                        T.C. Memo. 2011-182



                      UNITED STATES TAX COURT



                JOHN L. CHURCHILL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19712-07L.            Filed August 1, 2011.



     John L. Churchill, pro se.

     Hans F. Famularo, for respondent.



                        MEMORANDUM OPINION


     HOLMES, Judge:   John Churchill offered to settle thirteen

years of tax debts totaling more than $250,000 for only $2,500.

The Commissioner rejected this offer because it was based on his

income alone, even though his bride had a good and steady income,

and it’s IRS policy in community-property states to consider both

spouses’ incomes even if only one has a tax debt.   This made the
                                 - 2 -

bride unhappy, and she told Churchill that if he didn’t solve his

tax problems, she would leave.    He didn’t, and she did.

     The question in this case is whether, under these

circumstances, the Commissioner abused his discretion in

rejecting Churchill’s offer.

                              Background

     Churchill, a real-estate agent in Riverside County,

California, works on commission.    His fortunes vary from year to

year--his income ranged from a high of $49,146 in 1996 to a low

of $1,612 in 2005.   Although he filed returns for most years, he

didn’t pay the income taxes that he owed for 1992 through 2004.1

     Churchill married Sharon Schwarz in 2001, but they both

continued to file separate tax returns.    Churchill says the

marriage was one of convenience, endured only so he could get on

Schwarz’s health insurance.    It was certainly a marriage that was

in trouble from the start--the couple separated in 2004, and

Churchill filed for divorce in May 2005.    But he never followed

through, and he and Schwarz reunited in January 2006.    Five

months later, though, the Commissioner finally came to collect.

     He began by sending a notice of filing a federal tax lien

for Churchill’s 1992-2004 tax debts and, two months later, a


     1
       The Commissioner prepared substituted returns under
section 6020(b) for Churchill’s 1992, 1993, 1994, and 2002 tax
years. (Unless otherwise noted, all section references are to
the Internal Revenue Code, and Rule references are to our Rules
of Practice and Procedure.)
                               - 3 -

final notice of intent to levy for the 1998-2004 tax debts.

Churchill asked for a collection due process (CDP) hearing under

sections 6320 and 6330, and wanted to discuss an offer in

compromise as a collection alternative to the lien and levy.    But

there was even more at stake--Schwarz warned him that if he did

not fix his tax problems she would divorce him.   Churchill

submitted a cash offer of $2,500.

     At the CDP hearing, the Appeals officer discussed both the

cash offer and the possibility of an installment agreement with

Churchill, Schwarz, and Churchill’s attorney.   She asked for

additional and updated financial information from both Churchill

and Schwarz.   Churchill argued that his very low 2005 income--

remember that it was only $1,612--was an accurate forecast of

what he would likely earn for the next five years.   He was

especially concerned about his health, he explained, and

submitted a doctor’s note listing his ailments.   The CDP process

stalled for a time because, as the IRS’s own records show,

Churchill had a third heart attack while Appeals pondered his

offer.

     The Appeals officer asked for more information, but neither

Churchill nor Schwarz responded, and in May 2007, the Appeals

officer sent Churchill a letter with a preliminary analysis of

his offer.   She stressed that with the information she had

available, the IRS would reject Churchill’s offer because it was
                                - 4 -

so much lower than what she calculated to be his “reasonable

collection potential” (RCP).

       This is the heart of the case.   The Appeals officer

calculated Churchill’s RCP by adding Schwarz’s 2005 income to

his.    Doing so meant Churchill had monthly income of $5,828 and

expenses of $4,400, leaving $1,428 available for tax payments.

The Appeals officer multiplied $1,428 by 86 (the number of months

she thought an offer should last) and found his RCP to be

$122,808.    (She included no assets in her computation because

neither spouse had any significant equity in major property like

real estate or cars.)    She wrote Churchill that $122,808 was the

minimum offer the Commissioner would accept, and she recommended

that he increase his offer to this amount or provide additional

information if he thought she should lower it.

       Churchill didn’t respond, so she recommended that his offer

be rejected and the lien and levy sustained.     The Commissioner

then issued the two notices of determination which Churchill

appeals here.    Before we tried the case in Los Angeles--Churchill

lived in California when he filed the petition--the parties

agreed to submit it for decision under Rule 122.     After the CDP

hearing but before the notices of determination and before the

case was submitted, the tax agony proved too much for Schwarz.

Her marriage with Churchill was dissolved.     See Churchill v.
                                - 5 -

Schwarz, No. RID209993 (Cal. Super. Ct. July 31, 2007) (notice of

entry of judgment).

                              Discussion

     When we review a CDP hearing where the underlying liability

isn’t in question, we review the Appeals officer’s actions for

abuse of discretion.    Sego v. Commissioner, 114 T.C. 604, 609-10

(2000).   A decisionmaker abuses his discretion “when [he] makes

an error of law * * * or rests [his] determination on a clearly

erroneous finding of fact * * * [or] ‘applies the correct law to

facts which are not clearly erroneous but rules in an irrational

manner.’”   United States v. Sherburne, 249 F.3d 1121, 1125-26

(9th Cir. 2001) (quoting Friedkin v. Sternberg, 85 F.3d 1400,

1405 (9th Cir. 1996), overruled on other grounds Murray v. Bammer

(In re Bammer), 131 F.3d 788 (1997)(en banc)); see also Cooter &

Gell v. Hartmarx Corp., 496 U.S. 384, 402-03 (1990) (same).

     CDP hearings often lead to settlements because they are a

place where a taxpayer can suggest alternatives to the harsher

methods the IRS uses to collect debts.     Sec. 6330(c)(2)(A)(iii).

One such alternative is an offer in compromise, where the

taxpayer asks the Commissioner to settle old tax debt for less

than its full value, on one of three grounds:    doubt as to

liability, doubt as to collectibility, or promotion of effective

tax administration.    Sec. 301.7122-1(b), Proced. & Admin. Regs.

Churchill’s offer was based on doubt as to collectibility,
                                 - 6 -

meaning that Churchill was saying that his assets and income

weren’t enough to pay the tax debt.      Id. par. (a)(1), (b)(2).

The Commissioner has discretion to accept or reject the offer, as

long as he considers all of the facts and circumstances.       Id.

par. (c).

     The Commissioner has guidelines to enable Appeals officers

to evaluate offers and maintain some reasonable degree of

uniformity.    The key concept under these guidelines is the

calculation of a taxpayer’s RCP.      Internal Revenue Manual (IRM)

pt. 5.8.5.1 (Sept. 1, 2005).     An Appeals officer’s calculation of

an RCP depends on the officer’s estimate of the taxpayer’s likely

future income and the current value of his assets.      The officer

estimates future income by calculating current monthly disposable

income (income minus necessary living expenses) and multiplies

the result by a certain number of months (the multiplier).        Id.

pt. 5.8.5.5(1).    The multiplier depends on which type of payment

plan the taxpayer offered.     Id.   If a taxpayer’s offer is for a

one-time cash payment, like Churchill’s, the starting point is 48

months.     Id. pt. 5.8.5.5(1)(A).   The multiplier can then be

increased or decreased for considerations that may affect a

taxpayer’s future income or expenses, including his age or

health.   Id. pt. 5.8.5.5(4) and (5).

     The law gives the Commissioner very wide discretion in this

area, and we generally uphold the rejection of an offer when the
                                 - 7 -

Appeals officer has followed the IRM.    Atchison v. Commissioner,

T.C. Memo. 2009-8.   The IRM directs Appeals officers to reject

offers for less than a taxpayer’s RCP unless the taxpayer proves

he has special circumstances.2    Rev. Proc. 2003-71, sec. 4.02(2),

2003-2 C.B. 517, 517.   Without proof of special circumstances,

the Appeals officer rejected Churchill’s offer because it was

significantly less than his RCP.    We look to see if her

calculation of the RCP was reasonable, or at least not arbitrary,

capricious, or without a basis in law or fact.    See Murphy v.

Commissioner, 125 T.C. 301, 321 (2005), affd. 469 F.3d 27 (1st

Cir. 2006).

     Churchill raises several issues in his petition:3      first, he

claims his offer was wrongly rejected because the Appeals officer

considered income and assets belonging to his now ex-wife.

Churchill also argues that Schwarz’s income and assets shouldn’t

be included because their marriage was one of convenience.      He

     2
       “Special circumstances” include economic hardship to the
taxpayer if the Commissioner collected the full RCP, or other
considerations of public policy or equity that would also justify
accepting less. IRM pt. 5.8.4.3(4) (Sept. 1, 2005); see also
Murphy v. Commissioner, 125 T.C. 301, 309 (2000), affd. 469 F.3d
27 (1st Cir. 2006). Churchill has not argued either of these
issues here.
     3
       Churchill failed to file a posttrial brief. While the
Court could dismiss his case entirely, see Rules 123, 151(a);
Stringer v. Commissioner, 84 T.C. 693 (1985), affd. 789 F.2d 917
(4th Cir. 1986), we will not do so. We do, however, deem
Churchill to have conceded any issues that he did not otherwise
contest. See Diesel Country Truck Stop, Inc. v. Commissioner,
T.C. Memo. 2000-317.
                                 - 8 -

states that the Appeals officer should have included expenses for

health insurance and didn’t consider his age and current medical

condition in her RCP calculation.

     We start with the easy questions.    Churchill claims that the

Appeals officer abused her discretion in not considering his

medical condition.    This would generally be taken into account by

decreasing the multiplier used in the RCP.     See IRM pt. 5.8.5.5

(Sept. 1, 2005).     It is true that the notices of determination do

not recite specific consideration of his age and health.    The

Appeals officer’s notes from the CDP hearing, however, show that

she knew of Churchill’s health concerns and asked him about his

ability to work over the next five years.     The record indicates

that Churchill agreed that despite his health concerns his 2005

income was a good predictor for the next five years.    Though his

petition states that he could work only two to three more years,

he did not dispute this point during the CDP hearing.    Therefore

we cannot find that the Appeals officer abused her discretion in

not applying a 24- or 36-month multiplier.4



     4
        It is not clear why the Appeals officer used 86 months
when it appeared that Churchill made a cash offer. She even
explained the “48/60 month factor” to Churchill during the CDP
hearing. See IRM pt. 5.8.5.5 (Sept. 1, 2005). We note, however,
that using a 48-month factor (the appropriate starting point for
a cash offer), Churchill’s RCP would be $68,544, still well above
the $2,500 offered. Even if we further discounted for his age
and health, applying his 24-month estimate, Churchill’s RCP would
be $34,272 and his offer would still have been rejected.
                                - 9 -

     Churchill also claims he provided evidence of the cost of

his health insurance at the CDP hearing even though the Appeals

officer noted in the file that he had not.   The record does have

a letter from the Appeals officer to Churchill stating that she

had no evidence of this cost and giving him an opportunity to

send it in.   We find no error by the Appeals officer here, and

Churchill never argued the point to us.   The lack of proof means

she did not abuse her discretion in excluding the cost of

Churchill’s health insurance.

     This brings us to the big money–-should the Appeals officer

have considered Schwarz’s income and assets in evaluating

Churchill’s offer?   And if so, can we revisit that consideration

here in light of Churchill’s newly single status?

     California is famously a community-property state.   Cal.

Fam. Code sec. 760 (West 2004).   This means that spouses in

California are generally liable for each other’s debts, even if

incurred before the marriage.   Cal. Fam. Code sec. 910(a) (West

2004); In Re Soderling, 998 F.2d 730, 733 (9th Cir. 1993).

Because Churchill was married at the time of the CDP hearing, the

Appeals officer was right to consider Schwarz’s assets and income
                               - 10 -

in evaluating his offer.5   See sec. 301.7122-1(c)(2)(ii)(B),

Proced. & Admin. Regs.

       Churchill also argues that the Appeals officer improperly

included property owned by Schwarz in which she didn’t have any

equity.    The Appeals officer, however, agreed with Churchill on

this point.    We conclude again that the Appeals officer’s RCP

calculation was reasonable based on the information she had, and

so not an abuse of discretion.

       Churchill likewise argues that the Appeals officer

improperly included as a source of future income distributions

from an empty retirement account that Schwarz owned.    We can find

no evidence of this.    It appears that the Appeals officer used

Schwarz’s wages, which included deferred compensation--presumably

contributions to a retirement account.    Using current wages

correctly estimates Schwarz’s future income; therefore, even if

the retirement account is empty, it would not change the RCP

calculation.

       An Appeals officer necessarily reviews an offer by looking

at a snapshot of a taxpayer’s financial situation at the time of

the CDP hearing.    See Nihiser v. Commissioner, T.C. Memo. 2008-

135.    In deciding whether an Appeals officer abused her


       5
       Churchill claims that Schwarz’s assets and income should
not be included because their marriage was one of convenience.
The Commissioner does not distinguish among motivations for
marriage: for income-tax purposes, married is married.
                               - 11 -

discretion, it obviously makes no sense to consider information

she didn’t have at the time.   Magana v. Commissioner, 118 T.C.

488, 494 (2002).   We therefore exclude as immaterial any evidence

that the Appeals officer didn’t consider.   Murphy, 125 T.C. 301;

Eliason v. Commissioner, T.C. Memo. 2002-227.

     But Churchill argues this case presents an unusual issue–-he

is now divorced.   So what happens when a taxpayer has a change in

circumstances after the CDP hearing, but before we decide his

case?

     At one time, we thought we could consider new information

where it became available after the CDP hearing--at least when it

wasn’t the taxpayer’s fault that he didn’t raise the issue

before.   See Magana, 118 T.C. at 494 (“This case does not involve

an allegation of recent, unusual illness or hardship * * * that

might cause us to make an exception to the general rule set forth

herein and to consider petitioner's new hardship argument”).      A

few years later, however, we firmly limited our review of section

6330(c)(2) issues to those presented in the CDP hearing.    See

Giamelli v. Commissioner, 129 T.C. 107, 115 (2007).   Accordingly,

the Court cannot now update Churchill’s snapshot and make our own

determination.   But can we remand?

     Absent limiting statutes, courts generally have “the

inherent authority to issue such orders as they deem necessary
                               - 12 -

and prudent to achieve the ‘orderly and expeditious disposition

of cases.’”   Williams v. Commissioner, 92 T.C. 920, 932 (1989)

(citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-65

(1980), and quoting Link v. Wabash R.R. Co., 370 U.S. 626, 630-31

(1962)).   In Friday v. Commissioner, 124 T.C. 220, 221-22 (2005),

we noted in dicta that we can remand to an agency if it retains

jurisdiction over the underlying case, such as the Appeals Office

does in a CDP determination.   See sec. 6330(d)(2); sec.

301.6330-1(h)(1), Proced. & Admin. Regs.

     We certainly can remand in CDP cases when an Appeals officer

abused his discretion in some way.      See Med. Practice Solutions,

LLC v. Commissioner, T.C. Memo. 2009-214 (remanding because the

Appeals officer determined to proceed with collection without

making the requisite verifications).     We also remand when, for

example, the Appeals officer didn’t develop the record enough for

us to properly review it.   See Hoyle v. Commissioner, 131 T.C.

197, 204-05 (2008).

     One might consider remand to be, in both these situations, a

response to an error we’ve found that we want the Appeals Office

to fix.    But we’ve also remanded where the law changed between

the CDP hearing and the Tax Court trial if that may have affected

a taxpayer’s presentation of his case.      Harrell v. Commissioner,

T.C. Memo. 2003-271.   We’ve even hinted that we might remand when

the Appeals Office didn’t abuse its discretion and the law didn’t
                               - 13 -

change–-as long as the remand would be “helpful”.      Wells v.

Commissioner, T.C. Memo. 2003-234 n.6, affd. 108 Fed. Appx. 440

(9th Cir. 2004); see also Ashlock v. Commissioner, T.C. Memo.

2008-58 (noting taxpayer declined remand to consider changed

financial circumstances).    Phrased another way, “we return a case

to Appeals if we consider a rehearing ‘necessary or productive.’”

Martin v. Commissioner, T.C. Memo. 2003-288 (citing Lunsford v.

Commissioner, 117 T.C. 183, 189 (2001)), affd. 436 F.3d 1216

(10th Cir. 2006).

     In this case, we take the hint we’ve made and hold that

remand is appropriate in cases where there has been a material

change in a taxpayer’s factual circumstances between the time of

the hearing and the time a case lands on our trial calendar.        As

we held in Giamelli, it’s not sensible for us to hold that the

Appeals Office has abused its discretion in failing to consider

information that it didn’t have any way of knowing about.         129

T.C. at 115.   We said there that we didn’t want to usurp the

Appeals officer’s role or frustrate the statutory administrative

review process by litigating new issues without prior

consideration by the Commissioner.      Id. at 114-15; see also

Hoyle, 131 T.C. at 201-02.

     Even more compelling is that the Supreme Court has held that

when there is a question of “changed circumstances” raised on
                                - 14 -

appeal, well-established principles of administrative law6 will

generally require the issue be remanded back to the agency for

its consideration.     INS v. Ventura, 537 U.S. 12, 14-18 (2002);

see also SKF USA, Inc. v. United States, 254 F.3d 1022, 1028

(Fed. Cir. 2001) (remand generally required when subsequent

events may affect the validity of the agency action).    It is

clear that remand doesn’t “encroach upon administrative

functions.”     Ford Motor Co. v. NLRB, 305 U.S. 364, 374 (1939).

        We therefore hold that we do have authority to remand a CDP

case for consideration of changed circumstances when remand would

be helpful, necessary, or productive.    This standard is satisfied

in this case.     This means that the answer to the question with

which we began--did the Commissioner abuse his discretion in

declining Churchill’s offer in compromise--is that we can’t say

yet.7


        6
       An appellate court cannot substitute its judgment for that
of the agency. INS v. Ventura, 537 U.S. 12, 16 (2002). Thus an
appellate court “‘is not generally empowered to conduct a de novo
inquiry into the matter being reviewed and to reach its own
conclusions based on such inquiry.’ * * * Rather, ‘the proper
course, except in rare circumstances, is to remand to the agency
for additional investigation or explanation.’” Id. (quoting Fla.
Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985)).
        7
       When we remand a case to IRS Appeals, “the further hearing
is a supplement to the taxpayer’s original section 6330 hearing,
[and] not a new hearing.” See Kelby v. Commissioner, 130 T.C.
79, 86 (2008). The Commissioner then issues supplemental
determinations after the further hearing, which we can review.
Id. Once the Commissioner issues supplemental determinations,
however, we cannot review any of the prior notices of
                                                   (continued...)
                             - 15 -

     Because Churchill hasn’t brought any changed circumstances

regarding his health-insurance expenses or medical condition to

our attention, the Commissioner need not reconsider these

expenses, but should of course apply the correct monthly

multiplier in calculating Churchill’s new RCP.   See Indus.

Investors v. Commissioner, T.C. Memo. 2007-93 n.6 (harmless

errors should also be fixed on remand) (citing Kerner v.

Celebrezze, 340 F.2d 736, 740 (2d Cir. 1965)).


                                        An appropriate order

                                   will be issued.




     7
     (...continued)
determination. See id. (“[T]he position of the Commissioner that
we review is the position taken in the last supplemental
determination”).
