regarding the compromise of cases.”

      The Commissioner’s general policy is to accept an offer-in-compromise

when it is unlikely that the tax liability can be collected in full and the amount

offered reasonably reflects the taxpayer’s collection potential. However, the

Internal Revenue Manual (IRM) states that in certain instances, the Commissioner

may reject such an offer-in-compromise if acceptance would not be in the best

interest of the Government. IRM pt. 5.8.7.7.1(1) (May 10, 2011), provides that

      [a]n offer rejection may also be based on a determination that
      acceptance of the specific offer at hand is not in the best interest of
      the government as discussed in Policy Statement P-5-100 (IRM
      1.2.14.1.17). Rejections under this provision should not be routine
      and should be fully supported by the facts outlined in the rejection
                                        - 19 -

      [*19] narrative. Offers rejected under this section require the review
      and approval of the second level manager; that is, Territory Manager
      for the field of Department Manager for COIC.

Policy Statement P-5-100 states, in pertinent part, that

      [t]he success of the * * * [compromise] program will be assured only
      if taxpayers make adequate compromise proposals consistent with
      their ability to pay and the Service makes prompt and reasonable
      decisions. Taxpayers are expected to provide reasonable
      documentation to verify their ability to pay. The ultimate goal is a
      compromise that is in the best interest of both the taxpayer and the
      Service. * * *

Policy Statement P-5-100, IRM pt 5.8.1.1.3 (Mar. 16, 2010).

      IRM pt. 5.8.7.7.1(2) provides the following as an example of a situation that

may warrant rejection of an offer-in-compromise as not being in the best interest

of the Government: “Recent compliance satisfies offer processability criteria;

however, the taxpayer has an egregious history of past noncompliance and our

analysis of his current finances reveals that it will be highly unlikely the taxpayer

will be able to remain in compliance during the offer period.”

      Petitioner does not claim that respondent failed to follow the procedures set

forth in the IRM. Instead, petitioner challenges respondent’s application of IRM

pt. 5.8.7.7.1 and Policy Statement P-5-100. Petitioner argues that the regulations

provide that a taxpayer’s history of noncompliance may be used to reject an offer-

in-compromise only when the rejection is made based on the promotion of
                                        - 20 -

[*20] effective tax administration under section 301.7122-1(b)(3), Proced. &

Admin. Regs.6 Petitioner argues that there is nothing in the regulations directing

or authorizing the Commissioner to promulgate policies that would cause him to

reject an offer-in-compromise based on doubt as to collectibility because of a

history of noncompliance. Petitioner is incorrect in this assertion.

      Policy Statement P-5-100 and the predecessor to IRM pt. 5.8.7.7.1 have

previously been relied upon by the Commissioner to guide his determination to

reject an offer-in-compromise based on doubt as to collectibility, and we have

accepted their validity. See Bennett v. Commissioner, T.C. Memo. 2008-251;

Oman v. Commissioner, T.C. Memo. 2006-231. In Bennett, we pointed out that

these guidelines “are in the end just that--language guiding the Commissioner’s

considerations of all the facts and circumstances, as mandated by the regulation

that is unquestionably binding, section 301.7122-1(f)(3), Proced. & Admin Regs.

That regulation does not compel the Commissioner to accept any particular offer,

but to consider the facts and circumstances of the case before him.” We believe

respondent did consider the facts and circumstances of petitioner’s case and that


      6
       Sec. 301.7122-1(b)(3)(iii), Proced. & Admin. Regs., provides that “[n]o
compromise to promote effective tax administration may be entered into if
compromise of the liability would undermine compliance by taxpayers with the
tax laws.”
                                        - 21 -

[*21] respondent has obeyed the requirements of section 301.7122-1(f)(3), Proced.

& Admin. Regs.

      Bennett and Oman illustrate the operation of the IRM and the Policy

Statement. In each case the taxpayer had an “egregious history” of

noncompliance, and in each the Commissioner determined that there was a

probable likelihood of future noncompliance. Relying on the IRM and the Policy

Statement, the Commissioner rejected offers-in-compromise in both cases. In

Bennett, we sustained the Commissioner’s rejection of the offers-in-compromise

because the Commissioner fully considered the facts and circumstances in the case

and thoroughly explained his reasoning in the notice of determination.7

      In Oman, however, we remanded the case to the Appeals Office because the

Commissioner’s reasoning was unclear as to why it was in the best interest of the

Government to reject the offer-in-compromise. In that matter, the Commissioner

conceded that the taxpayer’s reasonable collection potential was zero, yet

the Commissioner still rejected the taxpayer’s offer to settle his $170,000

outstanding tax liability for $1,000.

      7
        The Commissioner placed the taxpayer in Bennett in currently not
collectible status because of her financial condition instead of levying on her
property. The Commissioner’s analysis indicated that the taxpayer’s
circumstances might change in the near future and allow for the collection of her
delinquent tax.
                                        - 22 -

[*22] Unlike in Oman, in the instant matter there is a fully developed record,

expatiating the Commissioner’s reasoning. The ACM and the supplemental

notices thoroughly discussed the layering of petitioner’s business entities, the

questionable documentation regarding petitioner’s loans, and the use of moneys

not for investment purposes, but to pay petitioner’s personal expenses. Moreover,

the IRS case activity record files detailed Settlement Officer Megyesi’s inability to

get petitioner or his representative to explain the companies’ business transactions.

And we are mindful that the amount Settlement Officer Megyesi and Settlement

Officer Allen determined to be petitioner’s reasonable collection potential,

$2,900,000, greatly exceeded petitioner’s $500,000 offer-in-compromise.

      Settlement Officer Megyesi noted that Georgica Pond held a loan receivable

of $2,596,885. He gave cogent reasons as to why the loan receivable should be

treated as a collectible (e.g., both businesses remained viable). We do not find

Settlement Officer’s Megyesi’s position to be unreasonable or lacking in a sound

basis in fact. Further, we find that Settlement Officer Megyesi had good reason to

distrust petitioner’s financial statements, for by his own admission petitioner

provided false financial statements to third parties when it served his purposes.

Thus, we believe the asset valuations used by Settlement Officer Megyesi and

Settlement Officer Allen were not unreasonable and had a basis in fact.
                                        - 23 -

[*23] Additionally, the record does not indicate that Settlement Officer Allen (and

subsequently Settlement Officer Megyesi) erred by “failing to use applicable

public guidance to calculate the value of his potential future income”, as petitioner

asserts. See supra p. 17.

      Petitioner argues that the record does not support respondent’s conclusion

that he is not or has not been in compliance in the past with his return filing and

tax payment obligations. Petitioner points out that the supplemental notices

acknowledged that he timely filed Federal income tax returns for years after the

years involved in these cases. Moreover, as petitioner points out, the IRS has not

audited or adjusted any of his claimed losses.

      Petitioner’s argument, however, ignores the fact that he failed to comply

with his tax return filing and payment obligations throughout the years involved, a

failure due to his desire to use the money for other purposes, rather than an

inability to make any tax payments. Moreover, respondent’s rejection of

petitioner’s offer-in-compromise is based in part on a determination that petitioner

did not give the IRS complete and accurate information regarding his taxable

income. Petitioner’s own documentation raises questions as to the intercompany

structure of his businesses, payments by those businesses of his personal expenses,

and loans ostensibly made to him by his businesses and by others. Indeed,
                                         - 24 -

[*24] petitioner’s own representative agreed that certain transactions were “a bad

deal” for the other parties. Petitioner failed to provide clarification of these

transactions despite IRS requests to do so. And it is not an abuse of discretion to

reject a collection alternative and sustain the proposed collection action (i.e., levy)

on the basis of a taxpayer’s failure to submit requested financial information.

Sullivan v. Commissioner, T.C. Memo. 2012-337; see Wright v. Commissioner,

T.C. Memo. 2012-24; Huntress v. Commissioner, T.C. Memo. 2009-161. In sum,

we find no error in respondent’s determination that petitioner’s questionable

transactions with others call into question petitioner’s future compliance.

      To conclude, we hold that respondent did not abuse his discretion in

rejecting petitioner’s offer-in-compromise. We thus hold that respondent may

proceed with enforced collection by levy. In reaching our holdings, we have

considered all arguments made, and to the extent not mentioned above, we

conclude they are moot, irrelevant, or without merit.

      To reflect the foregoing,


                                                  Decisions will be entered for

                                        respondent.
