                                T.C. Memo. 2016-99



                         UNITED STATES TAX COURT



             SYNERGY ENVIRONMENTAL, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 9376-12L.                          Filed May 16, 2016.



      Paul E. Kent, for petitioner.

      Lisa R. Woods and Bryant Smith, for respondent.



                           MEMORANDUM OPINION


       HAINES, Judge: This case was originally submitted on a stipulated record

pursuant to Rule 122,1 and in Synergy Envtl., Inc. v. Commissioner, T.C. Memo.


      1
       Unless otherwise indicated, all Rule references are to the Tax Court Rules
of Practice and Procedure, and all section references are to the Internal Revenue
Code, as amended and in effect at all relevant times. Amounts are rounded to the
                                                                        (continued...)
                                          -2-

[*2] 2014-140, we remanded the case to the IRS Appeals Office (Appeals) for a

supplemental hearing. On July 2, 2015, respondent issued his Supplemental

Notice of Determination Concerning Collection Action(s) under Section 6320

and/or 6330 (supplemental notice) rejecting petitioner’s offer-in-compromise and

sustaining the filing of the notice of Federal tax lien. We must determine whether

respondent abused his discretion in rejecting petitioner’s offer-in-compromise and

sustaining the filing of the notice of Federal tax lien.

                                     Background

      Petitioner, a defunct corporation, maintained its principal place of business

in California when the petition was filed. On August 31, 2010, respondent

received an offer-in-compromise (August 31 OIC) from petitioner offering $600 to

compromise unpaid Federal income tax liabilities totaling more than $1.6 million

for tax years ending September 30, 1997, 1998, 1999, and 2000 (years at issue).

Respondent rejected the August 31 OIC.

      In June 2011 respondent issued a notice to petitioner indicating that a notice

of Federal tax lien (lien notice) had been filed with respect to its outstanding tax




      1
       (...continued)
nearest dollar.
                                          -3-

[*3] liabilities for the years at issue and informing it that it was entitled to a

hearing under section 6320.

      In late July 2011 petitioner appealed the rejection of the August 31 OIC to

Appeals. A few days later petitioner timely requested a section 6320 hearing

regarding the lien notice with Appeals. In the lien notice hearing request

petitioner proposed an offer-in-compromise as a collection alternative.

      The August 31 OIC was not considered as a collection alternative at

petitioner’s section 6320 hearing with Appeals, and in Synergy Envtl., Inc. v.

Commissioner, T.C. Memo. 2014-140, we remanded the case to Appeals for a

supplemental hearing. On October 14, 2014, Appeals Officer Sylvester Fernando

(AO Fernando) held the supplemental hearing with petitioner’s attorney over the

telephone. Petitioner’s attorney also provided AO Fernando updated financial

information.

      On January 2, 2015, AO Fernando requested clarification regarding the

updated financial information. AO Fernando and petitioner’s attorney agreed that

the additional information would be provided by April 10, 2015. AO Fernando

was out of the office on unplanned medical leave on April 13, 2015, when

petitioner’s counsel faxed to Appeals approximately 60 pages of documents to

clarify the updated financial information. Because it was unclear when AO
                                         -4-

[*4] Fernando would return to work, the case was reassigned to Settlement Officer

Linda Cochran (SO Cochran).

      SO Cochran had no prior involvement with this matter. On the basis of the

supplemental hearing and her review of the administrative file, transcripts, and

additional documents that petitioner submitted, SO Cochran found that the

requirements of any applicable law or administrative procedure had been met in

this case.

      The August 31 OIC, which was submitted solely on doubt as to

collectibility, was considered as a collection alternative. For the years at issue

petitioner was calculated to owe $1,662,138 as of July 31, 2015. Considering

petitioner’s current financial information and filing compliance, the facts and

circumstances of the case, and the offer of $600 to compromise petitioner’s tax

liability, SO Cochran determined that petitioner’s offer-in-compromise met the

criteria for rejection in accordance with IRS Policy Statement P-5-89 and Internal

Revenue Manual (IRM) pt. 5.8.7.7.2 (Mar. 7, 2014).

      The supplemental notice was issued on July 2, 2015. It states:

      Based on the taxpayer’s current financial information, the taxpayer
      shows no income, no assets, and no ability to make payment towards
      the past due amounts. The taxpayer’s current financial information
      and its current filing compliance as well as the taxpayer’s overall
      facts, circumstances, and case history were considered. Based on the
                                         -5-

      [*5] taxpayer’s case history and fact pattern, the taxpayer meets
      criteria for * * * [offer-in-compromise] rejection, in accordance with
      IRS Policy Statement P-5-89 * * * Taken as a totality, the taxpayer
      shows a pattern of moving or eliminating its assets, all the while hotly
      contesting tax issues during the prolonged (10 year) audit and Tax
      Court processes. The taxpayer, therefore, meets * * * [offer-in-
      compromise] rejection criteria, as per Internal Revenue Manual
      (IRM) 5.8.7.7.2.

The supplemental notice goes on to state that “[t]he Settlement Officer’s attempt to

balance the taxpayer’s concerns with efficient collection must * * * be weighed in

favor of the government with respect to the lien issue.”

      On October 22, 2015, the Court filed petitioner’s amended petition.

                                      Discussion

      When any person liable to pay any tax neglects or refuses to do so after

notice and demand, a lien is imposed in favor of the United States on all property

and rights to property that belong to that person. Sec. 6321. The lien arises at the

time the assessment is made and continues until the liability is satisfied or

becomes unenforceable. Sec. 6322. Generally, in order for the lien to be valid

against third parties, the Secretary must file a lien notice with certain State or local

authorities where the taxpayer’s property is situated. Sec. 6323(a), (f); Lindsay v.

Commissioner, T.C. Memo. 2001-285, aff’d, 56 F. App’x 800 (9th Cir. 2003).
                                         -6-

[*6] The Secretary must furnish the taxpayer with a written notice of the filing of

a lien notice and of the taxpayer’s right to a hearing concerning the lien. Sec.

6320(a)(1), (3). If the taxpayer timely requests a hearing, the hearing is to be

conducted by an officer or employee of Appeals who has had no prior involvement

with respect to the unpaid taxes. Sec. 6320(b)(1), (3), (c). The taxpayer may raise

at the hearing “any relevant issue” relating to the unpaid tax or the lien, including

offers of collection alternatives such as an offer-in-compromise. Secs. 6320(c),

6330(c)(2)(A). Petitioner’s collection alternative, the August 31 OIC, was an offer

of $600 to compromise its liability exceeding $1.6 million.

      We have jurisdiction to review Appeals’ determinations. Secs. 6320(c),

6330(d). Because the underlying tax liability is not at issue, this Court’s review is

for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000);

Goza v. Commissioner, 114 T.C. 176, 182 (2000). The Court “do[es] not conduct

an independent review of what would be an acceptable offer in compromise.”

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006). The extent of our review is to determine whether Appeals’ decision to

reject the August 31 OIC as a collection alternative was arbitrary, capricious, or

without sound basis in fact or law. See id.
                                        -7-

[*7] The notice of determination sets forth Appeals’ findings and decisions. Sec.

301.6320-1(e)(3), Q&A-E8, Proced. & Admin. Regs. The notice of determination

will: (1) state whether the IRS met the requirements of any applicable law or

administrative procedure; (2) respond to any offers by the taxpayer for collection

alternatives; and (3) address “whether the continued existence of the filed * * *

[notice of Federal tax lien] represents a balance between the need for the efficient

collection of taxes and the legitimate concern of the taxpayer that any collection

action be no more intrusive than necessary.” Id.

      The supplemental notice states that SO Cochran found that the requirements

of any applicable law or administrative procedure had been met. The

supplemental notice also found that “[t]he Settlement Officer’s attempt to balance

the taxpayer’s concerns with efficient collection must * * * be weighed in favor of

the government with respect to the lien issue.” We cannot find that SO Cochran

failed to satisfy either of these requirements. Accordingly, we must turn to the

decision to reject the offer-in-compromise as a collection alternative.

      A taxpayer’s liability may be compromised where doubt as to collectibility

exists. Sec. 7122(a); sec. 301.7122-1, Proced. & Admin. Regs. “Doubt as to

collectibility exists in any case where the taxpayer’s assets and income are less

than the full amount of the liability.” Sec. 301.7122-1(b)(2), Proced. & Admin.
                                        -8-

[*8] Regs. However, the decision to accept or reject an offer to compromise is left

to the Secretary’s discretion. Id. para. (c)(1), Proced. & Admin. Regs. “The

determination whether to accept or reject an offer to compromise will be based

upon consideration of all the facts and circumstances, including whether the

circumstances of a particular case warrant acceptance of an amount that might not

otherwise be acceptable under the Secretary’s policies and procedures.” Id.

      IRS Policy Statement P-5-89 states that “[i]f the acceptance of an offer

might in any way be detrimental to the Government’s interests, it may be rejected

even though it is shown conclusively that the amounts offered are greater than

could reasonably be collected in any other manner.” IRM pt. 1.2.14.1.15 (July 26,

1960). IRM pt. 5.8.7.7.2. allows offers to be rejected on the basis of IRS Policy

Statement P-5-89 and outlines the criteria for rejecting offers-in-compromise on

such grounds. For example, an offer-in-compromise may be rejected on the basis

of a public policy decision in a situation where “[t]he taxpayer engaged in a

pattern of conduct suggesting intentional dissipation of assets.” Id. pt.

5.8.7.7.2(3).

      SO Cochran considered the facts and circumstances of this case and

determined that the August 31 OIC could be rejected pursuant to IRS Policy

Statement P-5-89 and IRM pt. 5.8.7.7.2. The supplemental notice states, in part
                                         -9-

[*9] that, “[t]aken as a totality, the taxpayer shows a pattern of moving or

eliminating assets”. We find that SO Cochran did not abuse her discretion by

rejecting an offer of $600 to compromise over $1.6 million and find that she did

not abuse her discretion in sustaining the filing of the notice of Federal tax lien.

See sec. 301.6320-1(e)(3), Q&A-E8, Proced. & Admin. Regs.

         In reaching our decision 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,


                                                     Decision will be entered for

                                               respondent.
