                    123 T.C. No. 5



                UNITED STATES TAX COURT



           JAMES M. ROBINETTE, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 12052-01L.                Filed July 20, 2004.



     On Oct. 31, 1995, P and R entered into an offer-
in-compromise. The terms of the offer-in-compromise
required P to, among other things, timely file his 1995
through 1999 tax returns. On the morning of Oct. 15,
1999, the day P’s 1998 return was due, P’s accountant
(A) prepared P’s return. That afternoon, A drove to
P’s office to obtain P’s signature on P’s return. A
returned to his office. Thereafter, A affixed postage
to the envelope containing P’s return using a private
postage meter. A deposited the envelope containing P’s
return in a U.S. Postal Service mailbox in his office
building.

     R’s records indicate that R received all of P’s
returns except for P’s 1998 return. R declared P’s
offer-in-compromise in default. After a hearing in
which P raised the issue of compliance with the terms
of the offer-in-compromise, R issued a notice of
determination in which R determined to proceed with
collection of the unpaid tax liabilities.
                               - 2 -

          Held: Pursuant to sec. 6330(c), I.R.C., abuse of
     discretion is the applicable standard of review.

          Held, further, When reviewing R’s determination
     for an abuse of discretion under sec. 6330, I.R.C., we
     may consider evidence presented at trial which was not
     included in the administrative record.

          Held, further, R abused his discretion in
     determining to proceed with collection.



     Thomas L. Overbey and Laurie M. Boyd, for petitioner.

     Martha J. Weber, for respondent.



     VASQUEZ, Judge:   This case was commenced in response to a

Notice of Determination Concerning Collection Action(s) Under

Sections 63201 and/or 6330.   The issue is whether respondent may

proceed with collection of petitioner’s 1983, 1984, 1985, 1986,

1987, 1988, 1989, 1990, and 1991 tax liabilities.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts, first supplemental stipulation of

facts, second supplemental stipulation of facts, and the attached

exhibits are incorporated herein by this reference.   At the time

he filed the petition, petitioner resided in Jonesboro, Arkansas.




     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. All amounts are rounded
to the nearest dollar.
                                - 3 -

     Since approximately 1990, Douglas W. Coy has served as

petitioner’s accountant.    Mr. Coy has prepared petitioner’s tax

returns for all the tax years in which he has represented

petitioner.

Petitioner’s Offer-in-Compromise

     On October 31, 1995, petitioner and respondent entered into

an offer-in-compromise.    The offer-in-compromise related to

income tax liabilities for 1983, 1984, 1985, 1986, 1987, 1988,

1989, 1990, and 1991, and trust fund recovery penalties for

unpaid employment taxes for periods ending March 31, June 30, and

September 30, 1988, June 30 and December 31, 1989, and March 31,

June 30, and September 30, 1990.    The offer-in-compromise was

submitted on the basis of doubt as to collectibility.    The amount

of individual income tax and statutory additions compromised

totaled $989,475.2   Petitioner offered to pay $100,000 to




     2
        The trust fund recovery penalties to be compromised under
sec. 6672 were $102,030. By order dated Oct. 21, 2002, the Court
granted respondent’s motion to dismiss for lack of jurisdiction
and to strike as to the trust fund penalties. The parties agree:

     The doctrine of collateral estoppel will apply to
     prohibit the Respondent, as well as the Petitioner,
     from re-litigating the Petitioner’s appeal of the
     Notice of Determination in the District Court if the
     Tax Court decides whether the Respondent abused his
     discretion in proceeding with collection of tax
     liabilities previously compromised prior to a decision
     of that issue by the District Court.
                                   - 4 -

compromise the outstanding liabilities and penalties.3

Petitioner paid $1,000 with the submission of the offer and the

remaining $99,000 with borrowed funds within 60 days after

acceptance of the offer.

     Petitioner agreed to the following terms and conditions:

     (d)   I * * * will comply with all the provisions
           of the Internal Revenue Code related to
           filing my * * * returns * * * for five (5)
           years from the date IRS accepts the offer.

                     *     *   *    *      *   *   *

     (j)   I * * * understand that I * * * remain
           responsible for the full amount of the tax
           liability unless and until IRS accepts the
           offer in writing and I * * * have met all the
           terms and conditions of the offer. IRS won’t
           remove the original amount of the tax
           liability from its records until I * * * have
           met all the terms and conditions of the
           offer.

                     *     *   *    *      *   *   *

     (o)   If I * * * fail to meet any of the terms and
           conditions of the offer, the offer is in
           default, and IRS may:

                     *     *   *    *      *   *   *

                (iv) file suit or levy to collect
                the original amount of tax


     3
        As additional consideration, petitioner signed a Form
2261, Collateral Agreement, in which he also agreed to pay 40
percent of his annual income in excess of $100,000 and not in
excess of $130,000; 50 percent of annual income in excess of
$130,000 and not in excess of $150,000; and 60 percent of annual
income in excess of $150,000. Petitioner’s annual income was
less than $100,000 for 1995, 1996, 1997, 1998, and 1999.
Accordingly, petitioner was not required to pay additional
consideration.
                                - 5 -

                 liability, without further notice
                 of any kind.

Petitioner’s 1998 Individual Income Tax Return

     Petitioner received an extension to file his 1998 individual

income tax return (petitioner’s 1998 return) on or before October

15, 1999.    On the morning of October 15, 1999, Mr. Coy received

via facsimile petitioner’s Schedule K-1, Shareholder’s Share of

Income, Credits, Deductions, etc., for Professional Acres Leasing

Group from the accounting firm of Osborne & Osborne.     Upon

receipt of the Schedule K-1 on October 15, 1999, Mr. Coy

completed petitioner’s 1998 return.     For 1998, petitioner was

entitled to a refund of $3,300.

     At approximately 3:45 to 4 p.m. on October 15, 1999, Mr. Coy

left his office in Little Rock, Arkansas, en route by car to

three other cities in Arkansas in order to review State and

Federal income tax returns with four of his clients, including

petitioner, and to obtain his clients’ signatures on their

returns.    First, Mr. Coy drove to Mount Pleasant, Arkansas, to

deliver the returns of Howard and Jane Lamb for review and

signatures.    After the Lambs signed their tax returns, Mr. Coy

drove to Melbourne, Arkansas, to deliver the returns of David and

Theresa Sharp for review and signatures.     After the Sharps signed

their tax returns, Mr. Coy delivered the returns of Fred Lamb,

also in Melbourne, Arkansas, for review and signature.     After Mr.

Lamb signed his tax returns, Mr. Coy drove to Jonesboro,
                                - 6 -

Arkansas, to deliver the returns of petitioner for review and

signature.

       Mr. Coy arrived at petitioner’s office between 8:45 and 9

p.m.    Petitioner signed the returns in the presence of Mr. Coy

and Frances Robinette, petitioner’s wife and office manager.

       After the clients signed their tax returns, Mr. Coy took the

signed returns from his clients so that he could mail them from

his office in Little Rock, Arkansas.

       Mr. Coy returned to his office in Little Rock, Arkansas,

sometime after 11 p.m., but before midnight.    Mr. Coy made a copy

of the signature page of petitioner’s 1998 return.    Mr. Coy

affixed postage to the envelope containing petitioner’s 1998

return using a private postage meter.    The postage from the

private postage meter displayed a postmark of October 15, 1999.

Before midnight, Mr. Coy placed the envelope containing

petitioner’s 1998 return in a U.S. Postal Service mailbox in the

building where his office is located.

       At this same time, Mr. Coy mailed the returns of Mr. Sharp.

Mr. Sharp was not assessed late filing penalties or late payments

by the Internal Revenue Service (IRS) with respect to his 1998

individual income tax return.

Petitioner’s 1995, 1996, 1997, 1999, and 2000 Individual Income
Tax Returns

       Petitioner received extensions to file his 1995 individual

income tax return on or before October 15, 1996.    Petitioner’s
                               - 7 -

1995 individual income tax return was prepared by Mr. Coy on

October 15, 1996.   For 1995, petitioner paid the $2,593 shown as

owed on his return.

     Petitioner received extensions to file his 1996 individual

income tax return on or before October 15, 1997.   Petitioner’s

1996 individual income tax return was received by the IRS on

October 20, 1997.   For 1996, petitioner was entitled to a refund

of $14,435.

     Petitioner received extensions to file his 1997 individual

income tax return on or before October 15, 1998.   Petitioner’s

1997 individual income tax return was prepared by Mr. Coy on

October 14, 1998, and received by the IRS on October 19, 1998.

For 1997, petitioner was entitled to a refund of $5,644.

     Petitioner received extensions to file his 1999 individual

income tax return on or before October 15, 2000.   Petitioner’s

1999 individual income tax return was prepared by Mr. Coy on

October 15, 2000, and received by the IRS on October 19, 2000.

For 1999, petitioner was entitled to a refund of $2,631.

     Petitioner received extensions to file his 2000 individual

income tax return on or before October 15, 2001.   Petitioner’s

2000 income tax return was received by the IRS on October 17,

2001.

     Each of the aforementioned years, including 1998, on or

about October 15, Mr. Coy, or a person from Mr. Coy’s office,
                               - 8 -

delivered to petitioner at petitioner’s office his original

individual income tax return, and petitioner would sign it.

IRS Collection Efforts

     On February 21, 2000, the IRS sent petitioner a “Request for

Your Tax Return” for 1998.    Petitioner received this letter.    On

March 17, 2000, the IRS notified petitioner that it had received

his required Statement of Annual Income for 1998 but needed a

copy of his 1998 Form 1040, U.S. Individual Income Tax Return.

On April 17, 2000, the IRS sent petitioner a letter stating:

“Your Tax Return is Overdue -- Contact us Immediately” for 1998.

The letter also stated:

                   *** OFFER IN COMPROMISE ***
          Our records indicate that we’ve accepted an offer
     in compromise from you. You agreed to file and pay
     all your federal taxes for the five (5) year period
     after we accepted this offer. If you don’t file the
     requested delinquent return, we may reinstate the
     amount you owe that we previously compromised.

Petitioner forwarded to Mr. Coy by fax all notices from the IRS

concerning his 1998 return and offer-in-compromise, as he was

“scared to death” of these notices.

     The Austin, Texas, Service Center monitored petitioner’s

offer-in-compromise.   Revenue Officer Kathy Santino of the

Oklahoma City, Oklahoma, office was assigned to examine whether

petitioner’s offer-in-compromise was in default.   She examined

petitioner’s offer-in-compromise “as a courtesy to the Austin

Service Center [because] they were overloaded in potentially-
                                - 9 -

defaulted offers”.    Ms. Santino knew of the 5-year filing

requirement, but she did not know what years were covered by

petitioner’s offer-in-compromise.    In her courtesy investigation

of petitioner’s offer-in-compromise, she did not look at the

transcripts for 1995, 1996, or 1997.    She did not consider

petitioner’s pattern of filing his returns on or about October

15.   Ms. Santino never spoke with petitioner or Mr. Coy.

      On July 13, 2000, Ms. Santino sent petitioner a letter

declaring petitioner’s offer-in-compromise in default.    The basis

for the default was that the IRS had not received petitioner’s

Form 1040 for 1998.

      On September 28, 2000, the IRS issued a Final Notice--Notice

of Intent to Levy and Your Right to a Hearing.

      On October 6, 2000, petitioner, through his authorized

representative Mr. Coy, filed a Form 12153, Request for a

Collection Due Process Hearing.    Petitioner stated the basis for

the appeal as:   “We do not believe the taxpayer owes the amounts

stated in the Notice of Intent to Levy and would like the

opportunity to resolve these matters at a Collection Due Process

Hearing.”

      On January 10, 2001, Appeals Officer Troy C. Talbott of the

Oklahoma City, Oklahoma, office sent Mr. Coy a letter identifying

the options available for resolution of petitioner’s tax

liability (such as full payment, installment agreement, offer-in-
                              - 10 -

compromise, or determination that petitioner’s account is

currently not collectible) and asking for more details as to why

petitioner did not owe the amount stated in the notice of intent

to levy.   Mr. Talbott also requested and reviewed the IRS

administrative file related to the default of the offer-in-

compromise.   On January 24, 2001, Mr. Talbott looked at

petitioner’s transcript of account for 1998.    Mr. Talbott’s case

activity record states:   “Per research on IDRS, no record of 98

1040 being filed. * * * Per IRP information, TP had a filing

requirement, but may have been due a refund.”   Mr. Talbott

concluded that petitioner had defaulted on the offer-in-

compromise.

     On January 29, 2001, in a telephone section 6330 hearing

(the hearing), Mr. Coy stated to Mr. Talbott that he mailed

petitioner’s 1998 return on October 15, 1999.   Specifically, Mr.

Coy told Mr. Talbott that he prepared petitioner’s return, took

the return to petitioner, obtained petitioner’s signature, and

mailed the return on October 15, 1999.

     The only evidence Mr. Talbott would consider for proof of

mailing was a certified mail or registered mail receipt.     Mr.

Talbott did not consider petitioner’s pattern of filing returns

on October 15, despite having looked at the transcripts for 1995,

1996, 1997, and 1999.
                               - 11 -

     Mr. Talbott believed he had no authority to reinstate

petitioner’s offer-in-compromise.    He believed only the National

Office could reinstate the offer-in-compromise.    He stated:   “The

National Office would still have to do the reinstatement by

itself” and the “National Office would have the call”.    Mr.

Talbott reviewed the Internal Revenue Manual.    The manual was

silent as to whether an Appeals officer has authority to

reinstate an offer-in-compromise.

     Mr. Coy sent Mr. Talbott a copy of petitioner’s 1998 return.

Mr. Talbott received the copy of petitioner’s 1998 return on

February 16, 2001.    Mr. Talbott forwarded it to the Austin

Service Center, where it was processed by the IRS as an original

return.    Petitioner’s transcript of account for 1998 states

“return filed and tax assessed” on April 2, 2001.

     Petitioner never personally met with, or spoke to, Mr.

Talbott.

     The Appeals settlement memorandum prepared by Mr. Talbott

concluded that the notice of intent to levy was appropriate.      Mr.

Talbott’s evaluation concluded:

     The Offer in Compromise was defaulted because the IRS
     did not have a record of the taxpayer filing Form 1040
     for 1998. The taxpayer’s representative claimed to
     have timely mailed the tax return for 1998 on October
     15, 1999, but the tax return was not sent by certified
     mail and the representative does not have any evidence
     to prove that the return was mailed. The taxpayer did
     not respond to the IRS’s requests to file the tax
     return, which resulted in the offer being defaulted.
                                 - 12 -

     On August 21, 2001, the IRS issued to petitioner a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 determining to proceed with collection.       Petitioner

timely filed a petition with the Court.

                                 OPINION

I.   Section 6330

     Section 6331(a) provides that if any person liable to pay

any tax neglects or refuses to do so within 10 days after notice

and demand, the Secretary can collect such tax by levy upon

property belonging to such person.        Pursuant to section 6331(d),

the Secretary is required to give the taxpayer notice of his

intent to levy and within that notice must describe the

administrative review available to the taxpayer, before

proceeding with the levy.    See also sec. 6330(a).

     Section 6330(b) describes the administrative review process,

providing that a taxpayer can request an Appeals hearing with

regard to a levy notice.    At the Appeals hearing, the taxpayer

may raise certain matters set forth in section 6330(c)(2), which

provides, in pertinent part:

          SEC. 6330(c). Matters Considered at Hearing.--In
     the case of any hearing conducted under this section--

                    *   *    *     *       *    *    *

          (2) Issues at hearing.--

               (A) In general.--The person may raise at the
          hearing any relevant issue relating to the unpaid
          tax or proposed levy, including--
                                - 13 -

                      (i)   appropriate spousal defenses;

                      (ii) challenges to the appropriateness of
                 collection actions; and

                      (iii) offers of collection alternatives,
                 which may include the posting of a bond, the
                 substitution of other assets, an installment
                 agreement, or an offer-in-compromise.

                (B) Underlying liability.--The person may
           also raise at the hearing challenges to the
           existence or amount of the underlying tax
           liability for any tax period if the person did not
           receive any statutory notice of deficiency for
           such tax liability or did not otherwise have an
           opportunity to dispute such tax liability.

      Pursuant to section 6330(c)(2)(A), a taxpayer may raise at

the section 6330 hearing any relevant issue with regard to the

Commissioner’s collection activities, including spousal defenses,

challenges to the appropriateness of the Commissioner’s intended

collection action, and alternative means of collection.     Sego v.

Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114

T.C. 176, 180 (2000).

      Pursuant to section 6330(d)(1), within 30 days of the

issuance of the notice of determination, the taxpayer may appeal

that determination to this Court if we have jurisdiction over the

underlying tax liability.     Van Es v. Commissioner, 115 T.C. 324,

328 (2000).

II.   Standard of Review

      The parties dispute the standard of review to be applied in

this case.    Although section 6330 does not prescribe the standard
                              - 14 -

of review that the Court is to apply in reviewing the

Commissioner’s administrative determinations, we have stated that

where the validity of the underlying tax liability is properly at

issue, the Court will review the matter de novo.    Where the

validity of the underlying tax liability is not properly at

issue, however, the Court will review the Commissioner’s

administrative determination for abuse of discretion.     Sego v.

Commissioner, supra at 610; Goza v. Commissioner, supra at 181.

     Generally, under section 6330(c)(2)(B), issues that are

reviewed de novo include those such as a redetermination of the

tax on which the Commissioner based the assessment, provided that

the taxpayer did not have an opportunity to seek such a

redetermination before assessment.     See, e.g., Landry v.

Commissioner, 116 T.C. 60, 62 (2001) (“Because the validity of

the underlying tax liability, i.e., the amount unpaid after

application of credits to which petitioner is entitled, is

properly at issue, we review respondent’s determination de

novo.”).   Whether the Commissioner’s assessment was made within

the limitation period also constitutes a challenge to the

underlying tax liability.   Hoffman v. Commissioner, 119 T.C. 140,

145 (2002).

     Under an abuse of discretion standard, “we do not interfere

unless the Commissioner’s determination is arbitrary, capricious,

clearly unlawful, or without sound basis in fact or law.”       Ewing
                              - 15 -

v. Commissioner, 122 T.C. 32, 39 (2004); see also Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).   Review for abuse of

discretion includes “any relevant issue relating to the unpaid

tax or the proposed levy”, including “challenges to the

appropriateness of collection actions” and “offers of collection

alternatives” such as offers in compromise.   Sec. 6330(c)(2)(A).

Questions about the appropriateness of the collection action

include whether it is proper for the Commissioner to proceed with

the collection action as determined in the notice of

determination, and whether the type and/or method of collection

chosen by the Commissioner is appropriate.    See, e.g., Swanson v.

Commissioner, 121 T.C. 111, 119 (2003) (challenge to

appropriateness of collection reviewed for abuse of discretion).

     Abuse of discretion is the proper standard of review in this

case.   The introductory language of section 6330(c)(2)(A)

encompasses the situation at bar.   Mr. Talbott’s conclusion that

respondent had acted properly in declaring petitioner’s offer-in-

compromise in default and that issuing a notice of determination

was proper is a “relevant issue relating to the unpaid tax or the

proposed levy”.   Further, offers in compromise are a specifically

mentioned collection alternative.   Sec. 6330(c)(2)(A)(iii).

Additionally, whether respondent may proceed with collection of

petitioner’s unpaid liability is a challenge to the
                                - 16 -

appropriateness of collection.    See sec. 6330(c)(2)(A)(ii);

Swanson v. Commissioner, supra.

     Petitioner argues that a de novo standard of review is

appropriate because he “put forth the argument of the validity of

the underlying taxes--i.e. the petitioner does not owe the tax,

nor the additions to the tax, since the tax was previously

discharged by an Offer in Compromise which was improperly

defaulted by the respondent”.    We view petitioner’s argument as a

challenge to the appropriateness of collection, rather than as a

challenge to the underlying tax liability.    See Swanson v.

Commissioner, supra.

III. Evidentiary Issue

     A.   The Parties’ Contentions

     At trial, respondent moved to strike “all documents and

testimony not part of the administrative record on the ground

that the trial record should be limited to the agency

administrative record.”   Documents and testimony not part of the

administrative record include:    (1) Petitioner’s testimony; (2)

petitioner’s tax returns for 1995, 1996, 1997, 1999, 2000, and

other stipulated facts relating to the date these returns were

received by the IRS; (3) Mr. Coy’s private postage meter log,

cellular telephone records, credit card records, and daily

calendar for October 15, 1999; (4) Frances Robinette’s testimony;

and (5) all statements made by Mr. Coy at trial that he did not
                                - 17 -

make to Mr. Talbott.   Respondent contends that this evidence is

not relevant because it is not part of the administrative record.

     Petitioner contends that this evidence is relevant.

Petitioner argues that on account of the informal nature of

section 6330 hearings, as there is no formal record, it is

impossible to determine the actual statements made at the

hearing.   Further, petitioner argues that the tax returns for

1995, 1996, 1997, 1999, and 2000 show his pattern and practice of

filing returns on or about October 15.

     The Court reserved decision on this issue.   For the

following reasons, we hold that, when reviewing for abuse of

discretion under section 6330(d), we are not limited by the

Administrative Procedure Act (APA) and our review is not limited

to the administrative record.    The evidence in this case pertains

to issues raised at the hearing.    The evidence in this case is

relevant and admissible.

     B.    Applicability of the APA Judicial Review Provisions to
           Tax Court Proceedings Commenced Under Section 6330(d)

           1.   Established Practice and Procedure

     Since the enactment of section 6330, the Court has applied

our traditional de novo procedures in deciding whether an Appeals

officer abused his or her discretion in determining to proceed

with collection.   At trials under section 6330 when reviewing for

abuse of discretion, the Court has received into evidence

testimony and exhibits that were not included in the
                              - 18 -

administrative record.   See, e.g., Wells v. Commissioner, T.C.

Memo. 2003-234 (taxpayer’s testimony admissible at trial when he

was represented by counsel and taxpayer was not present at

hearing); Maloney v. Commissioner, T.C. Memo. 2003-143 (taxpayers

presented numerous letters sent to Commissioner asking him to

recalculate their FICA taxes as evidence of claimed

overpayments), affd. 94 Fed. Appx. 969 (3d Cir. 2004); Black v.

Commissioner, T.C. Memo. 2002-307 (extensive testimony as to

taxpayer’s physical limitations due to diabetes and testimony of

taxpayer’s accountant considered when, at hearing, taxpayers

raised issue of illness from diabetes and presented Appeals

officer with medical files), affd. 94 Fed. Appx. 968 (3d Cir.

2004); Gougler v. Commissioner, T.C. Memo. 2002-185 (Court

considered two documents at trial that were not presented to

Appeals officer); Holliday v. Commissioner, T.C. Memo. 2002-67

(Commissioner permitted to present documents, records, and

testimony at trial that was not part of administrative record),

affd. 57 Fed. Appx. 774 (9th Cir. 2003) (“Holliday’s contention

that the Tax Court erred by admitting into evidence documents

that were not produced at the * * * [section 6330] hearing fails

because the ‘record review’ provisions of the Administrative
                               - 19 -

Procedure Act * * * do not apply to the Tax Court.” (Emphasis

added.)), cert. denied 124 S. Ct. 1038 (2004).4

          2.   The Court’s Specific Statutory Review Provisions

     The APA has never governed proceedings in the Court (or in

the Board of Tax Appeals).    Ewing v. Commissioner, 122 T.C. at 50

(Thornton, J., concurring).   It is well established that “The Tax

Court, rather than being a ‘reviewing court’ within the meaning

of Sec. 10(e) [of the APA] reviewing the ‘record’, is a court in

which the facts are triable de novo”.   O’Dwyer v. Commissioner,

266 F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957).    The

“Tax Court is not subject to the Administrative Procedure Act.”


     4
        Additionally, in numerous instances, we have noted the
taxpayer’s failure to present evidence at trial. This failure to
present evidence supported our conclusion that the Appeals
officer did not abuse his or her discretion. See, e.g., Dorn v.
Commissioner, T.C. Memo. 2003-192 (“Petitioner did not offer
sufficient evidence at his section 6330(b) hearing or before this
Court to show he is entitled to prevail” when petitioner did not
offer any evidence at trial related to the issues raised at his
hearing); Maloney v. Commissioner, T.C. Memo. 2003-143
(“Petitioners did not present any evidence that their excess
withholdings for 1984 exceeded [the stipulated amount of credits
for increased Federal income tax withholdings, including FICA
taxes]”, and “they presented no evidence that they made deposits
or that any FICA taxes were assessed after the applicable period
of limitations had expired”), affd. 94 Fed. Appx. 969 (3d Cir.
2004); Schulman v. Commissioner, T.C. Memo. 2002-129 (settlement
officer did not abuse her discretion where “petitioners presented
no evidence at trial or on brief to otherwise substantiate their
expenses” and where “petitioners did not introduce any evidence
of any meaningful ties to Ozaukee County, other than the relative
proximity of their residence”); Howard v. Commissioner, T.C.
Memo. 2002-81 (“Petitioner also did not present any evidence at
trial or otherwise show any irregularity in the assessment
procedure.”).
                              - 20 -

Id.   In Nappi v. Commissioner, 58 T.C. 282, 284 (1972), we

reasoned that the APA provisions “apply to an ‘agency’ of the

Government of the United States, but specifically exclude ‘the

courts of the United States.’ * * * the United States Tax Court

is established as a court of record under article I of the

Constitution of the United States.     Being a court of the United

States, it is excluded from the provisions of the * * * [APA].”

      Although section 6330 postdates the APA, the APA judicial

review provisions are not applicable.    The APA does not “limit or

repeal additional requirements imposed by statute or otherwise

recognized by law.”   5 U.S.C. sec. 559 (2000).   The Court’s de

novo procedures for reviewing IRS functions were well established

and “recognized by law” at the time of the APA’s enactment.

Ewing v. Commissioner, supra at 52 (Thornton, J., concurring);

see also Phillips v. Commissioner, 283 U.S. 589, 598, 600 (1931);

Blair v. Oesterlein Mach. Co., 17 F.2d 663, 665 (D.C. Cir. 1927);

Barry v. Commissioner, 1 B.T.A. 156, 157 (1924).     The Court’s de

novo procedures provide a stricter scope of review of the

Commissioner’s determinations than would be obtained under APA

judicial review procedures.   Ewing v. Commissioner, supra at 52-

53 (Thornton, J., concurring).

      The APA does not supersede specific statutory provisions for

judicial review, as it is a statute of general application.    5

U.S.C. secs. 703, 704 (2000); Ewing v. Commissioner, supra at 50
                               - 21 -

(Thornton, J., concurring).    “The legislative history of APA

section 703 makes clear that where there is a special statutory

review proceeding relevant to the subject matter, that special

statutory review ‘shall not be disturbed’.”    Ewing v.

Commissioner, supra at 50 (Thornton, J., concurring); see also S.

Comm. on the Judiciary, 79th Cong., Administrative Procedure Act

(Comm. Print 1945), reprinted in Administrative Procedure Act

Legislative History, 1944-46, at 11, 37 (1946); see also H. Rept.

1980, 79th Cong., 2d Sess. (1946), reprinted in the

Administrative Procedure Act Legislative History, 1944-46, at

233, 276 (1946).    “When Congress enacted the APA to provide a

general authorization for review of agency action in the district

courts, it did not intend that general grant of jurisdiction to

duplicate the previously established special statutory procedures

relating to specific agencies.”    Bowen v. Massachusetts, 487 U.S.

879, 903 (1988).

     The Internal Revenue Code has long provided a specific

statutory framework for reviewing determinations of the

Commissioner.   Section 6330 is part and parcel of this statutory

framework.   The Court’s de novo review procedures emanate from

this framework.    The APA judicial review procedures do not

supplant the Court’s longstanding de novo review procedures.

Thus, the Court’s de novo procedures are not limited by the APA.
                                - 22 -

           3.     Section 6330 Hearings Are Not Formal Adjudications

     Section 6330 hearings do not take the form of the formal

adjudicative hearings under the APA.     Indeed, the Commissioner’s

regulations describe the hearing as informal and not subject to

the APA:

          Q-D6.    How are * * * [section 6330] hearings
     conducted?

          A-D6. The formal hearing procedures required
     under the Administrative Procedure Act, 5 U.S.C. 551 et
     seq., do not apply to * * * [section 6330] hearings.
     * * * [Section 6330] hearings are much like Collection
     Appeal Program (CAP) hearings in that they are informal
     in nature and do not require the Appeals officer or
     employee and the taxpayer, or the taxpayer’s
     representative, to hold a face-to-face meeting. A
     * * * [section 6330] hearing may, but is not required
     to, consist of a face-to-face meeting, one or more
     written or oral communications between an Appeals
     officer or employee and the taxpayer or the taxpayer’s
     representative, or some combination thereof. A
     transcript or recording of any face-to-face meeting or
     conversation between an Appeals officer or employee and
     the taxpayer or taxpayer’s representative is not
     required. The taxpayer or the taxpayer’s
     representative does not have the right to subpoena and
     examine witnesses at a * * * [section 6330] hearing.
     [Sec. 301.6330-1(d)(2), Proced. & Admin. Regs.]

     The Commissioner vigorously litigated, and we agreed, that

hearings are informal.    In Davis v. Commissioner, 115 T.C. 35

(2000), we held that taxpayers had no right to subpoena witnesses

to appear at a hearing.    We stated:

          When Congress enacted section 6330 and required
     that taxpayers be given an opportunity to seek a pre-
     levy hearing with Appeals, Congress was fully aware of
     the existing nature and function of Appeals. Nothing
     in section 6330 or the legislative history suggests
     that Congress intended to alter the nature of an
                                - 23 -

     Appeals hearing so as to compel the attendance or
     examination of witnesses. When it enacted section
     6330, Congress did not provide either Appeals or
     taxpayers with statutory authority to subpoena
     witnesses. The references in section 6330 to a hearing
     by Appeals indicate that Congress contemplated the type
     of informal administrative Appeals hearing that has
     been historically conducted by Appeals and prescribed
     by section 601.106(c), Statement of Procedural Rules.
     The nature of the administrative Appeals process does
     not include the taking of testimony under oath or the
     compulsory attendance of witnesses. * * * [Id. at 41-
     42; fn. ref. omitted; emphasis added.]

In Katz v. Commissioner, 115 T.C. 329, 337 (2000), we held that

the Appeals officer may conduct the hearing by telephone.    In

Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002), we held

that the IRS was not required to provide assessment records to

the taxpayer at the hearing.    In some instances, we have affirmed

the Appeals officer’s determination when no hearing was

conducted.    See Lunsford v. Commissioner, 117 T.C. 183, 189

(2001).    In Keene v. Commissioner, 121 T.C. 8 (2003), we held

that while the IRS is not required to record the hearing, the

taxpayer may make an audio record.

     The “administrative record” compiled at the hearing is quite

limited.     It is nowhere near as comprehensive as the record

required to be compiled at a formal APA hearing.    See 5 U.S.C.

sec. 556(e) (“The transcript of testimony and exhibits, together

with all papers and requests filed in the proceeding, constitutes

the exclusive record for decision in accordance with * * * [5

U.S.C. section 557]”).    Section 6330 hearings were not intended
                               - 24 -

to provide a detailed factual record for judicial review.

Rather, they allow for the taxpayer to informally raise matters

relevant to the collection actions at hand, such as spousal

defenses, propriety of IRS collection activities, and

alternatives to collection actions proposed by the IRS.    See sec.

6330(c)(2)(A).

           4.    Legislative History

      Nothing in the legislative history of section 6330 or 6320

indicates that the APA applies or that the Court’s review is

limited to the administrative record.   Congress was well aware

when it enacted section 6330 that the Court is a trial court

which has historically resolved cases by taking evidence and has

never been governed by the APA.   Section 6330 expanded the

Court’s jurisdiction.   The conference agreement states:   “The

determination of the appeals officer may be appealed to the Tax

Court or, where appropriate, the Federal district court.”     H.

Conf. Rept. 105-559, at 266 (1998), 1998-3 C.B. 747, 1020.     The

report specifies that where “the validity of the tax liability is

not properly part of the appeal, the taxpayer may challenge the

determination of the appeals officer for abuse of discretion.”

Id.   Reference to the APA or the administrative record, however,

is absent.
                              - 25 -

          5.    Other Instances Where the Court Reviews
                for Abuse of Discretion

     “The mere fact that judicial review is for abuse of

discretion * * * does not trigger application of the APA record

rule or preclude this Court from conducting a de novo trial.

* * * [This] Court has a long tradition of providing trials when

reviewing the Commissioner’s determinations under an abuse of

discretion standard.”   Ewing v. Commissioner, 122 T.C. at 53

(Thornton, J., concurring).   In Ewing, we held that when

reviewing the Commissioner’s determination for an abuse of

discretion under section 6015, we may consider evidence presented

at trial which was not included in the administrative record.

Id. at 44.   Our review of section 6330 cases for abuse of

discretion is similar to our review of section 6015(f) cases--

which are reviewed for an abuse of discretion.   Id. at 39; Sego

v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C.

at 181; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd.

282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C.

276, 293 (2000).

     The APA does not apply to challenges of the Commissioner’s

denials of requests to abate interest under section 6404, which

are reviewed for abuse of discretion.   See Beall v. United

States, 336 F.3d 419, 427 n.9 (5th Cir. 2003) (“review under the

APA is accordingly available only where ‘there is no other

adequate remedy in a court’”).   The Court has consistently
                              - 26 -

conducted trials on the issue of whether the Commissioner’s

denial of a request to abate interest under section 6404 was an

abuse of discretion.   See, e.g., Goettee v. Commissioner, T.C.

Memo. 2003-43; Jacobs v. Commissioner, T.C. Memo. 2000-123.

     Additionally, other cases the Court has decided under the

abuse of discretion standard include waiver of additions to tax,

Krause v. Commissioner, 99 T.C. 132, 179 (1992), affd. sub nom.

Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994);

reallocation of income or deduction under section 482, Bausch &

Lomb v. Commissioner, 933 F.2d 1084, 1088 (2d Cir. 1991), affg.

92 T.C. 525 (1989); declaratory judgment, Fujinon Optical, Inc.

v. Commissioner, 76 T.C. 499, 506-507 (1981); tax-exempt status,

Lowry Hosp. Association v. Commissioner, 66 T.C. 850 (1976); and

change of accounting method, Thor Power Tool Co. v. Commissioner,

439 U.S. 522, 532-533 (1979); Bank One Corp. v. Commissioner, 120

T.C. 174 (2003).   In none of these types of cases have we held

that the APA applies or that we are limited to the administrative

record.

     For the reasons set forth supra, we conclude that our review

under section 6330(d) of an Appeals officer’s determination is

not limited to the administrative record.

     C.   Whether the Evidence Presented at Trial Relates
          to Issues Raised at the Hearing

     Respondent, citing Magana v. Commissioner, 118 T.C. 488, 493

(2002), contends that “only ‘arguments, issues and other matter’
                                - 27 -

presented to Appeals are relevant to the determination whether an

appeals officer abused his or her discretion.”    Further,

respondent argues that “judicial review of respondent’s exercise

of discretion in this case should be based solely on the

information presented to, and considered by, the appeals

officer.”    We disagree with respondent’s interpretation of

Magana.

     In a review for abuse of discretion of the Commissioner’s

determination under section 6330(d)(1), “generally we consider

only arguments, issues, and other matter that were raised at the

collection hearing or otherwise brought to the attention of the

Appeals Office.”     Magana v. Commissioner, supra at 493 (emphasis

added).     “We did not say in Magana that the taxpayer would be

limited to the administrative record or that the taxpayer may not

offer evidence in the proceeding in this Court.”     Ewing v.

Commissioner, supra at 41.

     In Magana, the issue for decision on the Commissioner’s

motion for summary judgment was whether the Court “shall consider

a new issue that was not raised by the petitioner at his

collection hearing with respondent’s Appeals Office.”     Magana v.

Commissioner, supra at 489 (emphasis added).     In the taxpayer’s

request for a collection hearing and at the hearing, the only

issue raised was whether the period of limitations had expired
                                - 28 -

under section 6502.    The taxpayer did not raise the issue of

hardship.   See id. at 490, 491.

      In his petition to the Court, the taxpayer “for the first

time, raised hardship as an objection to respondent’s lien

filings (namely, petitioner’s physical illness and the resulting

cloud on title to petitioner’s residence, petitioner’s only

significant asset).”    Id.   At the oral argument on the

Commissioner’s motion for summary judgment, the taxpayer’s

counsel “acknowledged that * * * [the taxpayer’s] ill health was

not recent but had extended over 20 years.”     Id. at 492.   In

response to the Court’s questioning, the taxpayer’s counsel

“acknowledged that he had had an opportunity at the collection

hearing to raise hardship but that he had chosen not to do so.”

Id.

      In the discussion section of the Opinion, under the heading

“New Issue”, we reasoned:

           In this case, because petitioner’s alleged
      longstanding illness and hardship were not raised as an
      issue and were not otherwise brought to respondent’s
      attention in connection with petitioner’s collection
      hearing with respondent’s Appeals Office, petitioner
      may not now raise hardship for the first time before
      this Court. * * * [Id. at 493-494.]

The cases cited for support of the holding in Magana were issue

preclusion cases.   See, e.g., McCoy Enters., Inc. v.

Commissioner, 58 F.3d 557, 563 (10th Cir. 1995) (Court does not

have to rule on an issue when taxpayer “cannot point to a single
                              - 29 -

time at which it presented the * * * issue to the Commissioner to

be ruled upon”), affg. T.C. Memo. 1992-693; Miller v.

Commissioner, 115 T.C. 582, 589 n.2 (2000) (“we would not

consider petitioner’s alternative request * * * because the

record does not establish that he raised that issue at his

Appeals Office hearing” (Emphasis added.)), affd. 21 Fed. Appx.

160 (4th Cir. 2001); Inner Office, Inc. v. United States, No.

3:00-CV-2576-L, (“Plaintiff has produced no evidence that the IRS

Hearing Officer’s determination is legally incorrect or that the

IRS Hearing Officer abused his discretion. * * * In seeking

district court review of a Notice of Determination, the taxpayer

can only ask the court to consider an issue that was raised in

the taxpayer’s * * * [section 6330] hearing.” (Emphasis added.)),

adopted on this issue 89 AFTR 2d 2002-1311, 2003-1 USTC par.

50,185 (N.D. Tex. 2002).

     Unlike the taxpayer in Magana, petitioner is not raising a

new issue in his petition.   At the hearing, petitioner raised the

issue of compliance with the terms of the offer-in-compromise.

Mr. Coy asked Mr. Talbott to reinstate the offer-in-compromise.

Mr. Coy brought to the attention of Mr. Talbott the fact that he

mailed petitioner’s 1998 return on October 15, 1999.    Mr.

Talbott’s notes in his case activity record indicate that Mr. Coy

raised the issue and brought to his attention that Mr. Coy mailed

the return on October 15, 1999.   Shortly after the hearing, Mr.
                                - 30 -

Coy wrote Mr. Talbott stating:    “As I had mentioned, I prepared

the return for [petitioner], obtained his signature, and mailed

the return to the Service Center on the evening of October 15,

1999.”    This was brought to the attention of Mr. Talbott.

     Accordingly, we may consider evidence regarding this issue

at trial, if it is otherwise admissible under the Federal Rules

of Evidence.

     D.     Whether the Evidence Is Admissible Under the Federal
            Rules of Evidence

     While we are not limited by the APA’s judicial review

provisions in our proceedings arising under section 6330(d), our

review of materials not included in the Commissioner’s

administrative record is subject to the Federal Rules of

Evidence.    Section 7453 and Rule 143(a) provide that the Court’s

proceedings are to be conducted in accordance with the rules of

evidence applicable in trials without a jury in the U.S. District

Court for the District of Columbia.      Consistent with section 7453

and Rule 143(a), we must decide whether evidence in this case

which was not included in the administrative record is admissible

under the Federal Rules of Evidence in our proceedings arising

under section 6330(d).

     Respondent moved to strike the evidence on the ground of

relevancy.     “All relevant evidence is admissible. * * * Evidence

which is not relevant is not admissible.”     Fed. R. Evid. 402.

Relevant evidence “means evidence having any tendency to make the
                               - 31 -

existence of any fact that is of consequence to the determination

of the action more probable or less probable than it would be

without the evidence.”    Fed. R. Evid. 401.   Therefore, we must

determine whether the evidence presented at trial that respondent

characterizes as “outside of the administrative record” has any

tendency to make the existence of any fact that is of consequence

in determining whether the Appeals officer abused his discretion

more probable or less probable than it would be without the

evidence.   We find that the evidence does have a tendency to show

the Appeals officer abused his discretion in determining to

proceed with collection.

     Petitioner’s testimony is relevant.   Petitioner was not

present at the hearing.    Petitioner’s testimony shows that he

signed the 1998 return on October 15, 1999.     Petitioner’s

testimony shows that he had filed his returns for 1995, 1996,

1997, 1999, and 2000 on or about October 15 in the same pattern

and practice as he did for 1998.    Petitioner’s testimony shows

that he acted in good faith in complying with the terms of the

offer-in-compromise.

     Petitioner’s tax returns for 1995, 1996, 1997, 1999, and

2000 are relevant.   They show a pattern and practice of

petitioner’s filing his returns on or about October 15.     They

show petitioner generally received refunds for the period in

issue.   While the Appeals officer reviewed petitioner’s
                               - 32 -

transcripts for 1995, 1996, 1997, and 1999, he did not consider

petitioner’s pattern and practice of timely filing.    After

reviewing petitioner’s transcripts, the Appeals officer concluded

petitioner was probably entitled to a refund for 1998.    These

facts, however, were of no consequence to him when he reviewed

whether the offer-in-compromise should have been defaulted.

     Mr. Coy’s private postage meter log, cellular telephone

records, credit card records, and daily calendar for October 15,

1999, are relevant.    They corroborate Mr. Coy’s statements

regarding mailing.    The Appeals officer, however, refused to

consider any evidence of mailing, other than a certified or

registered mail receipt.

     Frances Robinette’s testimony is relevant.   Under Davis v.

Commissioner, 115 T.C. 35 (2000), taxpayers are not entitled to

call witnesses at the hearing.    Mrs. Robinette’s testimony

corroborates petitioner’s good faith and compliance with the

terms of the offer-in-compromise.

     Mr. Coy’s statements at trial that he did not make to Mr.

Talbott are relevant.    Mr. Coy’s testimony indicates the Appeals

officer’s unwillingness to consider in depth certain issues that

he raised at the hearing.

     Accordingly, respondent’s motion to strike will be denied.
                                - 33 -

IV.   Whether Respondent Abused His Discretion

      Where, as here, the validity of the underlying tax liability

is not at issue, we review the determination for abuse of

discretion.     Sego v. Commissioner, 114 T.C. at 610; Goza v.

Commissioner, 114 T.C. at 181-182.       In doing so, we review

whether the Appeals officer’s determination was arbitrary,

capricious, or without sound basis in fact or law.       Woodral v.

Commissioner, 112 T.C. at 23.     Having observed the appearance and

demeanor of the witnesses testifying for petitioner at trial,

including petitioner, we find them to be honest, forthright, and

credible.

      Taking into account all the facts and circumstances, we

conclude that on the basis of the record before us, respondent

abused his discretion in determining to proceed with collection.

      A.     Whether Petitioner’s Return Was Timely Filed

      We note at the outset that contrary to petitioner’s

contentions, we find that petitioner’s return was not timely

filed.     Filing, generally, “is not complete until the document is

delivered and received”.     United States v. Lombardo, 241 U.S. 73,

76 (1916).     Section 7502 provides an exception to this rule.

Section 7502(a)(1) provides that, in certain circumstances, a

timely mailed document will be treated as though it were timely

filed.     Section 7502(a)(2) provides that the timely

mailing/timely filing rule applies if the postmark date on an
                               - 34 -

envelope falls within the prescribed period or on or before the

prescribed date.

     In the case of postmarks not made by the U.S. Postal

Service, the timely mailing/timely filing rule applies “only if

and to the extent provided by regulations prescribed by the

Secretary”.   Sec. 7502(b).   The postmark in this case was made by

a private postage meter.   Section 301.7502-1(c)(1)(iii)(b),

Proced. & Admin. Regs., provides:

     If the postmark on the envelope or wrapper is made
     other than by the United States Post Office, (1) the
     postmark so made must bear a date on or before the last
     date, or the last day of the period, prescribed for
     filing the document, and (2) the document must be
     received by the agency, officer, or office with which
     it is required to be filed not later than the time when
     a document contained in an envelope or other
     appropriate wrapper which is properly addressed and
     mailed and sent by the same class of mail would
     ordinarily be received if it were postmarked at the
     same point of origin by the United States Post Office
     on the last date, or the last day of the period,
     prescribed for filing the document. However, in case
     the document is received after the time when a document
     so mailed and so postmarked by the United States Post
     Office would ordinarily be received, such document will
     be treated as having been received at the time when a
     document so mailed and so postmarked would ordinarily
     be received, if the person who is required to file the
     document establishes (i) that it was actually deposited
     in the mail before the last collection of the mail from
     the place of deposit which was postmarked (except for
     the metered mail) by the United States Post Office on
     or before the last date, or the last day of the period,
     prescribed for filing the document, (ii) that the delay
     in receiving the document was due to a delay in the
     transmission of the mail, and (iii) the cause of such
     delay. If the envelope has a postmark made by the
     United States Post Office in addition to the postmark
     not so made, the postmark which was not made by the
     United States Post Office shall be disregarded, and
                               - 35 -

     whether the envelope was mailed in accordance with this
     subdivision shall be determined solely by applying the
     rule of (a) of this subdivision. [Emphasis added.]

     Mr. Coy testified that he placed petitioner’s return in the

mail between 11 p.m. and midnight.      Petitioner presented no

evidence that this was before the last collection for that

mailbox.   Petitioner presented no evidence as to a delay in the

transmission of the mail.   Petitioner presented no evidence as to

the cause of a delay.   Petitioner has failed to meet the

requirements of the regulation.    See Fishman v. Commissioner, 420

F.2d 491, 492 (2d Cir. 1970), affg. 51 T.C. 869 (1969); cf. Jones

v. Commissioner, T.C. Memo. 1998-197 (the taxpayer met

requirements of non-U.S.-postmark regulation when evidence

established, in part, that he deposited the envelope in the mail

before the last collection).

     Petitioner argues that Estate of Wood v. Commissioner, 909

F.2d 1155 (8th Cir. 1990), affg. 92 T.C. 793 (1989), and not the

regulation, controls this issue.   In Estate of Wood, the Court of

Appeals for the Eighth Circuit, the court to which an appeal of

this case would lie, discussed section 7502 in the situation

where the taxpayer’s return was not received by the IRS.

Petitioner’s reliance on Estate of Wood is misplaced.      The

presumption of delivery discussed in Estate of Wood is raised

only when a timely mailing occurs.      As petitioner’s return was
                              - 36 -

not timely mailed, the presumption of delivery discussed in

Estate of Wood has not been raised.

     On the basis of the foregoing, we hold that petitioner has

not proven that he filed his return on October 15, 1999.     Mr. Coy

sent Mr. Talbott a copy of petitioner’s 1998 return.     On February

16, 2001, Mr. Talbott received the copy of petitioner’s 1998

return, which he forwarded to the Austin Service Center and which

was then processed by the IRS as an original return.

Petitioner’s transcript of account for 1998 states:     “return

filed and tax assessed” on April 2, 2001.   Thus, petitioner’s

return was late filed.

     B.    Whether Petitioner Materially Breached the
           Offer-in-Compromise

     Despite the late filing of petitioner’s return, under the

facts and circumstances of this case, respondent abused his

discretion in determining to proceed with collection.     The

Appeals officer acted arbitrarily and without sound basis in law

and had a closed mind to the arguments presented on petitioner’s

behalf.   He failed to consider the facts and circumstances of

this case.   He determined to proceed with collection even though

the breach in the contract was not material and under contract

law the contract remained in effect.
                               - 37 -

          1.     Jurisdiction To Consider Petitioner’s
                 Offer-in-Compromise

     Respondent contends that the Court has no jurisdiction to

determine whether petitioner’s offer-in-compromise was properly

terminated.    Respondent contends that only the Court of Federal

Claims or a U.S. District Court may review this determination.

We disagree.

     In Roberts v. United States, 242 F.3d 1065 (Fed. Cir. 2001),

the Court of Appeals for the Federal Circuit reversed and

remanded the order of the U.S. District Court for the Eastern

District of Missouri transferring the case to the Court of

Federal Claims for lack of jurisdiction.   The Court of Appeals

held that the U.S. District Court did have jurisdiction over the

taxpayer’s claim for refund, even though the tax liability

resulted from an offer-in-compromise that the IRS had defaulted.

The Court of Appeals reasoned:

          Roberts is not requesting, for example, damages
     from the government for breach of contract, which would
     constitute a claim based purely upon a government
     contract. Certainly, the district court does not have
     jurisdiction over additional contract claims Roberts
     may wish to assert against the government under the
     terms of the OIC * * *.

          Instead, Roberts has paid taxes that he alleges
     were illegally or erroneously collected. Tax cases
     heard in the district courts often involve offers in
     compromise * * *. The fact that the alleged collection
     error stems from the cancellation of Roberts’s OIC
     contract with the IRS does not negate the fact that the
     monies at issue were paid pursuant to the internal-
     revenue laws. [Id. at 1069.]
                                - 38 -

The Court of Appeals found that the taxpayer had satisfied the

jurisdictional requirements for a tax refund suit.     Thus, the

U.S. District Court could review whether the taxpayer’s offer-in-

compromise had been properly defaulted.     See id.5

     In this case, petitioner is not asserting a cause of action

under contract law.    See id. at 1068-1069.    Petitioner seeks a

finding from the Court that respondent abused his discretion in

determining to proceed with collection, which is within our

jurisdiction under section 6330.     Respondent’s determination to

proceed with collection arises from defaulting petitioner’s

offer-in-compromise.    Whether the offer-in-compromise was

properly defaulted is a relevant issue relating to the unpaid tax

or proposed levy.     Sec. 6330(c)(2)(A).   Respondent issued

petitioner a notice of intent to levy on the basis of

petitioner’s unpaid tax liability.




     5
        On remand, the U.S. District Court held that the
taxpayer’s failure to timely pay his 1995 taxes was a material
breach of the offer-in-compromise. Further, the court held that
“the doctrine of substantial performance has no relevance in this
case as the Plaintiff completely failed to timely pay his 1995
federal income tax liability, and instead waited to pay it until
April 10, 1997, so that he could offset his tax liability for
1995 with his losses in 1996.” Roberts v. United States, 225 F.
Supp. 2d 1138, 1149 (E.D. Mo. 2001).
                               - 39 -

          2.   Whether the Breach of the Offer-in-Compromise
               Was Material

               a.     Applicable Law

     “An accepted offer in compromise is properly analyzed as a

contract between the parties.”     Dutton v. Commissioner, 122 T.C.

133, 138 (2004).    Offers in compromise are governed by “general

principles of contract law.”     Id.   “If the plaintiff’s breach is

material and sufficiently serious, the defendant’s obligation to

perform may be discharged. * * * Not so, however, if the

plaintiff’s breach is comparatively minor.”      TXO Prod. Corp. v.

Page Farms, Inc., 698 S.W.2d 791, 793 (Ark. 1985).

     In determining whether a failure to perform is material, the

following five circumstances are significant:

     In determining whether a failure to render or to offer
     performance is material, the following circumstances
     are significant:

          (a) the extent to which the injured party will be
     deprived of the benefit which he reasonably expected;

          (b) the extent to which the injured party can be
     adequately compensated for the part of that benefit of
     which he will be deprived;

          (c) the extent to which the party failing to
     perform or to offer to perform will suffer forfeiture;

          (d) the likelihood that the party failing to
     perform or to offer to perform will cure his failure,
     taking account of all the circumstances including any
     reasonable assurances;

          (e) the extent to which the behavior of the party
     failing to perform or to offer to perform comports with
     standards of good faith and fair dealing. [1
     Restatement, Contracts 2d, sec. 241 (1981).]
                              - 40 -

Arkansas law adopts this analysis.     See TXO Prod. Corp. v. Page

Farms, Inc., supra; see also DHC Resort, LLC v. Razorback

Entertainment Corp., 329 F.3d 974, 976 (8th Cir. 2003) (citing

TXO Prod. Corp. v. Page Farms, Inc., supra, and section 241 of 1

Restatement, Contracts 2d when applying Arkansas law).    The

standard of materiality “is to be applied in the light of the

facts of each case in such a way as to further the purpose of

securing for each party his expectation of an exchange of

performances.”   1 Restatement, supra, sec. 241, comment a.

     Cases in which courts have found offers in compromise

materially breached, and thus in default, generally involve

taxpayers who either fail to make payments agreed to in the

offer-in-compromise to pay off the amount compromised, or fail to

pay taxes owed during the 5-year period after the offer has been

accepted.   See United States v. Feinberg, 372 F.2d 352, 356 (3d

Cir. 1965) (decedent’s installment payments of less than the

amount due and estate’s complete failure to make payments on

offer constituted material breach of offer-in-compromise); United

States v. Lane, 303 F.2d 1, 3-4 (5th Cir. 1962) (taxpayer’s

failure to comply with terms of collateral agreement by refusing

to file annual statements and pay additional money constituted

breach of offer-in-compromise); Roberts v. United States, 225 F.

Supp. 2d 1138, 1148 (E.D. Mo. 2001) (taxpayer’s delay in paying

his 1995 tax liability of $246,354 was a material breach of the
                                - 41 -

offer-in-compromise); Fortenberry v. United States, 49 AFTR 2d

82-1027, 82-1 USTC par. 9191 (S.D. Miss. 1981) (taxpayer’s

failure to pay additional amounts under collateral agreement was

breach of the terms of the offer-in-compromise); United States v.

Wilson, 182 F. Supp. 567, 570 (D.N.J. 1960) (taxpayer’s failure

to pay weekly installments caused IRS to terminate offer-in-

compromise).

                b.   Analysis

     Loss of benefit to injured party.      In petitioner’s late

filing of his 1998 return, in which he was due a refund, the

extent of the benefit that respondent was deprived of was not

significant.   Inherent in the requirement that taxpayers comply

with the provisions of the Internal Revenue Code for 5 years is

the IRS expectation that the taxpayer will pay the taxes owed on

time.   See Roberts v. United States, 225 F. Supp. 2d at 1148.        In

this case, however, petitioner was due a refund.

     As stated supra, petitioner’s return was not timely filed.

Not every delay, however, constitutes a material breach.     There

must also be a causal connection between the delay and the

damages suffered by respondent, in order for a material breach to

be found on the basis of the delay.      23 Williston on Contracts,

sec. 63:18 (4th ed. 2002).   Respondent suffered no monetary

damage from petitioner’s late filing of the 1998 return.     Under
                              - 42 -

the facts of this case, the late filing, by itself, is not

sufficient basis for a material breach of the contract.

     Adequacy of compensation for loss.     The IRS was adequately

compensated for its “loss”.   Respondent suffered minimal, if any,

damages, as he held petitioner’s refund as security.

     Forfeiture by party who fails.     Under this factor, the

comments in the Restatement explain:    “[A] failure is less likely

to be regarded as material if it occurs late, after substantial

preparation or performance, and more likely to be regarded as

material if it occurs early, before reliance.”    1 Restatement,

supra, sec. 241, comment d.   In this case, petitioner had

substantially performed under the terms of the offer-in-

compromise at the time the offer was declared in default.

Petitioner’s untimely mailing of the return occurred in the

fourth year of a 5-year agreement.     Petitioner had already paid

the full amount of the offer-in-compromise, with borrowed funds,

within 60 days after the offer had been accepted.    Petitioner had

complied with the filing requirements for the first 3 years of

the agreement.   Further, at the time the Appeals officer

determined to proceed with collection, petitioner had filed his

1998 return and complied with all other terms of the offer-in-

compromise.
                               - 43 -

     Uncertainty.    Under this factor, the comments in the

Restatement note:

     To the extent that expectation is already reasonably
     secure, in spite of the failure, there is less reason
     to conclude that the failure is material. The
     likelihood that the failure will be cured is therefore
     a significant circumstance in determining whether it is
     material * * *. The fact that the injured party
     already has some security for the other party’s
     performance argues against a determination that the
     failure is material. [1 Restatement, supra, sec. 241,
     comment e.]

 As stated supra, respondent was reasonably secured.   Respondent

had possession of petitioner’s 1998 refund, making it likely that

petitioner would perform under the agreement by filing his 1998

return.   Respondent also had received $100,000 within 60 days of

his acceptance of the offer, which was the amount offered and

accepted as payment of petitioner’s outstanding tax liabilities

from 1983 to 1991.   Additionally, before the Appeals officer

determined to proceed with collection, petitioner had cured the

defect.   Petitioner submitted his 1998 return to the Appeals

officer, at the request of the Appeals officer, to be filed as an

original return.

     Absence of good faith or fair dealing.    Petitioner acted in

good faith.   Petitioner signed his 1998 return on the due date

and gave it back to Mr. Coy for mailing.   This was the pattern

and practice petitioner had used in filing the returns prepared

by Mr. Coy.   He paid the full amount of the offer-in-compromise

within 60 days after acceptance of the offer, with borrowed
                               - 44 -

funds.   He timely filed his returns for 1995, 1996, 1997, 1999,

and 2000.6   Except for 1995, petitioner’s returns indicate that

petitioner was entitled to refunds.     For 1998, petitioner was

entitled to a refund.   Before respondent issued the notice of

determination, petitioner had filed his 1998 return.     Indeed,

when petitioner received the notices from the IRS, he called Mr.

Coy to discuss them and also forwarded the notices by fax to Mr.

Coy, as he was “scared to death”.

     Additionally, Mr. Talbott did not have an open mind to the

issues Mr. Coy presented at the hearing.     He did not consider

that petitioner had acted in good faith.     Mr. Talbott did not

consider petitioner’s pattern of filing of returns on or about

October 15, despite having looked at the transcripts for 1995,

1996, 1997, and 1999.

     Mr. Talbott did not have an open mind regarding

reinstatement.   Moreover, he failed to independently analyze

whether the terms of the offer-in-compromise had been materially

breached.    Mr. Talbott believed he had no authority to reinstate

petitioner’s offer-in-compromise.   He believed only the National

Office could reinstate the offer-in-compromise.     Neither the

Internal Revenue Code nor the Internal Revenue Manual, however,

states that he could not reinstate the offer-in-compromise.       Mr.



     6
        We note that by the terms of the offer-in-compromise, the
offer-in-compromise did not apply to 2000.
                              - 45 -

Talbott reviewed the Internal Revenue Manual.    The manual was

silent as to whether he could reinstate the offer-in-compromise.

     On the basis of the facts and circumstances of this case, we

conclude that petitioner did not materially breach the terms of

the offer-in-compromise.   As the offer-in-compromise was not in

default, it was an abuse of discretion for respondent to

determine to proceed with collection of petitioner’s tax

liability.

     In reaching all of our holdings herein, we have considered

all arguments made by the parties, and to the extent not

mentioned above, we find them to be irrelevant or without merit.

     To reflect the foregoing,

                                          An appropriate order and

                                 decision will be entered.

     Reviewed by the Court.

     GERBER, COHEN, SWIFT, WELLS, and LARO, JJ., agree with this
majority opinion.

     CHIECHI, J., dissents.
                              - 46 -

     WELLS, J., concurring:   I respectfully write separately to

express my belief that the majority opinion may have

unnecessarily focused its analysis on contract law to decide

whether respondent abused his discretion in the instant case.

Section 6330(c)(3)(C) requires the Appeals officer to consider

“whether any proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the

person that any collection action be no more intrusive than

necessary.”   This provision requires the Appeals officer, when

conducting a hearing under section 6330, to carry out a balancing

of competing considerations between the Government and the person

against whom the collection action is instituted.   Given this

balancing requirement, I do not believe the Appeals officer

should be required to rigidly apply contract law in determining

whether the Government should proceed with collection of a

liability where that liability, as in the instant case, has been

compromised in an agreement between the Government and the person

against whom the collection action has been instituted.1   Such a

requirement would detract from the flexibility and discretion

Congress granted the Appeals officer in section 6330(c)(3)(C) to

balance competing interests between the Government and those

persons.   Consequently, I believe the focus of the analysis in


     1
      I do not mean to suggest, however, that respondent could
not have considered contract law issues, as well as other facts
and issues, as part of the balancing required under sec.
6330(c)(3)(C).
                               - 47 -

the instant case should be on whether respondent failed to

undertake the balancing required under section 6330(c)(3)(C).

     On the basis of the trial Judge’s findings set out in the

majority opinion in the instant case it is clear to me that

respondent failed to balance the relatively slight harm to

respondent of receiving an hours-late2 return against the great

harm to petitioner of reinstating and collecting a large tax

liability.   The abuse of discretion in failing to undertake the

required balancing becomes apparent when taking into account that

petitioner had timely filed his other returns as agreed in the

offer-in-compromise agreement, had made a good faith effort to

timely file the 1998 return, and had paid all the tax due in that

return and was due a refund.   See majority op. pp. 4-7.   Despite

petitioner’s technical3 failure to timely file the 1998 return,

respondent should have allowed petitioner to present evidence

that favored petitioner’s position and should have taken those

facts into account in balancing the competing interests between

the Government and petitioner.   Respondent should have considered



     2
      By “hours-late” I mean hours after the “last collection”
requirement of sec. 301.7502-1(c)(1)(iii)(B), Proced. & Admin.
Regs.
     3
      I do not mean to imply that taxpayers are not required to
comply with the technical requirements of the Internal Revenue
Code and the regulations thereunder. However, respondent should
have allowed petitioner to present evidence favoring petitioner’s
position despite petitioner’s failure to comply with the last
collection requirement of sec. 301.7502-1(c)(1)(iii)(B), Proced.
& Admin. Regs.
                               - 48 -

that evidence, and on the basis of such evidence, should have

determined not to proceed with collection.      Respondent’s failure

to do so under these circumstances is an abuse of discretion.

     Regarding Magana v. Commissioner, 118 T.C. 488 (2002), I

question whether that case has any application to the instant

case.   The majority opinion properly distinguishes Magana on the

grounds that petitioner is not raising a new issue.      See majority

op. p. 29.    However, even if Magana could be read to exclude

relevant and admissible evidence not raised during an Appeals

Office hearing, it would have no application to the instant case.

During the Appeals Office hearing in the instant case, petitioner

attempted to present evidence relevant to his position, and

respondent refused to consider it.      If the Tax Court had no

authority to develop a factual record in the instant case, there

would not have been a sufficient record to determine whether

respondent had abused his discretion.      This is important because

there are no formal procedures available for Appeals Office

hearings.    See sec. 301.6330-1(d)(1), Q&A-D6, Proced. & Admin.

Regs.   As this Court has stated, Appeals Office hearings

historically have been informal, and in enacting section 6330,

Congress did not intend to alter the nature of Appeals Office

hearings.    Davis v. Commissioner, 115 T.C. 35, 41 (2000).       Thus,

if the parties were not allowed to make a record in the trial

before this Court, they could be precluded from presenting all of
                              - 49 -

the evidence in support of their respective positions.    Even the

Commissioner has routinely sought to add evidence to the record

in trials before this Court in order to bolster his determination

in collection cases.   See Chase v. Commissioner, T.C. Memo. 2002-

93, affd. 55 Fed. Appx. 717 (5th Cir. 2002); Lindsey v.

Commissioner, T.C. Memo. 2002-87, affd. 56 Fed. Appx. 802 (9th

Cir. 2003); Holliday v. Commissioner, T.C. Memo. 2002-67, affd.

57 Fed. Appx. 774 (9th Cir. 2003).

     Regarding this issue, I also do not believe that allowing

petitioner to present evidence in the instant case would mean

that in other cases where a person refuses to comply with an

Appeals officer’s reasonable request for relevant evidence at the

hearing, we would be required to receive that evidence in a trial

in this Court.   In the instant case, petitioner attempted to

present a wide array of evidence to support his position, and the

Appeals officer refused to receive it.   Thus, the case where a

person refuses to furnish relevant evidence requested at the

Appeals Office hearing is not before us and raises an issue the

Court has not addressed and need not address.

     Accordingly, I agree with the conclusion of the majority

opinion that respondent should be prevented from proceeding with

collection in the instant case.

     GERBER, FOLEY, MARVEL, and WHERRY, JJ., agree with this
concurring opinion.
                              - 50 -

     THORNTON, J., concurring:    I agree with the majority

opinion’s holding that the Administrative Procedure Act (APA), 5

U.S.C. secs. 551-559, 701-706 (2000), does not apply to our

proceedings under section 6330.   Since its enactment in 1946, the

APA has never governed proceedings in this Court (or in its

predecessor, the Board of Tax Appeals), and there is no

indication that, in enacting section 6330, Congress intended to

change this general inapplicability of the APA.   See Ewing v.

Commissioner, 122 T.C. 32, 50 (2004) (Thornton, J., concurring);

see also O’Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir.

1959) (“The Tax Court * * * is a court in which the facts are

triable de novo * * *.   We agree that the Tax Court is not

subject to the Administrative Procedure Act”), affg. 28 T.C. 698

(1957).

     I also agree with the majority opinion’s holding that, under

the circumstances of this case, we may consider relevant evidence

presented at trial which was not included in respondent’s

administrative record.   As discussed in my concurring opinion in

Ewing, this Court traditionally has applied de novo trial

procedures when reviewing the Commissioner’s determinations,

including in cases that we review for an abuse of discretion.

     The majority opinion should not be construed, however, to

hold that the administrative record has no significance in our

review of determinations under sections 6320 and 6330.    Indeed,

the administrative record takes on added significance under these
                              - 51 -

sections given the statutory requirement of an Appeals Office

hearing, and we often have relied on the administrative record in

reviewing Appeals Office determinations.   Moreover, in

appropriate circumstances, we might restrict ourselves to the

administrative record--for instance, where the taxpayer has

failed to cooperate in presenting relevant evidence at the

Appeals Office hearing.   In the instant case, petitioner

attempted to introduce relevant evidence at the Appeals Office

hearing, but the Appeals officer refused to consider that

evidence and failed to include it in the administrative record.

In these circumstances, I agree with the majority opinion that we

are not limited to evidence in the administrative record.

     Section 6330(c)(2) provides that a taxpayer may raise at the

Appeals Office hearing “any relevant issue relating to the unpaid

tax or the proposed levy”.   Section 6330(c)(3) requires that the

determination by an Appeals officer shall take into consideration

the relevant issues raised by the taxpayer in the Appeals Office

hearing.   In this case, Judge Vasquez, as the trial Judge, has

found that issues relating to whether petitioner defaulted on the

offer-in-compromise are relevant issues that petitioner raised in

the Appeals Office hearing and which should have been considered

by the Appeals officer in his determination, but were not.    I

defer to Judge Vasquez, as the trial Judge, in identifying the

issues raised at the Appeals Office hearing and whether those

issues are relevant.   I also defer to his conclusions that the
                              - 52 -

Appeals officer failed to consider those relevant issues in his

determination.   On that basis, I agree with the majority opinion

that “it was an abuse of discretion for respondent to determine

to proceed with collection of petitioner’s tax liability.”

Majority op. p. 45.

     A taxpayer’s express agreement to file timely tax returns is

an integral condition to the Commissioner’s acceptance of an

offer-in-compromise, and a reasonable one–-it merely confirms an

obligation that is statutorily imposed (even in cases where the

taxpayer is entitled to a refund), see secs. 6011(a) and 6012,

and that is fundamental to our income tax system.   Consequently,

a taxpayer’s failure to honor this obligation is not to be

lightly regarded.   With that being said, however, I agree with

the majority opinion that it was an abuse of discretion to

proceed with collection of petitioner’s tax liability without

considering relevant issues relating to petitioner’s offer-in-

compromise.   I shall defer to Judge Vasquez’s judgment in

fashioning an appropriate remedy to address that abuse of

discretion.

     GERBER, COHEN, SWIFT, LARO, FOLEY, GALE, HAINES, GOEKE,
WHERRY, and KROUPA, JJ., agree with this concurring opinion.
                              - 53 -

     MARVEL, J. concurring:   I agree that the Administrative

Procedure Act does not apply and we are not limited to the

administrative record, and with the majority’s conclusion that

the Appeals officer abused his discretion in this case, but I

question the majority’s reliance on principles of contract law to

reach its conclusion.   The Appeals officer’s failure to refer the

case to the National Office for guidance regarding the

reinstatement of petitioner’s offer-in-compromise before making

his determination in this case is more than sufficient to support

the conclusion that the Appeals officer abused his discretion in

upholding the proposed collection action.

     In his brief, petitioner asserted several errors that he

contended established an abuse of discretion.   One of those

errors was that the Appeals officer “did not fully investigate

the method of reinstating a revoked Offer in Compromise.”    The

Appeals officer testified at trial that he did not believe that

he had the authority to reinstate the offer-in-compromise.     He

also testified, however, that he could have referred the case to

the National Office for guidance concerning the reinstatement of

an offer-in-compromise.1   Given the importance of the

reinstatement issue in determining whether the collection action



     1
      Although the Appeals officer’s case activity records
indicate that he telephoned a person in the National Office on at
least two occasions regarding whether a defaulted offer-in-
compromise could be reinstated, it does not appear from the
records that formal guidance from the National Office was ever
obtained.
                               - 54 -

could proceed, the Appeals officer should have obtained the

guidance he needed from the National Office before he made his

determination in this case.

     An Appeals officer is required by section 6330(c)(3) to

consider “whether any proposed collection action balances the

need for the efficient collection of taxes with the legitimate

concern of the person that any collection action be no more

intrusive than necessary.”    Until the Appeals officer had fully

explored whether and under what circumstances he had authority to

reinstate petitioner’s offer-in-compromise, it was impossible for

the Appeals officer to conduct the balancing analysis that

section 6330(c)(3) requires.   Coupled with the Appeals officer’s

reluctance to fully explore the facts regarding petitioner’s

compliance with the terms and conditions of the offer-in-

compromise, which the majority discusses at length, the failure

to obtain the necessary guidance from the National Office

supports a conclusion that the balancing required by section

6330(c)(3) did not occur and that the Appeals officer abused his

discretion in upholding the proposed collection action.

     LARO and WHERRY, JJ., agree with this concurring opinion.
                               - 55 -

     HAINES, J., concurring:   I concur with the result reached by

the majority that we are not limited by the Administrative

Procedure Act in this case, our review is not limited to the

administrative record, and respondent abused his discretion in

his determination to proceed with collection of petitioner’s 1998

tax liability.   I write separately to make two points.

     First, we have held that an offer-in-compromise is governed

by general principles of contract law.    Dutton v. Commissioner,

122 T.C. 133, 138 (2004); majority op. p. 39.    We have not

extended that holding to mean that the general principles of

contract law must be determined by application of the law of the

State where the taxpayer resides.

     The majority opinion uses the Restatement of Contracts to

provide the circumstances in which a failure to perform is

“material”.   Majority op. p. 39 (citing 1 Restatement, Contracts

2d, sec. 241 (1981)).   The majority opinion further states that

“Arkansas law adopts this analysis.”    Majority op. p. 40.

Readers of this Opinion should not infer that the use of State

law of a taxpayer’s residence, rather than general contract

principles, is necessary to reach the majority’s result.      Given

the number of offers-in-compromise negotiated and overseen by the

Commissioner, if the terms of each offer-in-compromise had to be

analyzed on the basis of the State law of a taxpayer’s residence,

the result would be an administrative nightmare for the
                               - 56 -

Commissioner.    General contract principles as expressed in the

Restatement of Contracts should control these determinations.

     Second, an offer-in-compromise is an agreement between the

taxpayer and the Government which settles a tax liability for

payment of less than the full amount owed.      2 Administration,

Internal Revenue Manual (CCH), sec. 5.8.1.1.1, at 16,253.      In the

case at bar, petitioner paid $100,000 to compromise individual

income tax and statutory additions totaling $989,475.      Majority

op. p. 3.   By defaulting petitioner, respondent now seeks to

collect the remaining sums previously compromised.

     Noncompliance with the terms of the offer-in-compromise does

not automatically result in the offer’s being defaulted.      As 2

Administration, Internal Revenue Manual (CCH), sec. 5.19.7.3.22,

at 18,507 (Defaults) states:

          (1) When a taxpayer fails to meet any term of an offer,
     the offer may be defaulted and all liabilities reinstated.
     Any of the following may result in a default of the offer.

                 *    *    *    *    *     *      *

     •      Failure to timely file subsequent tax returns and pay
            all taxes due during the compliance period.

The Internal Revenue Manual further states that “If the taxpayer

does not comply with the provisions of the offer in compromise,

the offer may be considered in default.”       4 Administration,

Internal Revenue Manual (CCH), sec. 8.13.2.5.4, at 27,581

(Actions on Defaulted Offers) (emphasis added).
                              - 57 -

     Compromises are favored in the law, Big Diamond Mills Co. v.

United States, 51 F.2d 721, 724 (8th Cir. 1931), and, thus, the

Commissioner is under an obligation to be clear on the

circumstances before making a default determination.   In the case

at bar, the Appeals officer failed to consider petitioner’s

pattern of filing his tax returns on or about October 15, did not

speak with petitioner, and failed to independently analyze

whether the terms of the offer-in-compromise had been materially

breached.   Majority op. p. 10.   Failure to consider these facts

constitutes an abuse of discretion.

     GOEKE and WHERRY, JJ., agree with this concurring opinion.
                               - 58 -

     WHERRY, J., concurring:   While I agree with the majority in

concluding that our review is not limited to the administrative

record, I write separately to emphasize the temporal requirement

which, in my view, must be met to satisfy the evidentiary burden.

     The majority holds:

     that, when reviewing for abuse of discretion under
     section 6330(d), we are not limited by the
     Administrative Procedure Act (APA) and our review is
     not limited to the administrative record. The evidence
     in this case pertains to issues raised at the hearing.
     The [new] evidence in this case is relevant and
     admissible. [Majority op. p. 17.]

This conclusion should not be construed as sanctioning the

dilatory introduction at trial of new facts or documents

previously withheld and not produced at the Appeals hearing in

order to justify reversal or remand of the Appeals or settlement

officer’s determination.   “It is the responsibility of the

taxpayer to raise all relevant issues at the time of the pre-levy

hearing.”   H. Conf. Rept. 105-599, at 266 (1998), 1998-3 C.B.

747, 1020; see Magana v. Commissioner, 118 T.C. 488, 493 (2002).

“Taxpayers will be expected to provide all relevant information

requested by Appeals, including financial statements, for its

consideration of the facts and issues involved in the hearing.”

Sec. 301.6330-1(e)(1), Proced. & Admin. Regs.

     Nevertheless, pursuant to section 6330(d)(2), the Internal

Revenue Service Office of Appeals retains jurisdiction of the

collection action after the determination is made and a taxpayer

may “apply for consideration of new information, make an offer-
                                - 59 -

in-compromise, request an installment agreement, or raise other

considerations at any time, before, during, or after the Notice

of Intent to Levy hearing.”   H. Conf. Rept. 105-599, supra at

266, 1998-3 C.B. at 1020.    This Court should consider the entire

record of the actions taken by the Appeals Office at the time it

conducts its judicial review.

     Consequently, where the Appeals officer has invited or

requested relevant facts or documents from the taxpayer, before

or at the collection hearing, and those facts or documents are

not provided within a reasonable time, their attempted

introduction as new evidence at trial may not establish an abuse

of discretion.   This could be the result because of the temporal

requirement, even though an abuse of discretion might have been

demonstrated had the documentation been timely produced before or

at the collection hearing.

     In the instant case, the Appeals officer’s failure to fairly

consider evidence available at the hearing and to request and

consider possible corroborating evidence (where petitioner’s and

his accountant’s credibility was, in the Appeals officer’s mind,

at issue), coupled with the failure to ascertain whether a

material breach of the existing offer-in-compromise had occurred,

constituted an abuse of discretion.

     COHEN, LARO, GALE, THORNTON, HAINES, and GOEKE, JJ., agree
with this concurring opinion.
                             - 60 -

     HALPERN and HOLMES, JJ., dissenting:1   Petitioner admittedly

owed almost $1 million in back taxes and additions to tax.

Respondent agreed to forgo collection of almost 90 percent of

that amount in exchange for petitioner’s promise to pay the

balance of $100,000 in 60 days and pay additional amounts if his

future income exceeded certain levels.2   Respondent expressly

conditioned his forbearance on petitioner’s timely compliance

with tax filing and payment requirements over the next 5 years.

The majority essentially concludes that, notwithstanding

petitioner’s failures to (1) comply with the timely filing

condition and (2) respond to at least three written requests

demanding compliance, respondent may not declare petitioner in

default and proceed to collect the compromised amount in

accordance with the terms of the offer-in-compromise (OIC).

Along the way, the majority (1) eviscerates the Court’s holding

in Magana v. Commissioner, 118 T.C. 488 (2002), regarding the

matters we may properly address in a collection due process case,



     1
        Seventeen judges voted in conference on Judge Vasquez’s
report in this case. Including Judge Vasquez, six judges agree
fully with the report, while eight concur in the result but take
exception to one or more of the report’s particulars. Since we
do not have a full exposition of the exceptions, we are unable to
say exactly how strong the conference agreement is on any of the
particulars of the report. We will assume, however, that a
majority could be marshaled for each of the particulars we
address here, and will refer to the “majority” in discussing
those particulars.
     2
        As part of the agreement, petitioner also waived the
period of limitations on collection.
                               - 61 -

and (2) unwisely extends Ewing v. Commissioner, 122 T.C. 32

(2004), which involved the evidence we may consider in a

proceeding involving section 6015(f) (“equitable” innocent spouse

relief).    Respectfully, we dissent.

I.   Issues Regarding the Scope of Our Review

      Before we address the substantive aspect of the majority

opinion, we turn our attention to our concerns regarding

procedure.

      A.   “Topical” Scope of Review

      As the majority recognizes, majority op. p. 27, we held in

Magana v. Commissioner, supra at 493, that, in reviewing

determinations of the Commissioner under section 6330(d)(1) for

abuse of discretion, “generally we consider only arguments,

issues, and other matter that were raised at the collection

hearing or otherwise brought to the attention of the Appeals

Office.”    See also sec. 301.6330-1(f)(2), Q&A-F5, Proced. &

Admin. Regs. (taxpayer appealing the Commissioner’s determination

may ask the court to consider only issues that were raised at the

administrative hearing).    The majority distinguishes Magana on

the ground that “petitioner is not raising a new issue in his

petition.”    Majority op. p. 29.   As far as it goes, that is a

true statement:    Neither in the petition nor, previously, in his

dealings with the Appeals Office did petitioner raise the issue

of “material breach” (the majority does that on its own).       The
                              - 62 -

majority overcomes that obstacle by broadly framing the issue as

“compliance with the terms of the offer-in-compromise”, id.,

which, by implication, encompasses both actual (strict)

compliance (petitioner’s position) and deemed (substantial)

compliance (the majority’s position).

     The majority’s expansive characterization of the contract

issue in this case is simply another way of saying that there is

more than one possible argument in support of petitioner’s claim

that the OIC remained in force.   Petitioner argued to the Appeals

officer that the OIC remained in force because he had timely

filed his 1998 return.   He did not present to the Appeals officer

the argument underlying the majority’s conclusion; viz., that the

OIC remained in force because petitioner’s untimely filing of his

1998 return was not a material breach.   As we stated in Magana v.

Commissioner, supra at 493:   “[G]enerally it would be anomalous

and improper for us to conclude that respondent’s Appeals Office

abused its discretion under section 6330(c)(3) in failing to

grant relief, or in failing to consider arguments, issues, or

other matter not raised by taxpayers or not otherwise brought to

the attention of respondent’s Appeals Office.”   It is indeed

anomalous and improper for the majority to conclude that

respondent’s Appeals Office abused its discretion in this case

for failing to consider an argument not brought to its attention.
                                 - 63 -

     B.    Evidentiary Scope of Review

             1.   Unwarranted Extension of Ewing v. Commissioner

     In Ewing v. Commissioner, supra (a report reviewed by the

Court pursuant to section 7460(b)), the Court held that, in

determining whether the Commissioner has abused his discretion in

denying “equitable” innocent spouse relief under section 6015(f),

the Court is not limited to a review of the administrative

record; i.e., the petitioning taxpayer is entitled to a trial de

novo.     The Commissioner had argued that we are so limited

“pursuant to the Administrative Procedure Act (APA), 5 U.S.C.

secs. 551-559, 701-706 (2000) and cases decided thereunder”.3

Id. at 35.

     Although the Court disagreed with the Commissioner’s APA

argument, id. at 36, it based its holding largely on the language

and structure of section 6015.     Specifically, the Court focused

on the similar language in section 6015(e)(1)(A) (jurisdiction to

“determine” the appropriate relief under section 6015) and

sections 6213 and 6214(a) (jurisdiction to “redetermine”


     3
        As we discussed in our dissenting opinion in Ewing v.
Commissioner, 122 T.C. 32, 57-59 (2004) (Halpern and Holmes, JJ.,
dissenting), the issue regarding the applicability of the APA is
a red herring. The issue in Ewing was whether our review of the
Commissioner’s denial of sec. 6015(f) relief is subject to the
record rule–-the general rule of administrative law that a court
can engage in judicial review of an agency action only on the
basis of the record amassed by the agency. See id. at 56, 58.
The record rule predates, and indeed is not codified in, the APA.
Id. at 58 n.4.
                              - 64 -

deficiencies asserted by the Commissioner, which proceedings

unquestionably are conducted on a de novo basis).      Id. at 38-39.

The Court also reasoned that, inasmuch as a section 6015(f) claim

(1) does not necessarily involve the review of discretionary

action on the part of the Commissioner, see sec.

6015(e)(1)(A)(i)(II), (2) may be raised as an affirmative defense

in an otherwise de novo deficiency proceeding, see, e.g., Butler

v. Commissioner, 114 T.C. 276, 287-288 (2000), and (3) may

involve the intervention of a third party (i.e., the

nonrequesting spouse) who may not have participated in the

administrative proceeding, see sec. 6015(e)(4), Congress likely

intended a uniform, de novo scope of review to apply to such

claims.   See Ewing v. Commissioner, supra at 42-43.

      In the instant case, despite the lack of any reference to

the APA in respondent’s opening brief, the majority frames the

issue regarding the appropriate scope of review as follows:

“Applicability of the APA Judicial Review Provisions to Tax Court

Proceedings Commenced Under Section 6330(d)”.   Majority op. p.

17.   The ensuing discussion in the majority opinion is based

primarily on Judge Thornton’s concurring opinion in Ewing v.

Commissioner, supra at 50-56, which focuses exclusively on the

APA issue.   The majority loses sight of the fact that, in Ewing,

a substantial portion of the Court’s analysis, as discussed

above, was based on the unique aspects of section 6015.     The
                              - 65 -

majority’s extension of Ewing to section 6330 cases is both

unwarranted and uncritical.

          2.   Additional Criticism of the Majority’s Scope
               of Review Analysis


     In our dissenting opinion in Ewing v. Commissioner, 122 T.C.

at 56-67 (Halpern and Holmes, JJ., dissenting), we discussed at

some length our view that, in the context of our “review”

jurisdiction, see id. at 56 n.1 and accompanying text, the

appropriate evidentiary scope of review is the administrative

record.   See, e.g., Camp v. Pitts, 411 U.S. 138, 142 (1973) (in

reviewing agency action for abuse of discretion, “the focal point

for judicial review should be the administrative record already

in existence, not some new record made initially in the reviewing

court”); United States v. Carlo Bianchi & Co., 373 U.S. 709, 715

(1963) (the terms “arbitrary” and “capricious” “have frequently

been used by Congress and have consistently been associated with

a review limited to the administrative record”).   While we see no

need to repeat here our entire analysis in support of that view,4


     4
        We do note that, in our Ewing dissent, we addressed much
of the authority relied on by the majority here in its scope of
review analysis. See, e.g., Ewing v. Commissioner, supra at 60-
61 (Halpern and Holmes, JJ., dissenting) (criticizing O’Dwyer v.
Commissioner, 266 F.2d 575 (4th Cir. 1959), affg. 28 T.C. 698
(1957)); id. at 60 n.7 (explaining the context of Nappi v.
Commissioner, 58 T.C. 282 (1972)); id. at 61 n.9 (explaining the
context of Bowen v. Massachusetts, 487 U.S. 879, 903 (1988), and
Beall v. United States, 336 F.3d 419 (5th Cir. 2003)); id. at 64
n.11 (discussing APA sec. 559); id. at 65-66 (distinguishing Thor
Power Tool v. Commissioner, 439 U.S. 522 (1979), Bausch & Lomb,
                                                   (continued...)
                                - 66 -

we do address certain difficulties with the majority’s scope of

review analysis in this case.

          a.   Prior Section 6330 Cases in This Court

     The majority cites five Memorandum Opinions of this Court in

support of the statement that “[a]t trials under section 6330

when reviewing for abuse of discretion, the Court has received

into evidence testimony and exhibits that were not included in

the administrative record.”   Majority op. pp. 17-18.   None of

those opinions addresses the issue in this case; i.e., whether it

is appropriate for the Court to go beyond the administrative

record in a section 6330 case.    The majority also cites three

additional Memorandum Opinions of this Court in which “we * * *

noted the taxpayer’s failure to present evidence at trial.”

Majority op. p. 19 n.4.   Again, none of those opinions addresses

the issue of whether it is appropriate for the Court to consider

matters beyond the administrative record in a section 6330 case.

     The majority also cites and quotes an unpublished opinion of

the Court of Appeals for the Ninth Circuit affirming one of the

aforementioned cases.   Majority op. pp. 18-19; see Holliday v.

Commissioner, 91 AFTR 2d 2003-1338, 2003-1 USTC par. 50,358 (9th

Cir. 2003), affg. T.C. Memo. 2002-67.    That court did devote two



     4
      (...continued)
Inc. v. Commissioner, 933 F.2d 1084 (2d Cir. 1991), affg. 92 T.C.
525 (1989), and Krause v. Commissioner, 99 T.C. 132 (1992), affd.
sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir.
1994)).
                              - 67 -

sentences to the “scope of review” issue.   Specifically, the

Court of Appeals stated that the “record review” provisions of

the APA do not apply to the Tax Court.5   The Court of Appeals

provided the following citation in support of that statement:

“See 5 U.S.C. § 504(a)(1) (APA does not apply where ‘a matter

[is] subject to a subsequent trial of the law and the facts de

novo in a court’).”   APA section 554, to which the Court of

Appeals presumably was referring, provides rules governing agency

adjudications “required by statute to be determined on the record

after opportunity for an agency hearing”–-i.e., formal agency

adjudications.   APA section 554(a)(1) simply provides that,

notwithstanding the general scope of APA section 554, that

section (as opposed to the entire APA) does not apply if the

matter is subject to a subsequent trial de novo.   In other words,

the agency adjudication of such a matter need not conform to the

“formal” procedural rules set forth in APA section 554.   As

section 6330 administrative adjudications are not “required by

statute to be determined on the record”, it follows that APA

section 554, including the “de novo” exception of APA section

554(a)(1), is altogether inapplicable to section 6330

proceedings.



     5
        As noted earlier, see supra note 3, the record rule
predates, and is not codified in, the APA. See also Ewing v.
Commissioner, 122 T.C. at 60 n.8 and accompanying text (Halpern
and Holmes, JJ., dissenting).
                                - 68 -

          b.     Analogy to Deficiency Proceedings

     Distilled to its essence, this portion of the majority’s

analysis proceeds from two major premises and one minor premise.

The major premises are: (1) Our de novo deficiency procedures

were well established before the enactment of the APA in 1946;

and (2) Congress did not intend to disturb those existing

procedures when it enacted the APA.      We have absolutely no

quarrel with either of those premises.      By definition, then, the

judge-made record rule, which is generally applicable to judicial

review of agency action, does not apply to deficiency proceedings

in this Court.    The majority’s conclusion that the record rule is

inapplicable to our section 6330 cases as well is based on the

minor premise that section 6330, enacted in 1998, is “part and

parcel” of the “specific statutory framework for reviewing

determinations of the Commissioner” (i.e., our de novo deficiency

procedures) that Congress did not intend to disturb in 1946.       See

majority op. p. 21.    It is that minor premise that we are unable

to accept.     Cf. Ewing v. Commissioner, supra at 64 n.11, 65-66

(Halpern and Holmes, JJ., dissenting).

          c.     Section 6330 Hearings as Informal Adjudications

     Here the majority seems to imply that only formal agency

adjudications (i.e., those subject to the procedures set forth in

APA sections 554, 556, and 557) are subject to the record rule.

According to the Supreme Court, however, the record rule is no
                              - 69 -

less applicable to judicial review of informal agency action.

See, e.g., Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744

(1985).   In the event the administrative record of such an

informal proceeding is insufficiently developed, “the proper

course, except in rare circumstances, is to remand to the agency

for additional investigation or explanation.”   Id.; see also

United States v. Carlo Bianchi & Co., 373 U.S. at 718 (remand

“would certainly be justified where the department had failed to

make adequate provision for a record that could be subjected to

judicial scrutiny”).

          d.   Other Instances Where the Court Reviews for Abuse
               of Discretion


     The majority notes that the Court “‘has a long tradition of

providing trials when reviewing the Commissioner’s determinations

under an abuse of discretion standard.’”   Majority op. p. 25

(quoting Judge Thornton’s concurring opinion in Ewing v.

Commissioner, 122 T.C. at 53).   In our Ewing dissent, we

suggested (on the basis of language in Estate of Gardner v.

Commissioner, 82 T.C. 989, 999, 1000 (1984)) that our application

of an abuse of discretion standard is properly the subject of a

trial de novo when the exercise of discretion at issue is

relevant to the Commissioner’s determination of the existence or

amount of a deficiency in tax or an addition to tax that is
                              - 70 -

subject to our deficiency jurisdiction.   See Ewing v.

Commissioner, supra at 65-66 (Halpern and Holmes, JJ.,

dissenting).   We continue to adhere to that view.6

     The majority cites a number of cases decided under the abuse

of discretion standard, stating that “[i]n none of these types of

cases have we held * * * that we are limited to the

administrative record.”   Majority op. p. 26 (emphasis added).   In

three of the types of cases to which the majority alludes

(involving section 482 reallocations, section 446 “clear

reflection of income” determinations, and waivers of the former

section 6659 addition to tax), the inapplicability of the record

rule is consistent with the suggested approach discussed in the

preceding paragraph.   See Ewing v. Commissioner, supra at 65

(Halpern and Holmes, JJ., dissenting).

     The other two types of cases cited by the majority involve

declaratory judgments with respect to determinations of the

Commissioner under section 7428 (tax-exempt status) and section

7476 (qualified status of retirement plans).7   De novo


     6
        The fact that our application of an abuse of discretion
standard may be the subject of a trial de novo does not
necessarily mean that we are free to substitute our judgment for
that of the Commissioner in such cases. See, e.g., Capitol Fed.
Sav. & Loan Association v. Commissioner, 96 T.C. 204, 209 (1991)
(sec. 446); Bausch & Lomb, Inc. v. Commissioner, 92 T.C. 525
(1989), affd. 933 F.2d 1084 (2d Cir. 1991) (sec. 482).
     7
        Separately, the majority cites two Memorandum Opinions of
this Court in support of the proposition that “[t]he Court has
                                                   (continued...)
                             - 71 -

proceedings in those types of cases would be inconsistent with

the approach we suggested in our Ewing dissent.    Contrary to the

majority’s assertion, we have limited our review to the

administrative record in those types of cases.    See Houston

Lawyer Referral Serv., Inc. v. Commissioner, 69 T.C. 570, 577

(1978) (“To allow oral testimony * * * as to facts not otherwise

in the administrative record to be introduced in evidence * * *

in a section 7428 declaratory judgment proceeding would convert

that proceeding from a judicial review of administrative action

to a trial de novo” and “would permit an applicant [for tax-

exempt status] to withhold information from the Internal Revenue

Service and then to introduce it before the Court”); Tamko

Asphalt Prods., Inc. v. Commissioner, 71 T.C. 824, 837 (1979)

(rejecting the argument of the taxpayer in a section 7476

proceeding “that it is entitled to a trial as in any other matter

before this Court”, the Court reasoned that “[t]o permit

extrinsic evidence, other than that present in the administrative

record, would convert a declaratory judgment proceeding from a


     7
      (...continued)
consistently conducted trials on the issue of whether the
Commissioner’s denial of a request to abate interest under
section 6404 was an abuse of discretion.” Majority op. pp. 25-
26. In neither case did the Court address the issue of the
appropriate scope of review. Although the issue is not before us
today, we would conclude that, for the same reasons discussed
herein and in our Ewing dissent, our review of the Commissioner’s
interest abatement determinations is not properly the subject of
de novo proceedings. See Ewing v. Commissioner, 122 T.C. at 65
n.12 (Halpern and Holmes, JJ., dissenting).
                              - 72 -

judicial review of an administrative determination to a judicial

trial de novo”), affd. 658 F.2d 735 (10th Cir. 1981).

          e.   Disregard of District Court Cases

     The District Courts of the United States have jurisdiction

to hear section 6330 appeals involving taxes over which the Tax

Court does not have jurisdiction.   Sec. 6330(d)(1)(B).   As far as

we can tell, those courts have uniformly limited their review for

abuse of discretion in such cases to the administrative record.

See Muller v. Rossotti, 93 AFTR 2d 2004-1782, 1786-1787, 2004-1

USTC par. 50,239, at 83,495 (M.D. Tenn. 2004) (quoting United

States v. Carlo Bianchi & Co., 373 U.S. at 714); Living Care

Alternatives, Inc. v. United States, 93 AFTR 2d 2004-761, 764

n.2, 2004-1 USTC par. 50,167, at 83,249 n.2 (S.D. Ohio 2003);

Hart v. United States, 291 F. Supp. 2d 635, 640 (N.D. Ohio 2003);

Cmty. Residential Servs., Inc. v. United States, 91 AFTR 2d 2003-

2190, 2190, 2003-1 USTC par. 50,458, at 88,339 (M.D.N.C. 2003)

(citing Camp v. Pitts, 411 U.S. at 142-143); Dudley’s Commercial

& Indus. Coating, Inc. v. United States, 292 F. Supp. 2d 976, 985

(M.D. Tenn. 2003) (citing Camp v. Pitts, supra at 142); Triad

Microsys., Inc. v. United States, 90 AFTR 2d 2002-7332, 7334,

2003-1 USTC par. 50,106, at 87,030 (E.D. Va. 2002) (citing Camp

v. Pitts, supra at 142); Carroll v. United States, 217 F. Supp.

2d 852, 858 (W.D. Tenn. 2002) (citing United States v. Carlo

Bianchi & Co., supra at 714); Remole v. United States, 89 AFTR 2d
                                 - 73 -

2002-1202, 1208, 2002-1 USTC par. 50,224, at 83,429 (C.D. Ill.

2001); MRCA Info. Servs. v. United States, 145 F. Supp. 2d 194,

198 (D. Conn. 2000) (quoting United States v. Carlo Bianchi &

Co., supra at 714).     The majority makes no mention of those

cases.     Are we to believe that Congress intended the appropriate

scope of review in section 6330 cases to hinge on the type of tax

involved?    Certainly, the language of section 6330 suggests no

such distinction.

II.   The Contract Issue

      The contract issue as framed by the majority (i.e., whether

the OIC remained in effect despite petitioner’s failure to timely

file his 1998 return) is more nuanced than the majority opinion

leads one to believe.      The majority oversimplifies what

respondent was bargaining for, disregards the significance of the

fact that respondent repeatedly offered petitioner the

opportunity to cure his default, and assumes, without analysis,

that the concepts of materiality and substantial performance are

dispositive of the contract issue.

      A.   Materiality of Timely Filing Requirement

      The majority assumes that the only benefit the Commissioner

seeks when accepting an OIC is the actual receipt of moneys owed

under its terms:    “Respondent suffered no monetary damage from

petitioner’s late filing of the 1998 return.”      Majority op. p. 41

(emphasis added).    But collecting money is not the Commissioner’s
                               - 74 -

only purpose in agreeing to an OIC.     The preamble to section

301.7122-1, Proced. & Admin. Regs., explicitly refers to the

IRS’s interest in promoting the voluntary compliance of

taxpayers.   T.D. 9007, 2002-2 C.B. 349, 350.    Indeed, not only is

this one of the policy underpinnings of the regulations; it can

even be the basis by itself for accepting an OIC.     The timely

filing requirement is particularly important to the IRS as a

monitoring device with respect to OICs, like the one here, which

include future income level triggers that can result in

additional payment obligations.   See majority op. p. 4 n.3.

     B.   Opportunities To Cure

     It is also important to emphasize how deliberate the IRS was

before declaring the OIC in default.     Respondent did not default

petitioner’s OIC as soon as he realized the 1998 return had not

been timely filed.   Following the guidance of 2 Administration,

Internal Revenue Manual (CCH) (IRM), sec. 5.19.7.3.22.5, at

18,513, respondent first contacted petitioner to request the

missing return and did so at least two more times thereafter.

See majority op. p. 8.   Those efforts by respondent were in

keeping with the mandate of the IRM that in the event of

potential default efforts “will be made to secure compliance”.

IRM sec. 5.8.9.4, at 16,382.   Despite those efforts, petitioner

did not provide the missing return until approximately 1 year
                                - 75 -

after he was first requested to do so.       That hardly qualifies as

a “foot fault”.

     C.     Doctrine of Express Conditions

     Regardless of the nature of the breach and respondent’s

response thereto, we think that the most relevant doctrines of

contract law are not “substantial performance” and “material

breach.”8    Petitioner’s obligation to timely file all his returns

for 5 years was an express condition and so, as a general rule,

is subject to strict performance.     See Calamari & Perillo, The

Law of Contracts, sec. 11.9, at 403 (4th ed. 1998); 13 Williston

on Contracts, sec. 38:6, at 384-385 (4th ed. 2000).       The relevant

question should be whether there is an “excuse of conditions”

that may apply.     Under that doctrine, petitioner would have to

show that (1) strict compliance with the timely filing condition

would result in an extreme forfeiture or penalty, and (2) timely

filing was not an essential part of the bargain.      See 2

Restatement, Contracts 2d, sec. 229 (1981); 1 Restatement,

Contracts, sec. 302 (1932).     If we are going to say that, as a

matter of law, the Appeals officer should not have enforced the




     8
        While the majority assumes that Arkansas law governs the
contract issue, it is quite possible that, under principles set
forth in Clearfield Trust Co. v. United States, 318 U.S. 363,
366-367 (1943), and United States v. Kimbell Foods, Inc., 440
U.S. 715, 727-729 (1979), the Federal common law of contracts is
the appropriate choice of law. See Saltzman, IRS Practice and
Procedure, par. 15.03[4][b], at 15-82 n.200 (rev. 2d ed. 2002).
                              - 76 -

OIC in accordance with its terms, that is the line of inquiry we

should pursue.9

     D.   United States v. Lane

     Quite apart from any discussion of general contract law

principles, we also disagree with the majority’s treatment of the

most similar case we have found, United States v. Lane, 303 F.2d

1 (5th Cir. 1962).   In Lane, the Court of Appeals rejected the

taxpayer’s argument that strict enforcement of his OIC would

result in a forfeiture.   As had petitioner, the taxpayer had

entered into an OIC which required him to pay a specific amount,

pay additional amounts if his annual income exceeded a floor, and

make annual statements of his income “regardless of amount”.    The

taxpayer paid the specific amount and then failed to make the

annual statements of his income.   The taxpayer’s OIC provided,

like petitioner’s, that, in the event of default, the

Commissioner could revive and collect the unpaid balance of the



     9
        We are aware of authority indicating that, in the context
of an executory accord (which an offer-in-compromise resembles),
enforcement of the original obligation is justified only if the
obligee’s noncompliance with the accord is material. See Frank
Felix Associates, Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 286-
289 (2d Cir. 1997) (reasoning at 287 that, under a rule requiring
strict compliance with the accord, the obligee “could obtain
payment of a contested debt and, due to a minor breach of the
accord, receive the windfall entitlement to reassert its pre-
settlement claims” (Emphasis added.)). We are not aware of any
authority addressing the interplay between that line of reasoning
and the doctrine of express conditions. Again, if we are going
to undertake a substantive analysis of contract law, those are
the types of issues we should be addressing.
                               - 77 -

original debt.   The District Court, ruling in favor of the

taxpayer, had reasoned that “‘the taxpayer can’t be pushed back

for years and years and after a settlement is made and have a

forfeiture so to speak, of everything he paid in under that

settlement agreement.’”    Id. at 4.

     The Court of Appeals for the Fifth Circuit reversed the

District Court, holding that the OIC should be enforced as

written.   Id. at 5.   It is worth considering the Court of

Appeals’ forceful language in that regard:

          In the present case, the contracting parties
     expressed their mutual intention in clear and
     unmistakable terms. * * * [The OIC] expressly provided
     that the Commissioner, upon default by the taxpayer
     could terminate the compromise agreement and proceed to
     collect the unpaid balance of the original tax
     liability. This language is so precise, and the
     intention which it manifests is so evident, as to leave
     no doubt that the course of action taken by the
     Government here was fully authorized by the compromise
     agreement.

          There was nothing illegal, immoral or inequitable
     in the compromise agreement. It did not provide for
     any “forfeiture”. By express provision, the amounts to
     be paid under the compromise agreement * * * could not
     exceed the aggregate amount which the taxpayer conceded
     that he owed the Government from the start. By
     allowing the Government to revive the taxpayer’s
     original liability, the taxpayer will not forfeit the
     amounts he has already paid, for those amounts will be
     applied to reduce the original liability. The
     agreement was precise, it was fair, and it was freely
     consented to by the taxpayer. There is no reason why
     it should not be enforced as written.
                                - 78 -

Id. at 4; see also Roberts v. United States, 225 F. Supp. 2d

1138, 1149 (E.D. Mo. 2001) (quoting the latter paragraph in

full).

III.    Conclusion

       We would sustain respondent’s evidentiary objections on the

basis of Magana v. Commissioner, 118 T.C. 488 (2002), and the

record rule.    We would also hold that, in light of petitioner’s

breach of an express condition of the OIC and his failure to cure

that breach despite ample opportunity to do so, respondent’s

Appeals officer did not abuse his discretion in sustaining the

proposed collection activity.
