                              T.C. Memo. 2014-152



                        UNITED STATES TAX COURT



                 MICAH J. BERGDALE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 15174-11L.                        Filed July 30, 2014.



      Mark D. Allison, John A. Calabro, and Timothy J. Sullivan, for petitioner.

      Jane J. Kim, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      WELLS, Judge: Petitioner seeks review, pursuant to section 6320, of

respondent’s determination to proceed with collection of petitioner’s unpaid

employment tax liabilities for periods ending September 30 and December 31,

2004, and March 31, 2005, and unpaid FUTA tax liabilities for petitioner’s 2004
                                         -2-

[*2] tax year.1 We have been asked to decide whether the Appeals Office abused

its discretion in sustaining respondent’s collection actions.

                               FINDINGS OF FACT

      Some of the facts and certain exhibits have been stipulated. The parties’

stipulated facts and the attached exhibits are incorporated in this opinion by

reference and are found accordingly. At the time of filing the petition, petitioner

resided in New York.

      Petitioner was the founder and sole member of Digital Criterion, LLC (DC

LLC), which was organized in Illinois on November 26, 2003. DC LLC self-

assessed but did not pay trust fund portions of its FICA taxes for the periods

ending September 30 and December 31, 2004, and March 31, 2005, and FUTA tax

for its 2004 tax year (employment tax liabilities). During 2005 and 2006

respondent filed against DC LLC notices of lien for the employment tax liabilities

in Cook County and in the State of Illinois. Respondent sent to DC LLC a Letter

3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC




      1
        Unless otherwise indicated, section and Internal Revenue Code references
are to the Internal Revenue Code of 1986, as amended and as in effect at all
relevant times, and Rule references are to the Tax Court Rules of Practice and
Procedure.
                                         -3-

[*3] 6320, for each of the lien notices filed against DC LLC. On April 30, 2006,

petitioner dissolved DC LLC.

      On December 1, 2010, respondent filed against petitioner a notice of

Federal tax lien (NFTL) with the Registers Office of Bronx County, Bronx, New

York, for the employment tax liabilities. The NFTL stated that petitioner’s unpaid

employment tax liabilities totaled $31,028.02. Respondent sent petitioner a Letter

3172 to inform him of the filing of the NFTL and of his right to a collection due

process (CDP) hearing. On December 20, 2010, respondent received from

petitioner a Form 12153, Request for a Collection Due Process or Equivalent

Hearing, requesting respondent to withdraw the lien. Petitioner’s request for a

CDP hearing was assigned to Settlement Officer Howard Smith in the Appeals

Office.

      On March 24, 2011, Mr. Smith sent petitioner a letter to schedule a CDP

hearing for April 6, 2011, and to inform him that he would need to submit a Form

443-A, Collection Information Statement for Wage Earners and Self-Employed

Individuals, or a Form 433-B, Collection Information Statement for Businesses, if

he wanted Mr. Smith to consider collection alternatives. On March 28, 2011,

petitioner faxed a letter to Mr. Smith contending that (1) the lien was invalid, (2)

the tax was invalid, (3) respondent should not have rejected a previously submitted
                                       -4-

[*4] offer-in-compromise, and (4) the tax was becoming uncollectible. On April

6, 2011, Mr. Smith and petitioner participated in a conference call during which

Mr. Smith explained the NFTL against petitioner for the employment tax liabilities

attributed to DC LLC. After the CDP conference call petitioner submitted a Form

433-A and a Form 433-B to Mr. Smith. Although petitioner had previously

submitted offers-in-compromise to the Internal Revenue Service in 2005 and

2010, he did not submit a Form 656, Offer in Compromise, to Mr. Smith during

the CDP hearing.

      On May 19, 2011, petitioner and Mr. Smith participated in a face-to-face

CDP hearing to discuss his offer-in-compromise and to review his financial

documents. During the hearing Mr. Smith indicated to petitioner that an offer-in-

compromise of $25,000 would be acceptable. Petitioner informed Mr. Smith that

he would attempt to find sources from which to fund an offer-in-compromise of

$25,000.

      On May 21, 2011, petitioner faxed a letter to Mr. Smith informing him that

petitioner would not be able to fund an offer-in-compromise of $25,000 and

instead proposing a new offer-in-compromise of $10,000. The letter was not

signed under penalty of perjury and did not include a Form 656, a waiver to allow
                                         -5-

[*5] Mr. Smith to contact third parties, or an installment payment of the

compromise amount.

      On June 13, 2011, Mr. Smith issued to DC LLC a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of

determination). In the notice of determination, Mr. Smith (1) rejected petitioner’s

offer-in-compromise of $10,000 because, inter alia, it was not properly submitted

and (2) sustained the NFTL.

                                      OPINION

I.    Jurisdiction

      Although neither party has questioned whether we have jurisdiction over the

instant case, this Court may raise the issue at any time sua sponte. Urbano v.

Commissioner, 122 T.C. 384, 389 (2004). “The failure to question our jurisdiction

is not a waiver of the right to do so, for if we lack jurisdiction over an issue, we do

not have the power to decide it.” Id. In general, our jurisdiction to review a

collection action is dependent on the issuance of a valid notice of determination

and a timely petition for review. Secs. 6320(c), 6330(d)(1); Offiler v.

Commissioner, 114 T.C. 492, 498 (2000).

      The reason that we address our jurisdiction is that the notice of

determination was issued to DC LLC and not to petitioner individually even
                                        -6-

[*6] though (1) respondent filed the NFTL against petitioner and sent the Letter

3172 to petitioner and (2) petitioner requested the CDP hearing by filing Form

12153. Petitioner then filed a petition to this court. Under similar circumstances

in Med. Practice Solutions LLC v. Commissioner, 132 T.C. 125, 127 (2009), aff’d

without published opinion sub nom. Britton v. Shulman, 2010 WL 3565790 (1st

Cir. 2010), the taxpayer argued that this Court lacked jurisdiction to sustain the

Commissioner’s actions to collect unpaid employment tax liabilities because the

notice of determination was issued to her single-member limited liability company

and not to her as an individual. We concluded that, for purposes of employment

tax liabilities for wages paid before January 1, 2009, the applicable regulations

provided that “the * * * [limited liability company] and its sole member are a

single taxpayer or person to whom notice is given.” Id. As in Med. Practice

Solutions LLC, we conclude that for purposes of the instant proceeding, DC LLC

and petitioner are a single taxpayer or person to whom notice is given. See id.

Additionally, we conclude that the mislabeled notice of determination was a

harmless error because (1) petitioner was notified of the filing of the NFTL and

the specific employment tax liabilities covered by the NFTL, (2) petitioner

requested and was granted two CDP hearings, and (3) petitioner timely petitioned

this Court for review of the notice of determination. See Med. Practice Solutions
                                        -7-

[*7] LLC v. Commissioner, T.C. Memo. 2010-98, 2010 WL 1780874, at *7-*8

n.15. Accordingly, we conclude that we have jurisdiction pursuant to section

6330(d)(1) to determine whether the Appeals Office abused its discretion in

sustaining the NFTL. See Med. Practice Solutions LLC v. Commissioner, 132

T.C. at 127.

II.   Review of Respondent’s Notice of Determination

      Pursuant to section 6321, the Federal Government obtains a lien against “all

property and rights to property, whether real or personal” of any person liable for

Federal taxes upon demand for payment and failure to pay. See Iannone v.

Commissioner, 122 T.C. 287, 293 (2004). However, section 6320(a)(1) requires

the Commissioner to give a taxpayer written notice of the filing of a notice of

Federal tax lien upon that taxpayer’s property. The notice of filing must inform

the taxpayer of the right to request a hearing in the Appeals Office. Sec.

6320(a)(3)(B), (b)(1).

      Section 6330(c), (d),(e), and (g) generally governs the conduct of a hearing

requested under section 6320. Sec. 6320(c). At the hearing, the taxpayer may

raise any relevant issues, including appropriate spousal defenses, challenges to the

appropriateness of collection actions, and collection alternatives. Sec.

6330(c)(2)(A). The taxpayer may challenge the underlying tax liability at the
                                          -8-

[*8] hearing only if the taxpayer did not receive a statutory notice of deficiency or

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

addition to considering issues raised by the taxpayer under section 6330(c)(2), the

Appeals Office must verify that the requirements of any applicable law or

administrative procedure have been met. Sec. 6330(c)(1), (3).

      Where the validity of the underlying tax liability is properly in issue, the

Court will review the matter de novo. Sego v. Commissioner, 114 T.C. 604, 610

(2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). However, where

the validity of the underlying tax liability is not properly in issue, the Court will

review the Commissioner’s determination for abuse of discretion. Sego v.

Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 181-182. At

trial petitioner conceded any challenge to the validity of the underlying tax

liabilities.2 Accordingly, we review the Appeals Office’s determination for abuse

of discretion.




      2
        Moreover, in a lien or levy action under sec. 6320 or 6330 before this
Court, the petition must contain “[c]lear and concise assignments of each and
every error which the petitioner alleges to have been committed in the notice of
determination.” Rule 331(b)(4). Any issue not raised in the assignments of error
shall be deemed to be conceded. Id. In his petition, petitioner did not challenge
the validity of the underlying tax liabilities and, therefore, we preclude him from
doing so now.
                                         -9-

[*9] In reviewing the Appeals Office’s determination for abuse of discretion, we

will reject the determination of the Appeals Office only if the determination was

arbitrary, capricious, or without sound basis in fact or law.3 See Rule 142(a);

Murphy v. Commissioner, 125 T.C. 301, 308 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006). We do not substitute our judgment for that of the Appeals Office, and we

do not decide independently whether we believe that the lien notice should be

withdrawn. See Murphy v. Commissioner, 125 T.C. at 320. Instead, we consider

whether, in the course of making its determination, the Appeals Office (1) verified

that the requirements of applicable law and administrative procedure have been

met, (2) considered any relevant issue raised by the taxpayer that relates to the

unpaid tax or the proposed lien action, and (3) 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)(1)-(3).

      A.     Rejection of Petitioner’s Offer-in-Compromise

      Petitioner contends that the Appeals Office abused its discretion when it

denied his proposed offer-in-compromise. Respondent contends that the Appeals


      3
       Petitioner has not raised sec. 7491, and, therefore, we will not consider the
issue. Consequently, petitioner bears the burden of proof. See Rule 142(a).
                                        - 10 -

[*10] Office did not abuse its discretion because petitioner failed to submit a valid

offer-in-compromise on a Form 656 as required by section 601.203(b), Statement

of Procedural Rules. We agree with respondent.

      The settlement of disputed tax liabilities is governed by sections 7121 and

7122, which authorize the Commissioner to settle any tax disputes and

compromise any civil or criminal case arising under the internal revenue laws.

Holland v. Commissioner, T.C. Memo. 2013-205, at *10. The regulations and

procedures pursuant to section 7122 provide the exclusive method of effecting a

binding nonjudicial compromise. Laurins v. Commissioner, 889 F.2d 910, 912

(9th Cir. 1989), aff’g Norman v. Commissioner, T.C. Memo. 1987-265; Shumaker

v. Commissioner, 648 F.2d 1198, 1199-1200 (9th Cir. 1981) (citing Botany

Worsted Mills v. United States, 278 U.S. 282, 288-289 (1929)), aff’g in part, rev’g

in part and remanding per curiam on other grounds T.C. Memo. 1979-71. Section

301.7122-1(d), Proced. & Admin. Regs., provides:

      An offer to compromise a tax liability pursuant to section 7122 must
      be submitted according to the procedures, and in the form and
      manner, prescribed by the Secretary. An offer to compromise a tax
      liability must be made in writing, must be signed by the taxpayer
      under penalty of perjury, and must contain all of the information
      prescribed or requested by the Secretary. * * *
                                          - 11 -

[*11] See Nash v. Commissioner, T.C. Memo. 2008-250, 2008 WL 4791555,

at *2; Harbaugh v. Commissioner, T.C. Memo. 2003-316, 2003 WL 22674216,

at *3.

         An OIC must be submitted on a special form prescribed by the Secretary.

Riederich v. Commissioner, 985 F.2d 574, 1993 WL 28230, at *1 (9th Cir. 1993),

aff’g without published opinion T.C. Memo. 1991-164; Laurins v. Commissioner,

889 F.2d at 912. Section 601.203(b), Statement of Procedural Rules, specifies

Form 656 as the form required for an offer-in-compromise:

         Offers in compromise are required to be submitted on Form 656,
         properly executed, and accompanied by a financial statement on Form
         433 (if based on inability to pay). Form 656 is used in all cases
         regardless of whether the amount of the offer is tendered in full at the
         time the offer is filed or the amount of the offer is to be paid by
         deferred payment or payments. * * *

See also Godwin v. Commissioner, T.C. Memo. 2003-289, 2003 WL 22333018, at

*11 (“Taxpayers who wish to propose an offer-in-compromise must submit a Form

656, Offer in Compromise[.]”), aff’d, 132 Fed. Appx. 785 (11th Cir. 2005);

Ringgold v. Commissioner, T.C. Memo. 2003-199, 2003 WL 21540434, at *1-*2.

         Petitioner admits that he did not submit his offer-in-compromise on a

properly completed Form 656. We previously have held that there is no abuse of

discretion when the settlement officer fails to consider a taxpayer’s request for an
                                        - 12 -

[*12] offer-in-compromise when a Form 656 was not filed. See Kendricks v.

Commissioner, 124 T.C. 69, 79 (2005); Holland v. Commissioner, at *11; Gentile

v. Commissioner, T.C. Memo. 2013-175, at *9; Waring v. Commissioner, T.C.

Memo. 2011-270, 2011 WL 5555694, at *2; Ludzack v. Commissioner, T.C.

Memo. 2011-111, 2011 WL 2132966, at *2. Accordingly, we conclude that the

Appeals Office did not abuse its discretion in denying petitioner’s informal offer-

in-compromise.

      As we noted above, petitioner does not contend that a Form 656 was filed;

instead he contends that respondent should not be permitted to allege that

petitioner failed to file a Form 656. Specifically, petitioner contends that

respondent’s position that petitioner failed to file a Form 656 was a new legal

theory that respondent improperly raised for the first time at trial and that allowing

respondent to proceed with the theory would be unduly prejudicial to him. We

disagree. It is well established that a party may rely upon a theory if the opposing

party has been provided with fair warning of the intention to base an argument

upon that theory. See Pagel Inc. v. Commissioner, 91 T.C. 200, 211-212 (1988),

aff’d, 905 F.2d 1190 (8th Cir. 1990). “Fair warning” means that the

Commissioner’s failure to give notice, in the notice of determination or in the

pleadings, of his intention to rely on a particular theory did not prejudice the
                                        - 13 -

[*13] taxpayer’s ability to prepare a case. See id. The Commissioner may

discharge his duty of informing the taxpayer by expressly notifying the taxpayer of

the intended theories in the notice of determination or in the Commissioner’s

answer. See Fox Chevrolet, Inc. v. Commissioner, 76 T.C. 708, 735 (1981) (citing

Commissioner v. Transport Mfg. & Equip. Co., 478 F.2d 731, 736 (8th Cir. 1973),

aff’g Riss v. Commissioner, 56 T.C. 388 (1971) and 57 T.C. 469 (1971)). In the

notice of determination, respondent informed petitioner that petitioner had not

submitted an offer-in-compromise. Respondent reiterated this contention in his

pretrial memorandum, stating that “[p]etitioner failed to submit a formal [offer-in-

compromise] ”. See Wilson v. Commissioner, T.C. Memo. 2002-61 (finding no

prejudice or disadvantage to taxpayers where the Commissioner discusses new

legal theories in his pretrial memorandum), aff’d, 71 Fed. Appx. 623 (9th Cir.

2003); Schaefer v. Commissioner, T.C. Memo. 1992-205 (same). Additionally,

the issue before us is whether the Appeals Office abused its discretion;

respondent’s theory is not a separate legal issue, but “merely supports or

amplifies” his argument that the Appeals Office did not abuse its discretion. See

Moore v. Commissioner, T.C. Memo. 2013-249, at *15. Accordingly, respondent

is not barred from asserting the position that petitioner failed to file a Form 656.
                                      - 14 -

[*14] Petitioner also contends that a Form 656 is not required if an informal

settlement has been reached, relying on our previous analysis in Johnson v.

Commissioner, 136 T.C. 475 (2011), aff’d, 502 Fed. Appx. 1 (D.C. Cir. 2013).

Petitioner alleges that he requested an informal offer-in-compromise when he

submitted a written letter, along with a Form 433-A and a Form 433-B and other

supporting financial documentation, and that Mr. Smith had orally agreed to an

offer-in-compromise of $6,000. Petitioner’s reliance on Johnson is misplaced. In

Johnson, the taxpayer submitted during a single CDP hearing three formal offers-

in-compromise on Forms 656, before submitting an adjustment to the final Form

656 on a letter from his attorney. Id. at 478-480. This Court concluded that the

informal letter adjusting the taxpayer’s offer-in-compromise could be

characterized as an amendment to a previously filed Form 656 and that there was

“no provision in the pertinent regulations or Revenue Procedure that precludes an

amendment to an * * * [offer-in-compromise] or requires that such an amendment

take any particular form.” Id. at 488-489. However, petitioner never submitted a

Form 656 during the then-ongoing CDP hearing4 and, therefore, petitioner’s


      4
        Although petitioner previously submitted OICs during 2005 and 2010,
neither OIC was submitted during or in connection to the CDP hearing in the
instant case, which commenced during 2011. Therefore, the 2005 and 2010 OICs
do not qualify as previous OICs during the CDP hearing in question.
                                       - 15 -

[*15] informal letter could not have qualified as an amendment to a previously

filed Form 656.5 Moreover, petitioner’s discussions with Mr. Smith and alleged

oral agreement to an offer-in-compromise have no bearing on our analysis.

Administrative negotiations regarding compromise of a tax liability are not

binding against either party and not enforceable without compliance with section

7122. Rohn v. Commissioner, T.C. Memo. 1994-244, 1994 WL 232360, at *5.

Accordingly, we do not conclude that petitioner made a valid offer-in-compromise

or that he reached an informal settlement with Mr. Smith. See Harbaugh v.


      5
        Petitioner also relies on Sullivan v. Commissioner, T.C. Memo. 2009-4,
2009 WL 20979, in support of his contention. However, Sullivan is a
Memorandum Opinion of this Court, and Memorandum Opinions are not binding
precedent. Huffman v. Commissioner, 126 T.C. 322, 350 (2006) (citing Dunaway
v. Commissioner, 124 T.C. 80, 87 (2005)), aff’d, 518 F.3d 357 (6th Cir. 2008); see
also Nico v. Commissioner, 67 T.C. 647, 654 (1977), aff’d in part, rev’d in part on
other grounds, 565 F.2d 1234 (2d Cir. 1977). Moreover, the facts of Sullivan are
substantially similar to those of Johnson v. Commissioner, 136 T.C. 475 (2011),
aff’d, 502 Fed. Appx. 1 (D.C. Cir. 2013). In Sullivan, the taxpayers submitted
three formal offers-in-compromise on Forms 656 before submitting an adjustment
to the final Form 656 at the request of the Commissioner’s examining officer.
Sullivan v. Commissioner, 2009 WL 20979, at *10. We concluded that the
adjustment was “not a formal OIC for purposes of section 7122”, but we
nevertheless analyzed the adjustment as a collection alternative pursuant to sec.
6330(c)(2)(A)(iii). Id. Petitioner never submitted an official Form 656 during the
then-ongoing CDP hearing, and the informal offer-in-compromise letter did not
include a signature under penalty of perjury, a third-party waiver, or an installment
payment. Accordingly, we conclude that petitioner’s informal letter was not a
collection alternative that would give rise to a disposition similar to that in
Sullivan.
                                       - 16 -

[*16] Commissioner, 2003 WL 22674216, at *3-*4; Ringgold v. Commissioner,

2003 WL 21540434, at *1-*2 (“[P]etitioners did not submit an offer-in-

compromise on the appropriate form (i.e., Form 656)[.]”).

      Petitioner’s final contention is that he lacked knowledge of the requirement

to file a Form 656 because Mr. Smith never informed him of that requirement.

Petitioner alleges that Mr. Smith instead advised him not to file a Form 656

because, if the offer amount was less than his reasonable collection potential,

respondent would reject the offer-in-compromise and submission would be moot.

Respondent contends that petitioner was informed of the requirement to file a

Form 656. Mr. Smith credibly testified that he regularly informed taxpayers of the

requirement to file a Form 656 as part of his explanation of the offer-in-

compromise procedures and that he explained those procedures to petitioner

during the CDP conference call on April 6, 2011. Mr. Smith also explained that

he encouraged taxpayers to file offers-in-compromise but that each taxpayer had to

make his or her own decision. Petitioner’s contention that he lacked knowledge of

the requirement to file a Form 656 is further undermined by the fact that he

submitted valid offers-in-compromise during 2005 and 2010 and presumably knew

the submission process during those years. As we stated above, petitioner bears

the burden of proof. See Rule 142(a). Petitioner has not carried his burden of
                                         - 17 -

[*17] proving that Mr. Smith did not inform him of the requirement to file a Form

656, much less that Mr. Smith told him not to file the Form 656.

      Upon the basis of the foregoing, we conclude that the Appeals Office did

not abuse its discretion in denying petitioner’s informal offer-in-compromise.

      B.     Refusal To Withdraw NFTL

      In the notice of determination, respondent also sustained the NFTL, which

petitioner contends should be withdrawn. However, pursuant to section 6323(j),

an NFTL may be withdrawn without full payment and without prejudice under the

following conditions: (1) the filing of the NFTL was premature or otherwise not

in accordance with administrative procedures of the Internal Revenue Service; (2)

the taxpayer had entered into an installment agreement under section 6159 to

satisfy the tax liability for which the NFTL was imposed by means of installment

payments, unless such agreement provides otherwise; (3) withdrawal of the NFTL

will facilitate collection of the tax liability; (4) with the consent of the taxpayer or

the National Taxpayer Advocate, the withdrawal of such notice would be in the

best interest of the taxpayer (determined by the National Taxpayer Advocate or the

taxpayer) and the United States. See sec. 301.6323(j)-1, Proced. & Admin. Regs.

If the Commissioner determines conditions for withdrawal are present, the
                                        - 18 -

[*18] Commissioner may, but is not required to, authorize the withdrawal. Sec.

301.6323(j)-1(c), Proced. & Admin. Regs.

       In his petition, petitioner contends that the NFTL has damaged his personal

credit report, resulted in the closure of his bank accounts and credit card accounts,

resulted in a loss of his business’ relationships with clients, and caused foreclosure

proceedings on his coop apartment. Petitioner also contends that the NFTL

hindered his ability to generate financing to satisfy his employment tax liabilities.

However, during the CDP hearing and throughout the instant case, petitioner

neither averred credible evidence beyond his bare allegations nor advanced any

detailed argument pursuant to section 6323(j) in support of his contention. See

Klika v. Commissioner, T.C. Memo. 2012-225, at *10-*11. Accordingly, we

conclude that respondent did not abuse his discretion when he upheld the NFTL.

III.   Conclusion

       Petitioner has not advanced any argument or introduced any evidence that

would cause us to conclude that the determinations to sustain the NFTL and reject

his offer-in-compromise were arbitrary, capricious, or without sound basis in fact.

Petitioner did not submit a valid Form 656 or other collection alternative and did

not offer credible evidence in support of lien withdrawal pursuant to section

6323(j). The Appeals Office determined that the requirements of applicable law
                                       - 19 -

[*19] and administrative procedure were met and concluded that the proposed

collection action appropriately balanced the need for efficient collection of taxes

with petitioner’s concerns regarding the intrusiveness of the action. Consequently,

we hold that the Appeals Office did not abuse its discretion when it issued a notice

of determination rejecting petitioner’s offer-in-compromise and upholding the

proposed collection action.

      In reaching these holdings, we have considered all the parties’ arguments,

and, to the extent not addressed herein, we conclude that they are moot, irrelevant,

or without merit.

      To reflect the foregoing,


                                                      Decision will be entered for

                                                respondent.
