                              T.C. Memo. 2019-129



                        UNITED STATES TAX COURT



                   COLEMAN MOORE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7390-16L.                         Filed September 30, 2019.



      Carlos S. Lopez, for petitioner.

      Adam B. Landy, Nancy M. Gilmore, and Thomas R. Mackinson, for

respondent.



                           MEMORANDUM OPINION


      GOEKE, Judge: Petitioner challenges respondent’s attempt to collect by

levy unpaid trust fund recovery penalties (TFRP) for which petitioner is a

responsible officer. These matters turn on whether the settlement officer assigned
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[*2] to petitioner’s hearing under section 63301 abused his discretion by sustaining

the proposed levy. We find that the settlement officer abused his discretion and

will remand this case. We have jurisdiction under section 6330.

                                    Background

      When the petition was filed, petitioner resided in California. In 2003 and

2004 petitioner was the president and the chief executive officer of H.L. Heggstad,

Inc. (Heggstad). Heggstad failed to fully pay the employment taxes due and

owing on Form 941, Employer’s Quarterly Federal Tax Return, for the periods

ending March 31 and December 31, 2003, and March 31 and June 30, 2004 (tax

periods at issue). During his investigation of Heggstad’s unpaid employment and

trust fund taxes, respondent determined that petitioner had signatory authority over

Heggstad’s bank accounts and was a responsible officer for the nonpayment of its

employment tax liabilities.

      Respondent made two assessments against petitioner for the TFRP: (1) a

jeopardy assessment on October 7, 2004, for each tax period at issue and (2) a

nonjeopardy assessment on June 5, 2006, for only the tax period ending June 30,

2004. The revenue officer made the initial determinations of the TFRP, and the


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code (Code) as amended and in effect at all relevant times.
                                          -3-

[*3] determinations were timely approved in writing by the revenue officer’s

supervisors.

I.    Submission of OIC

      On August 7, 2008, respondent received Form 656, Offer In Compromise

(OIC), from petitioner seeking to compromise the TFRP liabilities for Heggstad

and another entity, Intex Form, Inc. (Intex), on the basis of doubt as to

collectibility for five tax periods: the tax periods ending December 31, 2002,

March 31, 2003, and March 31 and June 30, 2004, for Heggstad, and the tax

periods ending March 31 and September 30, 2003, and March 31 and June 30,

2004, for Intex. Petitioner offered to compromise the outstanding liability as a

responsible person for both companies for $49,962.29. He did not contest the

validity or the amounts of the underlying liabilities. The Form 656 was prepared

and signed by Eugene Neri, an enrolled agent, and the form designated Mr. Neri’s

employer’s firm as petitioner’s representative.

      On March 4, 2010, respondent received an amended Form 656 (amended

OIC) from petitioner signed and dated February 18, 2010, that removed the

liabilities for Intex, revised the offer amount to $45,000, and included only the

four tax periods at issue for Heggstad.
                                         -4-

[*4] In signing the original and amended Forms 656 petitioner affirmed that he

had read, understood, and agreed to the requirement in section V, subsection (d) of

the Form that he comply with all provisions of the Code relating to filing Form

1040, U.S. Individual Income Tax Return, and pay his required income tax for five

years or until the offer amount is paid in full, whichever period was longer. He

also affirmed that if he failed to meet any of the terms and conditions of the OIC,

he would also be in default on the offer, and respondent could seek collection of

the liabilities.

       On April 27, 2010, the Internal Revenue Service’s (IRS) Sacramento,

California, Appeals Office accepted petitioner’s amended OIC. Respondent’s

April 27, 2010, acceptance letter stated: “Please note that the conditions of the

offer require you to file and pay all required taxes for five years or until the

offered amount is paid in full, whichever is longer.” By letter dated December 15,

2011, respondent notified petitioner that he had met the payment provisions of his

OIC, and respondent began processing lien releases related to the tax periods at

issue. In this letter respondent reminded petitioner of the five-year compliance

requirement and that noncompliance could result in the OIC’s termination and

reinstatement of the original liabilities. The letter indicates that respondent sent it

to petitioner’s representative, who the parties identify as Mr. Neri.
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[*5] II.        Income Tax Issues for 2010 Through 2012

       On January 24, 2012, petitioner filed a joint income tax return for 2010 with

his former spouse after its April 18, 2011, due date. He had not requested an

extension for filing. Petitioner and his former spouse claimed the married filing

jointly status. On their 2010 joint return petitioner and his former spouse reported

total tax due of $1,881, withholding and credits of $1,405, and a balance due of

$476. Petitioner did not pay the $476 balance due for 2010 by the April 18, 2011,

filing deadline, but on January 24, 2012, he remitted a payment of $476 with the

late-filed 2010 joint return. Respondent assessed a late filing penalty of $135, a

late payment penalty of $23.80, and interest of $15.46 for 2010. Petitioner

remitted an additional payment of $174.26 on April 6, 2012, to pay the penalties

and interest.

       Petitioner timely filed a 2011 joint return under extension on October 11,

2012. Petitioner and his former spouse claimed the married filing jointly status.

On their 2011 joint return petitioner and his former spouse reported total tax due

of $3,211, withholding and credits of $2,249, and a balance due of $962. On

October 17, 2012, petitioner remitted a payment of $962. He attached Form

1040-V, Payment Voucher, to his payment that listed his address as “PO Box

3473, Sacramneto [sic], CA 95829” (P.O. Box 3473 address). The payment was
                                        -6-

[*6] made with a check from El Dorado Savings Bank with a preprinted address

for petitioner of “8880 Elder Creek Rd., Sacramento, CA 95828-1805” (Elder

Creek address). Respondent assessed a late payment penalty of $28.86 and

interest of $15.81 for 2011. Petitioner remitted an additional payment of $50.74

on June 21, 2017, to pay the penalty and interest.

      Petitioner timely filed a 2012 joint return on October 14, 2013, under

extension. Petitioner and his former spouse claimed the married filing jointly

status. On their 2012 joint return petitioner and his former spouse reported total

tax due of $7,804, withholding and credits of $4,485, and a balance due of $3,319.

On October 17, 2013, petitioner remitted a payment of $3,319. Respondent

assessed a late payment penalty of $99.57 and assessed interest of $50.98 for

2012. Petitioner remitted an additional payment of $150.55 on August 4, 2014, to

pay the penalty and interest. Respondent assessed an additional amount of interest

of $3.25, which petitioner paid on June 22, 2017.

      The 2010 through 2012 returns were filed electronically and were prepared

by a friend of petitioner who was an accountant. The 2010 through 2012 returns

listed petitioner’s address as the P.O. Box 3473 address. Petitioner did not have a

post office box in Sacramento. Petitioner received electronic notifications when
                                         -7-

[*7] the returns were filed and hard copies of the returns after their electronic

filing, which he did not review.

      Respondent issued to petitioner a notice of proposed changes, Notice CP

2000, dated December 3, 2012, notifying him of income unreported on his 2010

joint return. Notice CP 2000 was sent to petitioner’s last known address, the P.O.

Box 3473 address. For 2010 petitioner and his former spouse failed to report

unemployment compensation received of $8,550. Petitioner does not dispute the

omission of the unemployment compensation. He did not respond to Notice CP

2000 by the January 2, 2013, deadline, and on May 13, 2013, respondent issued to

petitioner and his former spouse a notice of deficiency, by certified mail, to the

P.O. Box 3473 address for the tax liability and a late payment penalty. Neither

petitioner nor his former spouse responded to the notice of deficiency by the

90-day deadline of August 12, 2013, as petitioner did not receive it. Respondent

made a default assessment on September 30, 2013, of $1,380 of income tax, an

addition to tax under section 6651(a)(1) of $236, and interest of $88 for a total

amount due of $1,704.

      On January 10, 2014, the IRS Brookhaven Appeals Office (Brookhaven)

sent a letter to petitioner at the P.O. Box 3473 address, notifying him that his OIC

was terminated (termination letter) and that respondent was reinstating the TFRP
                                        -8-

[*8] liabilities less payments made by petitioner because he did not timely pay his

income tax liabilities for 2010, 2011, and 2012. A copy of the termination letter

was sent to Mr. Neri as petitioner’s representative. The termination letter also

stated that petitioner did not contact respondent or pay the balance due by the

January 2, 2014, deadline. The administrative record does not contain a written

communication addressed to petitioner informing him of a default in the OIC,

requesting that he contact respondent, or setting a January 2, 2014, deadline to

respond or pay the amounts due.

      On July 29, 2014, respondent sent a Letter 3172, Notice of Federal Tax Lien

Filing and Your Right to a Hearing Under IRC 6320, to petitioner notifying him of

a tax lien filing for unpaid income tax for 2010 and 2012. The lien notice was sent

to petitioner’s Elder Creek address, which petitioner provided to respondent upon

filing his 2013 Form 1040 on April 15, 2014, and processed by respondent on May

19, 2014. In response to this notice petitioner promptly paid the amount shown as

due, $1,893.40, by check dated August 1, 2014, and received by respondent on

August 4, 2014. Respondent applied $1,742.85 of the August 1, 2014, payment

against petitioner’s 2010 income tax liability and $150.55 against his 2012 income

tax liability. By letter dated August 5, 2014, respondent’s revenue officer notified

petitioner that the August 1, 2014, payment did not pay the entire amount due and
                                           -9-

[*9] a balance of $212.35 remained. Petitioner remitted a check dated September

2, 2014, for the amount due, and respondent received this payment on September

4, 2014. Nevertheless, respondent sent petitioner a letter dated October 31, 2014,

notifying him that respondent was revoking the release of the Federal tax liens for

the TFRP liabilities for the tax periods at issue because of petitioner’s failure to

comply with the terms of the OIC.

      Respondent issued to petitioner a Letter 1058, Final Notice of Intent to Levy

and Notice of Your Right to a Hearing, dated December 3, 2015. The levy notice

stated that petitioner owed $751,495.92 through January 3, 2016, for the TFRP

under section 6672 for the tax periods at issue. On December 23, 2015, petitioner

timely filed Form 12153, Request for a Collection Due Process or Equivalent

Hearing. In the request petitioner asserted:

      (a) he did not receive Notice CP 2000 in 2012, the notice of deficiency in

2013, or the termination letter in 2014;

      (b) he fully complied with the terms and conditions of the accepted OIC,

and he did not materially breach the OIC under California law;

      (c) his representative did not receive the July 2014 lien notice for the unpaid

Federal income tax liabilities; and
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[*10] (d) respondent should reinstate the previously accepted OIC and abate the

reinstated TFRP assessments.

      Before the collection due process (CDP) hearing, the settlement officer

assigned to petitioner’s case determined that petitioner breached the terms and

conditions of the OIC by (1) filing his 2010 joint return and paying the balance

due late; (2) paying his 2011 income tax liability late and having a balance due at

the time of the CDP hearing; and (3) paying his 2012 income tax liability late. On

February 11, 2016, the settlement officer held a CDP hearing by telephone with

petitioner’s then representative, Spencer Malysiak. During the CDP hearing Mr.

Malysiak argued that Brookhaven should not have terminated the OIC because

petitioner’s noncompliance was not a material breach of the OIC. At the

conclusion of the telephone conference Mr. Malysiak requested additional time to

submit a second OIC and the supporting financial information. The settlement

officer refused this request. He determined that the financial statement that

petitioner had provided was incomplete and that petitioner provided no new

information for him to consider. He determined that Internal Revenue Manual

(IRM) pt. 8.22.7.10.11(4) (Sept. 23, 2014) precluded respondent from reinstating

petitioner’s previously terminated OIC. That part of the IRM states:
                                       - 11 -

[*11] The taxpayer may contend that the termination was improper because
      the default was insignificant or not a “material breach.” The only
      relevant question is whether there was a default of an express
      condition. Whether the taxpayer “materially breached” the OIC or
      “substantially complied” with the OIC is irrelevant.

       The settlement officer concluded the CDP hearing by sustaining the

proposed levy and issued a notice of determination.

III.   Remand of CDP Hearing

       On August 29, 2017, respondent filed a motion to remand the case to the

Appeals Office for a supplemental CDP hearing for the purpose of considering a

new OIC as a collection alternative. In his motion respondent asserted that the

settlement officer did not provide petitioner with Form 656 or set a deadline for

him to submit a new OIC and the required financial information statements and

supporting documents. The Court held a hearing on September 18, 2017, to

consider respondent’s motion to remand and petitioner’s counsel’s motion to

withdraw filed on August 3, 2017. Mr. Malysiak sought to withdraw as

petitioner’s counsel because petitioner was receiving conflicting advice from

another attorney. The Court granted both motions over petitioner’s objections. As

a result of his counsel’s withdrawal, petitioner was unrepresented at the hearing to

oppose the motion to remand. At the hearing petitioner argued that his terminated

OIC should be reinstated.
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[*12] On October 19, 2017, Appeals received a letter from petitioner’s new

representative, Michael S. Cash, requesting a CDP hearing. On October 26, 2017,

the settlement officer mailed to petitioner, with a copy to Mr. Cash, a Letter 4837,

Appeals Received Your Request for a Collection Due Process Hearing, informing

him that Appeals had received his request for a supplemental CDP hearing and

scheduling a telephone conference for November 15, 2017. Before the

supplemental CDP hearing, the settlement officer requested a new Form 656, the

required financial statement, associated financial records, the application fee, and

an initial offer payment. In response by a faxed letter dated October 31, 2017, Mr.

Cash questioned why the supplemental CDP hearing was not assigned to a new

settlement officer. On November 1, 2017, the settlement officer notified Mr. Cash

that the IRM states that remanded CDP cases are assigned to the prior settlement

officer, and there is no requirement that a supplemental CDP hearing be assigned

to a new settlement officer. Petitioner did not present any testimony, other

evidence, or circumstances that required the supplemental CDP hearing to be

conducted by someone else.

      Mr. Cash faxed the settlement officer a letter, dated November 13, 2017,

and received on November 14, 2017, requesting the November 15, 2017,

supplemental CDP hearing be rescheduled and arguing the terminated OIC should
                                       - 13 -

[*13] be reinstated. Mr. Cash argued that petitioner was not given an opportunity

to cure the noncompliance before the OIC’s termination. He argued that

Brookhaven’s termination of the OIC without providing an opportunity to cure the

default was an abuse of discretion. He also argued that petitioner did not receive

the termination letter or Notice CP 2000 and was entitled to actual notice and

receipt of the Notice CP 2000 and the termination letter. Mr. Cash objected to

respondent’s use of the P.O. Box 3473 address for the notices and letters. He also

stated that petitioner was not prepared to submit a new OIC at that time.

      In response the settlement officer left a voice message for Mr. Cash on

November 14, 2017, to discuss the faxed letter. He stated that Mr. Cash’s request

to reschedule the CDP hearing was denied because the request was not timely. On

November 15, 2017, the settlement officer called Mr. Cash for the telephone

supplemental CDP hearing. During the supplemental CDP hearing petitioner did

not submit a new Form 656. Mr. Cash indicated that petitioner was not prepared

to submit a new OIC at that time. Instead Mr. Cash sought reinstatement of the

terminated OIC as a first course of action. The settlement officer understood that

the main purpose of the remand was for petitioner to submit a new OIC. The

settlement officer stated that respondent terminated the OIC because petitioner had

incurred unpaid income tax liabilities within the five-year compliance period.
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[*14] The settlement officer concluded the hearing by stating that it was his

determination that Brookhaven followed all proper procedures in notifying

petitioner of his noncompliance before terminating the OIC. Mr. Cash indicated

that petitioner could file a new OIC, and the settlement officer advised that

petitioner do so through IRS Compliance. In both the original and supplemental

CDP hearings the settlement officer determined that the proposed levy balanced

the need for the efficient collection of tax with petitioner’s concern that the

collection action be no more intrusive than necessary.

      On December 12, 2017, respondent mailed a supplemental notice of

determination to petitioner for the tax periods at issue, reaffirming the

determination that the issuance of the levy notice was valid and appropriate and

that petitioner was not entitled to a collection alternative because he did not

submit a new Form 656 as requested by the settlement officer. In the original and

supplemental notices of determination, the settlement officer determined that

petitioner could not challenge the termination of his OIC because the termination

was upheld by Appeals, which provided its decision in the January 10, 2014,

termination letter. At trial petitioner did not present any testimony or other

evidence to address or explore the possibility of any collection alternatives other

than reinstatement of the terminated OIC.
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[*15]                                  Discussion

        When the underlying tax liability is properly at issue in a CDP case, the

Court decides the issue of liability de novo. Sego v. Commissioner, 114 T.C. 604,

610 (2000). A taxpayer is precluded from disputing the underlying tax liability in

a CDP judicial review proceeding if the taxpayer failed to properly raise the merits

of the underlying tax liability as an issue during the CDP hearing. Giamelli v.

Commissioner, 129 T.C. 107, 115 (2007).

        Petitioner did not raise the underlying TFRP liabilities for the tax periods at

issue during the original or supplemental CDP hearing. In the letter dated

February 9, 2016, Mr. Malysiak stated to the settlement officer that petitioner

“understands that he cannot dispute the original assessment made against him for

the civil penalties”. He did not challenge the underlying tax liabilities during the

original or supplemental CDP hearing. He sought reinstatement of his terminated

OIC as a collection alternative during the hearings. Accordingly, he cannot now

dispute the underlying TFRP liabilities.

        Decisions regarding collection alternatives do not go to underlying liability

and are, therefore, reviewed for abuse of discretion. Giamelli v. Commissioner,

129 T.C. at 111; Goza v. Commissioner, 114 T.C. 176, 182 (2000). Appeal of this

case would lie with the Court of Appeals for the Ninth Circuit, which has held that
                                        - 16 -

[*16] our review in abuse of discretion cases is limited to the administrative

record. Kreit Mech. Assocs., Inc. v. Commissioner, 137 T.C. 123, 130 (2011)

(citing Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part

T.C. Memo. 2006-116 and aff’g in part, rev’g in part decisions in related cases).

Under the abuse of discretion standard, the Court determines whether the IRS

settlement officer exercised his discretion arbitrarily, capriciously, or without

sound basis in fact or law. Thompson v. Commissioner, 140 T.C. 173, 179 (2013)

(citing Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27

(1st Cir. 2006)).

      To make that determination, the Court considers whether the settlement

officer’s decision “was grounded on an error of law or rested on a clearly

erroneous finding of fact, or whether he applied the correct law to fact findings

that weren’t clearly erroneous but ruled in an irrational manner.” Bennett v.

Commissioner, T.C. Memo. 2008-251, slip op. at 6-7; see also Indus. Inv’rs v.

Commissioner, T.C. Memo. 2007-93, slip op. at 7 (citing United States v.

Sherburne, 249 F.3d 1121, 1125-1126 (9th Cir. 2001)). Where the settlement

officer followed all statutory and administrative procedures and gave a reasoned

decision, the Court cannot reverse simply because we might have weighed the

equities differently. Fifty Below Sales & Mktg., Inc. v. United States, 497 F.3d
                                         - 17 -

[*17] 828, 830 (8th Cir. 2007); Thompson v. Commissioner, 140 T.C. at 179. In

determining whether the settlement officer abused his discretion, the Court

considers whether he: (i) properly verified that the requirements of any applicable

law or administrative procedure had been met, (ii) considered any relevant issues

raised by the taxpayer, and (iii) determined 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.” Sec. 6330(c)(3); see sec. 301.6330-1(e), Proced. & Admin. Regs.

      This Court has stated that it is not an abuse of discretion for the Appeals

Office to determine that a taxpayer is ineligible for a collection alternative if the

taxpayer does not provide the requested financial information. Tucker v.

Commissioner, T.C. Memo. 2014-103, at *27; Huntress v. Commissioner, T.C.

Memo. 2009-161, slip op. at 12; see also sec. 301.6330-1(e)(1), Proced. & Admin.

Regs. (“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.”). A CDP hearing officer may refuse to consider a

taxpayer’s eligibility for a collection alternative if the taxpayer does not provide

the requested documentation. See, e.g., Kindred v. Commissioner, 454 F.3d 688,

696-697 (7th Cir. 2006); Kendricks v. Commissioner, 124 T.C. 69, 79 (2005)
                                        - 18 -

[*18] (holding that it is not abuse of discretion to decline to consider a collection

alternative that the taxpayer did not propose). Moreover, the taxpayer is expected

to meet reasonable deadlines set by the Appeals Office to submit requested

information, and it is not an abuse of discretion to issue a determination if the

taxpayer fails to submit the requested items within the reasonable time given.

Pough v. Commissioner, 135 T.C. 344, 351 (2010).

       On January 26, 2016, the settlement officer conducted an initial analysis of

the case, which included reviewing the case file, petitioner’s CDP request, and

respondent’s Integrated Data Retrieval System. He verified that the assessments

were made for the tax periods at issue and that a balance due remained. He

determined that the revenue officer timely obtained supervisory written approval.

He also determined that the notice and demand for payment was sent to petitioner

at his last known address. Finally, he determined that all legal and procedural

guidelines regarding the TFRP assessments were followed. In the supplemental

CDP hearing he provided petitioner with an opportunity to submit a new OIC,

which petitioner chose not to do. Instead, petitioner argued that the Appeals

Office failed to adhere to its administrative procedures when it terminated the

OIC.
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[*19] The crux of this case involves the settlement officer’s refusal to consider the

reinstatement of the terminated OIC. The Appeals Office terminated the OIC for

noncompliance during the five-year compliance period. It is clear that petitioner

and his wife filed a late return for 2010 and failed to timely pay their tax liabilities

for 2010 and 2012, which left petitioner subject to a potential default on his OIC

for noncompliance. Any noncompliance, even one that is immaterial, is sufficient

to terminate an OIC. In this regard our caselaw is very supportive of respondent’s

position. See Trout v. Commissioner, 131 T.C. 239 (2008). As noted in Trout v.

Commissioner, 131 T.C. at 253, and relevant in this case, the Commissioner could

not have used any “plainer language [on Form 656] to explain the terms and

conditions of the OIC or to express his intent.” There was no difference of

opinion regarding the OIC’s terms and conditions between petitioner and the

Appeals Office when the OIC was accepted on April 27, 2010. Petitioner testified

that he understood that the terms of the OIC required him to timely file his income

tax returns and timely pay his income tax for five years after the OIC’s acceptance.

He also admitted that he breached the terms and conditions of his OIC.

      The fact that petitioner breached the terms and conditions of the OIC is not

determinative, however. We must consider whether the settlement officer abused

his discretion when he refused to reconsider the OIC’s termination. Brookhaven
                                        - 20 -

[*20] terminated the OIC for noncompliance. Petitioner argues that Brookhaven

did not follow the administrative procedures for terminating an OIC for

noncompliance, that the settlement officer did not properly verify that Brookhaven

followed those procedures, and that such a failure is an abuse of discretion. For

these reasons, he argues that his terminated OIC should be reinstated.

Specifically, petitioner argues that Brookhaven did not issue a potential default

letter to him or his representative that provided an opportunity to cure the

noncompliance before Brookhaven terminated the OIC.2 Respondent argues that

the settlement officer did not abuse his discretion when he concluded that

Brookhaven properly terminated the OIC and, thus, petitioner could not contest

the termination or seek reinstatement of the OIC during the original and

supplemental CDP hearings.

      Under the terms of Form 656, termination for a taxpayer’s noncompliance is

authorized but not automatic. Form 656 states that the IRS may terminate the

OIC. See IRM pt. 8.20.5.30.2(2) (Nov. 5, 2013) (IRS has right to terminate). The

Commissioner must exercise his right to terminate an OIC in accordance with the


      2
        For simplicity, we refer to a letter informing a taxpayer of a default and
providing an opportunity to cure as a potential default letter and a letter informing
the taxpayer terminating the OIC for a default that was not cured as a termination
letter.
                                        - 21 -

[*21] administrative procedures applicable to a potential default on an OIC. The

IRM sets out procedures for terminating an OIC for noncompliance in Part 5,

Collecting Process, and Part 8, Appeals. Part 5 reiterates the Commissioner’s

discretionary, but not automatic, termination of an OIC for noncompliance. Under

IRM part 5, upon a default, a “default letter” is sent. IRM pt. 5.8.9.3 (Apr. 15,

2011). The IRS “will make an attempt to secure compliance” and “[i]f the

taxpayer fails to comply with any requests for delinquent returns or payments, the

* * * [IRS] will default the offer.” Id. The IRS will terminate the OIC and

reinstate the liability “[a]fter all appropriate letters have been sent”. Id. The IRM

notes that compliance often occurs after the taxpayer receives a default letter and

the taxpayer should be given a grace period of at least 60 days to comply before

the OIC is terminated. IRM pt. 5.19.7.3.20(4) (Jan. 8, 2014).

      Respondent argues that IRM part 5 does not apply to a settlement officer in

a CDP hearing; instead he argues that we should consider the procedures in IRM

part 8. He argues that IRM part 5 applies to offer examiners, offer specialists, tax

examiners in the Monitoring Offer in Compromise unit, and other employees

assigned to the OIC program when a taxpayer breaches an OIC. He argues that

neither the settlement officer nor Brookhaven was responsible for investigating an

OIC or processing and monitoring closed OICs. Respondent argues that IRM
                                           - 22 -

[*22] part 8 grants the IRS the right to terminate an OIC if a taxpayer fails to meet

any of the terms of the OIC. He quotes IRM pt. 8.22.7.10.8(1) (Aug. 9. 2017):3

“When the IRS determines an OIC is in default, it sends the taxpayer a default

letter to cure the noncompliance items. If the taxpayer does not cure the default,

the OIC is terminated. A taxpayer does not have a right to appeal the termination

of an OIC.”

       In his brief respondent acknowledges that under the IRM the Appeals Office

was required to send petitioner a potential default letter and to give him an

opportunity to cure before terminating the OIC. The provisions of the IRM

respondent cites mandate the issuance of a potential default letter that provides an

opportunity to cure separate from the IRM part 5 procedural requirements.4 Thus,

the parties’ dispute over whether we should look to part 5 or part 8 is immaterial.

The settlement officer was required to verify that Brookhaven sent a potential

default letter.


       3
           Both parties cite the current edition of the IRM.
       4
        Internal Revenue Manual (IRM) pt. 5.19.7.2.19.4 was subsequently revised
on August 25, 2017, stating that the IRS must send a potential default letter
providing an opportunity to cure the default; and if the taxpayer does not respond
to the potential default letter, a formal “default letter” is then sent, referred to in
this case as a termination letter. IRM pt. 5.19.7.2.19.4(8) and (9). The termination
comes “[a]fter all appropriate letters have been sent”. IRM pt. 5.8.9.4(3) (Jan. 12,
2017).
                                        - 23 -

[*23] Respondent argues that Brookhaven’s decision to terminate the OIC was not

part of the CDP process. Yet the levy action at issue followed Brookhaven’s

decision to terminate the OIC. The purpose of the CDP hearing is to give the

taxpayer an opportunity for an independent review to ensure that the levy action is

warranted and appropriate. The settlement officer determined that petitioner

breached the OIC’s terms and the OIC was subject to termination; however, that

was not the end of his required inquiry. The settlement officer was required to

verify that all administrative procedures with respect to the levy action had been

satisfied. Termination of the OIC was a necessary step before the levy action

could be initiated.

      During the CDP hearing the taxpayer may raise “any relevant issue relating

to unpaid tax or proposed levy” including the appropriateness of collection

actions, and the hearing officer is required to consider those issues. Sec.

6330(c)(2)(A)(ii). Section 6330(c)(4)(A) prohibits a taxpayer from raising an

issue during the CDP hearing if (1) the issue was raised and considered at a

previous section 6320 hearing or in any other previous administrative or judicial

proceeding and (2) the taxpayer participated meaningfully in such a hearing or

proceeding. Section 6330(c)(4) would not preclude petitioner from raising the
                                        - 24 -

[*24] OIC’s termination in the original and supplemental CDP hearings because

he did not meaningfully participate in Brookhaven’s decision to terminate the

OIC.

       Respondent argues that the potential default letter was sent and that

petitioner was given an opportunity to cure before Brookhaven terminated the

OIC; however, the administrative record does not support that argument.

Respondent argues that the settlement officer “inferred that (1) a OIC default letter

was sent in December 2013 with a response deadline of January 2, 2014.” We are

not satisfied with this inference. The administrative record does not establish that

Brookhaven sent petitioner or his representative a potential default letter.

       Respondent argues that the settlement officer did not abuse his discretion in

determining that Brookhaven had sent a potential default letter to petitioner.

There is no document in the administrative record that references an opportunity to

cure or that sets a January 2, 2014, deadline except for the termination letter. The

administrative record does not support a finding that Brookhaven followed the

administrative procedures before terminating the OIC. Conversely, the Appeals

officer in Trout did consider whether he should reinstate the terminated OIC as a

collection alternative but determined that the taxpayer had already been given

sufficient opportunity to cure the default before the OIC’s termination as the
                                        - 25 -

[*25] Commissioner had made several efforts to bring the taxpayer into

compliance.5 See also West v. Commissioner, T.C. Memo. 2008-30, slip op. at 5

(upon noncompliance, the IRS sent letters warning the taxpayers that they were

potentially in default on their OICs and giving them opportunities to cure the

noncompliance before terminating the OICs); Ng v. Commissioner, T.C. Memo.

2007-8, slip op. at 4-5 (same).

      Respondent alternatively argues that Notice CP 2000, the notice of

deficiency, and the termination letter satisfy the administrative procedures for

terminating an OIC. We disagree. Respondent properly notified petitioner of the

2010 income tax deficiency that resulted in the OIC’s termination. However,

neither Notice CP 2000 nor the notice of deficiency warns that the 2010 income

tax deficiency would result in the OIC’s termination. Neither notice informs

petitioner of an opportunity to cure the default or sets a January 2, 2014, deadline

to cure the default. Neither notice was sufficient under the administrative

procedures for a potential default letter. A potential default letter provides an


      5
       In Trout v. Commissioner, 131 T.C. 239 (2008), the IRS sent the taxpayer
multiple letters informing him of a potential default on the OIC, gave him 30 days
to cure the noncompliance, and threatened to terminate the OIC if he did not
respond to the letters. Approximately seven months later, the IRS sent a letter
informing the taxpayer the OIC was terminated on the basis of his noncompliance
and failure to cure. Thereafter, the IRS sent a notice of intent to levy.
                                         - 26 -

[*26] opportunity to cure. Neither Notice CP 2000 nor the notice of deficiency

mentioned such an opportunity or the OIC. Moreover, both relate only to 2010,

but the termination letter states there was noncompliance and an opportunity to

cure for 2010, 2011, and 2012 with a January 2, 2014, deadline.

      During the original and supplemental CDP hearings the settlement officer

was required to verify that the administrative procedures with respect to the

proposed levy had been satisfied. He did not verify that the administrative

procedures for terminating the OIC were followed as he did not properly verify

that a potential default letter was sent before the termination letter.

      In the notices of determination the settlement officer cited IRM pt.

8.22.7.10.11(4) (Sept. 23, 2014) as the basis for not reinstating the terminated

OIC. That provision relates to a taxpayer’s argument that the breach of an OIC

was immaterial and should not result in a termination. Further, IRM pt.

8.22.7.10.11(3) states: “Appeals will not reinstate an OIC where there was a

default and the OIC was properly terminated.” It is possible that the OIC was not

properly terminated in accordance with the administrative procedures irrespective

of the materiality of the breach.

      Respondent further argues that a taxpayer generally cannot appeal the

termination of an OIC and that a terminated OIC can be reinstated only in rare
                                        - 27 -

[*27] cases when the taxpayer properly shows that the termination was in error

because of circumstances beyond his control. “In rare situations, a defaulted offer

may be reopened based upon a taxpayer’s exceptional circumstance.” IRM pt.

5.19.7.2.20.4(2) (Oct. 30, 2018). “A situation may arise where an offer in

compromise is defaulted and we later discover that the termination was an IRS

error.” Id. at (1).

       At trial petitioner argued that he did not receive Notice CP 2000, the notice

of deficiency, or the termination letter because he was living in his employer’s

warehouse and the letter was improperly addressed to P.O. Box 3473. For the

dates of these notices, petitioner’s last known address was the P.O. Box 3473

address. He did not submit Form 8822, Change of Address, to respondent.

Although petitioner never had a post office box in Sacramento, the P.O. Box 3473

address was on his joint returns, which he failed to review. Furthermore, the

termination letter was sent to Mr. Neri, petitioner’s then representative. Petitioner

argues that a check, dated October 17, 2012, with the Elder Creek address that he

submitted to pay his 2011 income tax was sufficient to notify respondent of a

change of address. However, Form 1040-V submitted with the check listed his

address as the P.O. Box 3473 address. The address on this check is hardly clear

and concise notification to respondent of petitioner’s change of address.
                                        - 28 -

[*28] It is clear that the OIC was not terminated because of circumstances beyond

petitioner’s control. His default was his own doing. He failed to carefully manage

his income tax liabilities and filing obligations for five years after being granted a

favorable OIC that was conditioned on his tax compliance. He also failed to

notify respondent of a change to his mailing address. However, these failures on

petitioner’s part do not excuse respondent’s failure to follow his own

administrative procedures for terminating an OIC. The administrative record does

not contain a potential default letter providing an opportunity to cure the

noncompliance. If respondent did send a potential default letter to petitioner’s last

known address, it is unlikely petitioner would have received it. However, the

administrative record does not establish that respondent sent a potential default

letter to petitioner’s last known address. Nor does it establish that he sent a

potential default letter to petitioner’s representative, Mr. Neri. The termination

letter was sent to Mr. Neri and so was the December 15, 2011, letter notifying

petitioner that he had satisfied the payment terms of the OIC and that respondent

was releasing the liens against petitioner.
                                        - 29 -

[*29] We have no way of knowing what respondent may have proposed for

petitioner to cure the noncompliance if he indeed sent a potential default letter.6

What we do know is that petitioner cured the noncompliance promptly once he

discovered that he owed additional amounts. Notably, respondent did not revoke

the release of the liens for the years at issue associated with the terminated OIC

until after petitioner had already paid the income tax liabilities due, and he did not

issue the notice of intent to levy at issue in the original and supplemental CDP

hearings until over one year after petitioner had paid the tax.

      In conclusion, we find that the settlement officer did not properly verify that

Brookhaven followed the administrative procedures for terminating the OIC. We

hold that the determination to sustain the proposed levy without doing so was an

abuse of discretion. During the original and supplemental CDP hearings petitioner

requested reinstatement of the terminated OIC as a collection alternative, and the

settlement officer did not consider that request. Accordingly, we will remand this

case. On remand the settlement officer should consider whether the OIC was

properly terminated and, if not, whether the terminated OIC should be reinstated




      6
       Payment of the tax owed appears to be an acceptable cure to avoid an
OIC’s termination. The termination letter stated that petitioner did not contact
respondent or pay the balance due by the January 2, 2014, deadline.
                                        - 30 -

[*30] as a collection alternative. Given the circumstances described, we would

suggest a new settlement officer be assigned to this case.

         In reaching our holding, we have considered all arguments made, and, to the

extent not mentioned above, we conclude they are moot, irrelevant, or without

merit.

         To reflect the foregoing,


                                                 An appropriate order will be issued.
