                  T.C. Memo. 2003-271



                UNITED STATES TAX COURT



     EDWARD H. AND ANNE G. HARRELL, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 4063-02L.             Filed September 17, 2003.



     During the course of R’s initial review of Ps’
offer in compromise based upon doubt as to liability
for tax liabilities for 1991, 1992, and 1993, R’s
revenue officer communicated with a member of R’s
counsel’s office. In a review of R’s initial rejection
of Ps’ offer in compromise, R’s Appeals Officer
Petrohovich communicated with the member of R’s
counsel’s office who had previously provided advice to
R’s revenue officer. Following the rejection by R’s
Appeals Office of Ps’ offer in compromise, R issued to
Ps a notice of intent to levy. In response, Ps filed a
request for a hearing pursuant to sec. 6330, I.R.C.
The requested sec. 6330, I.R.C., hearing was conducted
by Appeals Officer Martin (AO Martin), who had no prior
involvement with the tax and tax periods involved in
the review. AO Martin determined that collection by
levy was appropriate and issued to Ps a “NOTICE OF
DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
SECTION 6320 and/or 6330”.
                               - 2 -

          Ps filed a petition for judicial review pursuant
     to sec. 6330, I.R.C., in response to the determination
     by R to proceed with collection by levy of assessed tax
     liabilities for 1991, 1992, 1993, and 1999.

          Held: AO Martin was an impartial officer at the
     time she conducted the sec. 6330, I.R.C., hearing
     because at that time she had had no prior involvement
     with the unpaid taxes which are the subject of this
     case. Sec. 6330(b)(3), I.R.C.

          Held, further, in light of the intervening
     decision of the U.S. Supreme Court in Young v. United
     States, 535 U.S. 43 (2002), this case will be remanded
     to the Commissioner to permit Ps to reconsider their
     rejection of AO Martin’s suggested installment
     agreement based in part on Ps’ required concession of
     their 1991-93 tax liabilities, or to offer another
     collection alternative pursuant to sec.
     6330(c)(2)(A)(iii), I.R.C.



     Guy C. Crowgey, for petitioners.

     Mary Ann Waters, for respondent.



                        MEMORANDUM OPINION

     NIMS, Judge:   This case arises from a petition for judicial

review filed in response to a “NOTICE OF DETERMINATION CONCERNING

COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330” dated

January 22, 2002 (Notice of Determination).   The Notice of

Determination dealt with petitioners’ income tax liabilities for

tax years 1991, 1992, 1993, and 1999.   The parties agree that the
                               - 3 -

underlying tax liabilities are no longer in dispute.1   The sole

issue for decision is whether respondent’s decision that formed

the basis for the Notice of Determination was an abuse of

discretion.   Unless otherwise indicated, all section references

are to the Internal Revenue Code in effect at all relevant times.

     This case was submitted fully stipulated, and the facts are

so found.   The stipulations of the parties, with accompanying

exhibits, are incorporated herein by this reference.

                            Background

     At the time the petition was filed in this case, petitioners

resided in Virginia Beach, Virginia.

     Petitioner Edward H. Harrell filed for chapter 11 bankruptcy

on October 24, 1995.   Petitioner Anne G. Harrell filed for

chapter 11 bankruptcy on December 18, 1996.   Petitioners’ chapter

11 bankruptcy cases were consolidated on February 27, 1997.

Their consolidated chapter 11 bankruptcy case was dismissed on

June 30, 1997.




     1
      In Young v. United States, 535 U.S. 43 (2002), the Supreme
Court resolved the question whether tax liabilities in a posture
similar to those of petitioners for tax years 1991-93 could be
discharged in a bankruptcy proceeding. The Supreme Court held
that the 3-year lookback period contained in 11 U.S.C. sec.
507(a)(8)(A)(i) (2000) of the Bankruptcy Code is subject to
equitable tolling during the pendency of a prior bankruptcy
petition. Following the holding of that case, petitioners no
longer argue that their income tax liabilities for tax years
1991-93 were discharged as a result of their bankruptcy
proceeding.
                               - 4 -

     On the same day as the dismissal of their chapter 11

bankruptcy case, petitioners filed a petition for chapter 7

bankruptcy relief.   Petitioners were granted a discharge in their

chapter 7 bankruptcy case on June 11, 1998.

     On August 29, 1998, notices of Federal tax lien were filed

for petitioners’ income tax liabilities for tax years 1991, 1992,

and 1993.

     On or about October 30, 1998, the Internal Revenue Service

(IRS) received from petitioners:   (1) A request for an

installment agreement (Request for an Installment Agreement), (2)

financial statements, and (3) an offer in compromise (Offer in

Compromise).

     The Request for an Installment Agreement covered:    (a)

Income tax liabilities for tax years 1994, 1995, 1996, and 1997;

and (b) Form 940, Employer’s Annual Federal Unemployment Tax

Return, and Form 941, Employer’s Quarterly Federal Tax Return,

tax liabilities for tax periods ended March 31, June 30,

September 30, December 31, 1994, March 31, June 30, September 30,

December 31, 1995, March 31, June 30, and December 31, 1996.

     The Offer in Compromise was based on “doubt as to liability”

and covered:   (a) Income tax liabilities for tax years 1991,

1992, and 1993; and (b) the Trust Fund Recovery Penalty, see

section 6672, for tax periods ended December 31, 1993, March 31,

and June 30, 1994.   As grounds for the Offer in Compromise,
                               - 5 -

petitioners alleged that their income tax liabilities for tax

years 1991, 1992, and 1993 were discharged as a result of their

chapter 7 bankruptcy proceeding.

     There followed an extended series of communications, some

among various IRS employees themselves, and others between some

of the same IRS employees and petitioners’ representative, Guy C.

Crowgey (Mr. Crowgey).   These are summarized as follows.

     Revenue Officer Carol Sewel (RO Sewel) spoke with Deborah

Stanley, an attorney in respondent’s counsel’s office, (RC

Stanley) for an interpretation of the meaning of the term “court-

ordered payments” as that term applied to the necessary living

expenses claimed by petitioners as part of the Request for an

Installment Agreement.

     RO Sewel spoke with Mr. Crowgey regarding the advice she

received from RC Stanley.   Mr. Crowgey disagreed with the

substance of that advice.   Mr. Crowgey spoke with RC Stanley

regarding the necessary living expenses claimed by petitioners.

     On February 1, 1999, Mr. Crowgey wrote to Chief of

Collection, Mark Rocawich, requesting that the Request for an

Installment Agreement be reassigned from RO Sewel’s group in

Virginia Beach.

     On February 5, 1999, the Collection Division referred the

Offer in Compromise to Linda Hawkins, the Offer Coordinator for

respondent’s Examination Division in Richmond, Virginia.
                              - 6 -

     On May 24, 1999, Revenue Agent R. Wygand, the revenue agent

assigned to review the Offer in Compromise, spoke with Mr.

Crowgey, who requested that the Offer in Compromise be reviewed

by respondent’s counsel’s office.

     On June 16, 1999, a memorandum written by RC Stanley

addressing the merits of the Offer in Compromise was sent to

Group Manager Bill Stevens.

     On July 12, 1999, respondent issued a letter to petitioners

notifying them of their right to appeal respondent’s

determination that the Offer in Compromise should be rejected.

     On August 5, 1999, petitioners filed a protest of the

rejection of the Offer in Compromise.

     Appeals Officer Barbara Petrohovich (AO Petrohovich) was

assigned to review the Offer in Compromise.   AO Petrohovich was

also assigned to conduct a hearing pursuant to section 6330

regarding certain of petitioners’ tax years not here at issue.

     Between August 30, 1999, and January 3, 2000, AO Petrohovich

discussed the dischargeability of taxes in petitioners’

bankruptcy proceeding with RC Stanley approximately three times.

AO Petrohovich initiated the communications with RC Stanley, and

all the communications occurred in RC Stanley’s office, which was

in the same suite of offices as the office of AO Petrohovich
                               - 7 -

during the entire time that AO Petrohovich was assigned to review

petitioners’ protest of the IRS’s rejection of the Offer in

Compromise.

     On December 15, 1999, AO Petrohovich held a conference with

Mr. Crowgey.   She informed Mr. Crowgey that she disagreed with

him regarding the dischargeability of petitioners’ income taxes

for tax years 1991, 1992, and 1993.

     AO Petrohovich determined that she did not see substantial

hazards with regard to respondent’s position rejecting the Offer

in Compromise.   She came to this conclusion based on a review of

RC Stanley’s June 16, 1999, memorandum to Group Manager Stevens

that was contained in the collection file, the discussions with

RC Stanley regarding the substance of that memorandum, and her

own review of the court cases referenced by Mr. Crowgey.

     On January 6, 2000, Mr. Crowgey contacted Appeals Chief

George Gretes with regard to the handling of petitioners’ case.

Mr. Crowgey told Appeals Chief Gretes that it was his belief that

RC Stanley was an advocate for the Collection Division and that

he wanted someone else in respondent’s counsel’s office to review

this matter.

     On February 24, 2000, Appeals Chief Gretes sent a letter to

Mr. Crowgey that had been reviewed by AO Petrohovich.   Prior to
                                - 8 -

the issuance of this letter, AO Petrohovich corresponded with

Appeals Chief Gretes regarding the contents of the June 16, 1999,

memorandum written by RC Stanley.

     On September 1, 2000, Appeals Chief Gretes agreed to the

rejection of the Offer in Compromise.

     On September 5, 2000, AO Petrohovich sent a letter to

petitioners, with a copy to Mr. Crowgey, rejecting the Offer in

Compromise.   The parties stipulated that petitioners did not

appeal this determination directly to this Court, or to any other

court, since no such appeal was allowed for the IRS’s rejection

of their Offer in Compromise.

     On December 25, 2000, the IRS issued to petitioners a “Final

Notice - Notice of Intent to Levy” (Notice of Intent to Levy)

with regard to income tax liabilities for tax years 1991, 1992,

1993, and 1999.

     On January 23, 2001, petitioners requested a hearing

pursuant to section 6330 with respect to the Notice of Intent to

Levy.

     On January 25, 2001, Mr. Crowgey sent a letter to Appeals

Chief Gretes, with a copy to Daniel Black, National Chief,

Appeals, requesting that “his entire office recuse itself from

this case at this time and this case file either be referred to

another regional office or to the national office in Washington,

D.C.”
                               - 9 -

     On April 13, 2001, petitioners’ case with respect to the

Notice of Intent to Levy was assigned to Appeals Officer Anne

Martin (AO Martin) in respondent’s Bailey’s Crossroads, Virginia,

office.

     AO Martin previously worked directly under Appeals Chief

Gretes.   Appeals Chief Gretes was the Appeals Chief for the

Virginia/West Virginia Appeals Office from September 27, 1997,

through August 13, 2000.   From September 29, 1997, until October

1, 2000, AO Martin was in the chain of command of Appeals Chief

Gretes.   After October 1, 2000, and at all times during her

review of petitioners’ case, AO Martin was not in a chain of

command that included Appeals Chief Gretes.

     AO Martin had no involvement with respect to the underlying

tax liabilities at issue in petitioners’ case prior to her

assignment to the case.

     On August 22, 2001, Mr. Crowgey and Acting Area 3 Director

of Appeals Brian O’Hanlon discussed the assignment of AO Martin

to petitioners’ case.

     On August 28, 2001, AO Martin sent a letter to Mr. Crowgey

confirming a hearing date of September 20, 2001.

     On January 22, 2002, respondent issued the Notice of

Determination that forms the basis for the instant case.    The

Notice of Determination dealt with petitioners’ income tax

liabilities for tax years 1991, 1992, 1993, and 1999.   The Notice
                                  - 10 -

of Determination found that collection action by levy was proper

and appropriate.     Attached to the Notice of Determination is a

memorandum that states, in part:

     You feel there was an ex parte communication violation
     by the prior Appeals Officer [AO Petrohovich] who
     handled the offer in compromise and prior * * *
     [section 6330 hearing regarding certain of petitioners’
     tax years not here at issue].

     The offer in compromise was rejected on September 5,
     2000 * * *. The ex parte rules did not become
     effective until October 23, 2000.

     The tax liabilities will not be abated as the
     collection statute was tolled during the period of the
     prior bankruptcy.

                     *   *    *     *      *   *    *

     The notice of intent to levy was appropriate. You had
     declined to enter into an installment agreement.

                              Discussion

I.   General Rules

      Section 6331(a) authorizes the Commissioner to levy against

property and property rights where a taxpayer fails to pay taxes

within 10 days after notice and demand for payment is made.

Section 6331(d) requires the Secretary to send notice of an

intent to levy to the taxpayer, and section 6330(a) requires the

Secretary to send a written notice to the taxpayer of his right

to a hearing.

      Section 6330(b) affords taxpayers the right to a hearing

before an impartial IRS Appeals officer.       Pursuant to section
                              - 11 -

6330(b)(2), a taxpayer is entitled to only one hearing regarding

the tax period relating to the amount of unpaid tax.

     Section 6330(c)(1) requires that the Appeals officer obtain

verification that the requirements of any applicable law or

administrative procedure have been met.    Section 6330(c)(2)(A)

provides that the taxpayer may raise at the hearing “any relevant

issue relating to the unpaid tax or the proposed levy” including

spousal defenses, challenges to the appropriateness of collection

actions, and alternatives to collection.    The taxpayer cannot

raise issues relating to the underlying tax liability if the

taxpayer received a notice of deficiency for such tax liability

or the taxpayer otherwise had an opportunity to dispute the tax

liability.   Sec. 6330(c)(2)(B).   Section 6330(c)(3) provides that

a determination of the Appeals officer shall take into

consideration the verification under section 6330(c)(1), the

issues raised by the taxpayer, and whether the proposed

collection action balances the need for the efficient collection

of taxes with the legitimate concern of the taxpayer that any

collection action be no more intrusive than necessary.

     Where the Appeals Office issues a notice of determination to

the taxpayer following an administrative hearing regarding a

levy, section 6330(d)(1) provides that the taxpayer will have 30

days following the issuance of the determination to file a

petition for review with the Tax Court or a Federal District
                                - 12 -

Court, as appropriate. The taxpayer may appeal the determination

to the Tax Court, rather than a Federal District Court, if the

Tax Court generally has jurisdiction over the type of tax

involved in the case.    Sec. 6330(d)(1)(A); Downing v.

Commissioner, 118 T.C. 22, 26 (2002); Landry v. Commissioner, 116

T.C. 60, 62 (2001).     Section 6330(e)(1) suspends the levy action

until the conclusion of the hearing and any judicial review of

the determination.

     Where the underlying tax liability is properly at issue in

the hearing, we review that issue on a de novo basis.     Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000).     Where the underlying

tax liability is not at issue, however, we review the

determination to see whether there has been an abuse of

discretion.   Id.    In this case, the parties agree that the

underlying tax liabilities are no longer at issue; thus we review

respondent’s determination under an abuse of discretion standard.

     The Internal Revenue Service Restructuring and Reform Act of

1998 (RRA 1998), Pub. L. 105-206, sec. 1001(a)(4), 112 Stat. 689,

required that respondent develop a plan to prohibit ex parte

communications between officers of the Appeals Office and other

IRS employees that appear to compromise the independence of the

Appeals Office.

     On October 4, 2000, respondent issued Notice 99-50, 1999-2

C.B. 444, which concerned a proposed revenue procedure that, when
                              - 13 -

finalized, would provide guidance to address, in part, the

directive in RRA 1998 to develop a plan to prohibit ex parte

communication between officers of the Appeals Office and other

IRS employees that appear to compromise the independence of the

Appeals Office.   Before issuing final guidance, the Treasury

Department and the IRS invited comments from the public to aid in

the development of this revenue procedure.   Notice 99-50, 1999-2

C.B. at 444, states that “The prohibition on ex parte

communication will not take effect until the revenue procedure is

issued in final form.   In the interim, existing procedures

relating to communications in the course of Appeals consideration

of disputes remain in effect.”

      The effective date of Rev. Proc. 2000-43, 2000-2 C.B. 404,

which deals with ex parte communications between officers of the

Appeals Office and other IRS employees, by its terms is October

23, 2000.

II.   Parties’ Contentions

      Respondent contends that AO Martin was an impartial Appeals

officer as that term is used in section 6330(b)(3).   Respondent

also contends that AO Martin correctly considered

         (1) whether the legal and procedural requirements
      were met with regard to the Final Notice - Notice of
      Intent to Levy, (2) whether there were any valid
      challenges to the liability, and (3) whether the
      collection action balanced the need for efficient
      collection of taxes with * * * [petitioners’]
      legitimate concern that any collection action be no
      more intrusive than necessary.
                              - 14 -

     Respondent contends that AO Martin considered the merits of

all issues raised by petitioners and, through her own research,

determined that petitioners’ position was without merit.   In

addition, respondent claims that AO Martin considered

petitioners’ dischargeability argument.   Respondent further

claims that petitioners offered no collection alternatives to AO

Martin, and when she proposed the collection alternative of an

installment agreement encompassing the entire amount of the

liabilities, petitioners rejected it.   Respondent argues that

because “petitioners were given all their due process rights and

there has been no showing of an error in judgment or any other

abuse of discretion by the Appeals officer assigned to this CDP

case [conducted pursuant to section 6330], the determination that

the levy action was proper and appropriate should be sustained.”

     Petitioners contend that AO Martin abused her discretion in

determining that “ex parte procedure rules did not apply” to

petitioners’ previous section 6330 hearing (relating to years not

here at issue) and AO Petrohovich’s rejection of the Offer in

Compromise.   Petitioners further contend that

     Appeals Officer Martin has failed to present an
     adequate record for appellate review, and Appeals
     Officer Martin lacks impartiality as being a former
     member of the same office hearing the original
     collection due process appeal [relating to years not
     here at issue] and denial of * * * [petitioners’] Offer
     in Compromise.
                                - 15 -

       Petitioners claim that RC Stanley had extensive involvement

with petitioners’ case at the collection phase and provided

assistance to AO Petrohovich.     Petitioners argue that RC

Stanley’s communications with AO Petrohovich “jeopardized Appeals

Officer Petrohovich’s impartiality as a hearing officer, which

denied * * * [petitioners] a fair hearing and opportunity to have

a meaningful appeal of the denial of the * * * Offer in

Compromise.”

       Petitioners request a new section 6330 hearing with an

impartial Appeals officer.

III.    Analysis

       As stated above, the parties agree that the underlying

liabilities are no longer at issue.      The parties disagree about

two main points:     (1) The impartiality of AO Martin, and (2)

whether AO Martin abused her discretion in determining that the

communications between AO Petrohovich and RC Stanley did not

violate petitioners’ rights.

       A.   Impartiality of Appeals Officer Martin

       Section 6330(b)(3) provides:

          (3) Impartial officer.--The hearing under this
       subsection shall be conducted by an officer or employee
       who has had no prior involvement with respect to the
       unpaid tax specified in subsection (a)(3)(A) before the
       first hearing under this section or section 6320. A
       taxpayer may waive the requirement of this paragraph.

The operative terms of section 6330(b)(3) provide that

“impartial” concerns the Appeals officer’s prior involvement with
                             - 16 -

respect to the unpaid tax before the hearing.    See also Perez v.

Commissioner, T.C. Memo. 2002-274.     The statute does not define

the meaning of the term “prior involvement”; however, the

questions and answers in section 301.6330-1(d)(2), Q&A-D4,

Proced. & Admin. Regs., provide that

     Prior involvement by an employee or officer of Appeals
     includes participation or involvement in an Appeals
     hearing (other than a CDP hearing held under either
     section 6320 or section 6330) that the taxpayer may
     have had with respect to the tax and tax periods shown
     on the CDP notice.

     We agree with respondent that AO Martin was an impartial

officer for purposes of section 6330(b)(3).    AO Martin did not

participate in, and was not involved in, any previous Appeals

Office hearing concerning petitioners’ tax years 1991, 1992,

1993, and 1999.

     As stated above, AO Martin previously worked in the chain of

command of Appeals Chief Gretes.   AO Petrohovich also worked in

the chain of command of Appeals Chief Gretes.    When AO Martin

conducted her review of petitioners’ case, she was no longer in a

chain of command that included Appeals Chief Gretes.    We assume,

for the sake of argument, that AO Martin and AO Petrohovich were

members of the same Appeals Office at some point prior to AO

Martin’s review of petitioners’ case.

     Petitioners’ contention that AO Martin is not impartial

because she is “a former member of the same office hearing * * *

[a previous] collection due process appeal and denial of * * *
                              - 17 -

[petitioners’] Offer in Compromise” is without merit.     One

Appeals officer’s prior involvement with respect to the unpaid

tax for a different period, at issue in a previous section 6330

hearing, is not imputed to all other Appeals officers who work in

the same Appeals Office as the Appeals officer with such prior

involvement.   Consequently, AO Martin’s status as an impartial

officer is not compromised because she worked in the same Appeals

Office as AO Petrohovich, who conducted a previous section 6330

hearing regarding certain of petitioner’s tax years not here at

issue.   Similarly, one Appeals officer’s prior involvement with

respect to the unpaid tax for the same period, at issue in the

review of an offer in compromise, is not imputed to all other

Appeals officers who work in the same Appeals Office as the

Appeals officer with such prior involvement.     Consequently, AO

Martin’s status as an impartial officer is not compromised

because she worked in the same Appeals Office as AO Petrohovich,

who previously reviewed the Offer in Compromise outside the

context of a section 6330 hearing.     We conclude that AO Martin

was an impartial officer as required by section 6330(b)(3).
                                - 18 -

     B.   Communications Between Respondent’s Counsel Stanley and

Appeals Officer Petrohovich2

     We also agree with respondent that AO Martin did not abuse

her discretion in determining that the communications between AO

Petrohovich and RC Stanley did not violate petitioners’ rights.

     RRA 1998 required that respondent develop a plan to prohibit

ex parte communications between officers of the Appeals Office

and other Internal Revenue Service employees that appear to

compromise the independence of the Appeals Office.    Respondent

issued Rev. Proc. 2000-43, 2000-2 C.B. 404, to fulfill this

statutory mandate.

     Petitioners are correct that Rev. Proc. 2000-43, places

limits on communications between the Appeals Office and certain

employees in the Office of Chief Counsel.    Under the guidance set

forth in Rev. Proc. 2000-43, an “ex parte communication” is a

communication taking place between the Appeals Office and another

Service function without the participation of the taxpayer or the

taxpayer’s representative.     Rev. Proc. 2000-43, sec. 3, Q&A-D11,

2000-2 C.B. 406, provides that

     Appeals employees should not communicate ex parte
     regarding an issue in a case pending before them with


     2
      As stated above, AO Petrohovich conducted two separate
reviews of petitioners’ tax liabilities. She conducted a sec.
6330 hearing with respect to certain of petitioners’ tax years
not here at issue. She also conducted a review of the initial
denial of the Offer in Compromise. Her review of the Offer in
Compromise was not conducted pursuant to sec. 6330.
                               - 19 -

     Counsel field attorneys who have previously provided
     advice on that issue in the case to the IRS employees
     who made the determination Appeals is reviewing. * * *

Rev. Proc. 2000-43, sec. 4, 2000-2 C.B. 409, states that it is

“effective for communications between Appeals Officers and other

Internal Revenue Service employees which take place after October

23, 2000”.    The communications between AO Petrohovich and RC

Stanley, however, took place before October 23, 2000.

     But even if the aforementioned communications had, in fact,

taken place after October 23, 2000, such communications would not

have disqualified AO Martin’s status as an impartial officer

under section 6330(b)(3).    The record shows that AO Martin did

not engage in impermissible ex parte communications and had no

prior involvement with respect to the unpaid taxes that are the

subject of this case.

     C.   Review Conducted by Appeals Officer Martin

     AO Martin independently reviewed the merits of the Offer in

Compromise.    Based on her independent review of the facts and

applicable law, she concluded that “The tax liabilities will not

be abated as the collection statute was tolled during the period

of the prior bankruptcy.”

     We will, however, for reasons hereinafter stated, return

this case to the Commissioner solely to provide petitioners with

another opportunity to consider AO Martin’s proffered collection

alternative of an installment agreement of the entire amount of
                              - 20 -

petitioners’ tax liability, including all penalties and interest,

or to make an offer of a collection alternative as provided in

section 6330(c)(2)(A)(iii).   Petitioners will not be permitted to

further challenge AO Martin’s status as an impartial officer, as

defined in section 6330(b)(3), or otherwise, or to raise any new

or additional issues.

     Our reasons for remanding this case to the Commissioner are

as follows:

     As previously described, petitioner Edward H. Harrell filed

for chapter 11 bankruptcy on October 24, 1995, and petitioner

Anne G. Harrell similarly filed on December 18, 1996.   Their

cases were consolidated on February 27, 1997, and dismissed on

June 30, 1997.   On the same day as the dismissal of their chapter

11 case, petitioners filed a petition for chapter 7 bankruptcy

relief.

     Petitioners based their Offer in Compromise for their 1991,

1992, and 1993 tax years on “doubt as to liability”, taking the

position that their liability for these years was discharged

under chapter 7 of the Bankruptcy Code.    They theorized that the

returns for those years were filed outside the 3-year lookback

period contained in the Bankruptcy Code.   See 11 U.S.C. sec.

507(a)(8)(A)(i) (2000).

     AO Martin, based on her review of the facts and applicable

law, including case law, concluded that there was equitable
                              - 21 -

tolling of the lookback period during the pendency of

petitioners’ respective and consolidated cases under chapter 11

of the Bankruptcy Code.   Consequently, she reasoned, petitioners’

1991, 1992, and 1993 tax liabilities were not discharged under

chapter 7 because they fell within the 3-year lookback period.

     Furthermore, in suggesting an installment agreement, AO

Martin required that if accepted it had to cover petitioners’ tax

liabilities for all unpaid years, including the challenged 1991,

1992, and 1993 liabilities.   As previously noted, petitioners no

longer challenge their 1991-93 liabilities.

     As of January 22, 2002, the date of the Notice of

Determination upon which this case is based, the United States

Supreme Court had not as yet decided Young v. United States, 535

U.S. 43 (2002), which had been argued on January 9, 2002, but was

not decided until March 4, 2002.   In this case, the Supreme Court

affirmed the decision of the United States Court of Appeals for

the First Circuit in Young v. United States, 233 F.3d 56 (1st

Cir. 2000), in which the Court of Appeals held that the 3-year

lookback period in bankruptcy cases is automatically tolled

during the pendency of an earlier proceeding under the Bankruptcy

Code.   In Young, 233 F.3d at 60, the Court of Appeals pointed out

that five other Courts of Appeals had adopted the rule that the

lookback period is automatically tolled during a prior

bankruptcy.   By contrast, the Court of Appeals noted that three
                              - 22 -

other Courts of Appeals had held that the lookback period is not

automatically tolled by a prior bankruptcy proceeding but that

equitable considerations could permit tolling on a case-by-case

basis.   Id.

     We believe that at the time petitioners rejected AO Martin’s

suggested installment agreement, and at the time the Notice of

Determination was issued, there was sufficient reason to raise a

doubt as to petitioners’ tax liabilities for 1991, 1992, and

1993, so as to justify petitioners’ rejection of an installment

agreement based in part upon a concession of the 1991-93

liabilities.

     The Supreme Court granted certiorari in Young v. United

States, 533 U.S. 976 (2001), on September 25, 2001, which

predated by more than 3 months respondent’s Notice of

Determination.   If AO Martin’s research had revealed the grant of

certiorari, prudence might have prompted postponing further

action pending the likelihood that the Supreme Court would

eventually resolve the equitable tolling issue, and lay to rest

the “doubt as to liability” question for purposes of petitioners’

Offer in Compromise.   Since the Supreme Court resolved the

tolling issue only after the above-described crucial events had

transpired, we believe that petitioners are entitled to

reconsider their rejection of the proposed installment agreement,

and if they desire to do so, offer a collection alternative.
                              - 23 -

     While we are reluctant to label respondent’s issuance of the

Notice of Determination an abuse of discretion based upon a

somewhat technical reason for doing so, we hold that it is

appropriate to remand this matter to the Commissioner for the

sole purpose of permitting petitioners, if they wish to do so, to

accept AO Martin’s suggested installment agreement, as described

above, or to offer another collection alternative pursuant to

section 6330(c)(2)(A)(iii).   Again we repeat that petitioners may

not further challenge AO Martin’s status as an impartial officer,

or raise any new or additional issues.

     To reflect the foregoing,


                                      An appropriate Order will

                                 be issued.
