                               T.C. Memo. 2018-54



                        UNITED STATES TAX COURT



                    EARNEST MACK, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 18133-16L.                        Filed April 18, 2018.



      Earnest Mack, pro se.

      David A. Indek and Nancy M. Gilmore, for respondent.



                          MEMORANDUM OPINION


      LAUBER, Judge: In this collection due process (CDP) case, petitioner

seeks review pursuant to sections 6320(c) and 6330(d)(1) of the determination by

the Internal Revenue Service (IRS or respondent) to uphold the filing of a notice
                                        -2-

[*2] of Federal tax lien (NFTL) for 2009-2011.1 Respondent has moved for

summary judgment under Rule 121, contending that there are no disputed issues of

material fact and that his determination to sustain the proposed collection action

was proper as a matter of law. We agree and accordingly will grant the motion.

                                    Background

      The following facts are based on the parties’ pleadings and respondent’s

motion, including the attached affidavit and exhibits. Petitioner resided in Mary-

land when he filed his petition.

      Petitioner was an information technology consultant during 2009-2011, do-

ing business through a sole proprietorship called Axiom Theory Group. In 2013

he filed delinquent Federal income tax returns for those years, reporting on each

return a balance due. Respondent assessed the tax as reported plus additions to tax

under section 6651(a)(1) and (2) and section 6654.

      In an effort to collect these unpaid liabilities the IRS filed on March 25,

2014, an NFTL reflecting aggregate liabilities of $30,969. Petitioner timely re-

quested a CDP hearing, indicating that he desired an installment agreement (IA),

could not pay the balance due, wanted the IRS to withdraw the NFTL, and did not

      1
       All statutory references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                        -3-

[*3] “believe * * * [he] should be responsible” for the additions to tax. His

request was assigned to a settlement officer (SO) in IRS Appeals.

      Upon receiving petitioner’s case the SO reviewed the administrative file and

confirmed that his tax liabilities for 2009-2011 had been properly assessed and

that all other requirements of applicable law and administrative procedure had

been met. On July 29, 2014, the SO sent petitioner a letter scheduling a hearing

for August 26, 2014, and requesting that he provide Form 433-A, Collection Infor-

mation Statement for Wage Earners and Self-Employed Individuals, and a written

statement to support his request for NFTL withdrawal.

      After several reschedulings, the SO held an initial telephone conference

with petitioner on September 16, 2014. Petitioner thereafter submitted Form

433-A and Form 656, Offer in Compromise (OIC), in which he offered to settle his

2009-2011 liabilities for $3,000. Representing that his monthly income was only

$1,400, he asked that the IRS waive the $186 processing fee and the 20% down-

payment ordinarily required for OICs. He also requested that the IRS consider his

OIC under its “effective tax administration” guidelines, representing that he had a

serious medical condition.

      The SO forwarded petitioner’s offer to an OIC specialist in Oklahoma City.

Using third-party reporting information, the OIC specialist determined that peti-
                                         -4-

[*4] tioner had understated his income on the Form 433-A and did not qualify to

have the processing fee and downpayment waived. The OIC specialist

accordingly asked that petitioner submit an amended OIC accurately reflecting his

income and that he pay the applicable processing fee and downpayment.

        While petitioner was preparing his amended OIC, the IRS issued him no-

tices of deficiency for 2009-2011. He did not contest the notices for 2009 and

2010, and the IRS subsequently assessed additional liabilities for those years. He

timely contested the notice of deficiency for 2011. See Mack v. Commissioner,

T.C. Dkt. No. 12974-15. The OIC specialist noted that filing and informed peti-

tioner that, if he wished, he could have his additional 2011 liability folded into his

OIC by dropping the 2011 Tax Court case. Petitioner thereafter conceded the IRS’

determinations for 2011, and we entered a decision in that case on October 7,

2015.

        In February 2016 petitioner submitted an amended OIC. This OIC covered

tax years 2012 and 2013 as well as 2009-2011, proposed a total payment of

$7,425, and changed the basis for the compromise from effective tax administra-

tion to doubt as to collectibility. He also submitted updated financial information.

        The OIC specialist evaluated petitioner’s assets, concluding that he had

$23,460 of realizable equity after making applicable reductions. Most of this eq-
                                         -5-

[*5] uity was attributable to a TD Ameritrade account with a balance of $18,725.

Comparing petitioner’s monthly income with his monthly expenses, the OIC

specialist determined that his net income was $830 per month. In performing that

calculation, the OIC specialist generally used IRS national and local standards to

determine petitioner’s allowable expenses. The OIC specialist suggested that pe-

titioner increase his offer to at least $33,420 ($23,460 + ($830 × 12)), representing

the amount he could pay over a 12-month period.2 He rejected this option, and the

OIC specialist sent the case back to the SO for further consideration.

      After his case was returned to Appeals, petitioner contended that: (1) his

monthly expenses exceeded the amounts the OIC specialist had allowed; (2) the

OIC specialist had overvalued his retirement account by $16,825; (3) he was en-

titled to additional expenses of $750 per month for dependent care; and (4) he was

entitled to a face-to-face CDP hearing. The SO rejected each contention, deter-

mining that: (1) petitioner was not entitled to expenses for housing, utilities, food,

or clothing in excess of the applicable local standards; (2) the OIC specialist had


      2
        Reasonable collection potential (RCP) is generally calculated by multiply-
ing a taxpayer’s monthly income available to pay taxes by the number of months
remaining in the statutory period for collection and adding realizable equity in as-
sets. See Johnson v. Commissioner, 136 T.C. 475, 485 (2011), aff’d, 502 F.
App’x 1 (D.C. Cir. 2013). The OIC unit apparently agreed to a shorter 12-month
period because of petitioner’s medical condition.
                                        -6-

[*6] correctly valued petitioner’s TD Ameritrade account at $18,725, the figure

shown on the account statement petitioner had supplied; (3) the OIC specialist had

already factored in the additional dependent care expenses petitioner claimed; and

(4) petitioner was not entitled to a face-to-face hearing. The SO informed petition-

er of her conclusions by letter and proposed a telephone conference.

      During the telephone conference the SO explained why she had rejected pe-

titioner’s amended OIC and suggested that he enter into an IA. Petitioner declined

to do so. The SO invited him to submit amended returns and a statement support-

ing his request for abatement of the additions to tax, but he submitted none of

these documents. In response to petitioner’s request for NFTL withdrawal, the SO

reviewed the circumstances under which the NFTL could be withdrawn and deter-

mined that none applied. On July 25, 2016, the SO closed the case and issued a

notice of determination sustaining the NFTL filing.

      Petitioner timely petitioned this Court for review. On August 30, 2017, re-

spondent filed a motion for summary judgment. Petitioner did not respond to the

motion.
                                        -7-

[*7]                                 Discussion

A.     Summary Judgment

       The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b), we may grant summary judgment when

there is no genuine dispute as to any material fact and a decision may be rendered

as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),

aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judg-

ment, we construe factual materials and inferences drawn from them in the light

most favorable to the nonmoving party. Ibid. However, the nonmoving party may

not rest upon the mere allegations or denials in his pleadings but instead must set

forth specific facts showing that there is a genuine dispute for trial. Rule 121(d);

see Sundstrand Corp., 98 T.C. at 520.

       Because petitioner did not respond to the motion for summary judgment, the

Court could enter a decision against him for that reason alone. See Rule 121(d).

We will nevertheless consider the motion on its merits. We conclude that there are

no material facts in dispute and that this case may be adjudicated summarily.
                                         -8-

[*8] B.      Standard of Review

      Neither section 6320(c) nor section 6330(d)(1) prescribes the standard of re-

view that this Court should apply in reviewing an IRS administrative determina-

tion in a CDP case. But our case law tells us what standard to adopt. Where the

validity of a taxpayer’s underlying tax liability is properly at issue, we review the

IRS’ determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-182

(2000). Where the taxpayer’s underlying liability is not properly at issue, we re-

view the IRS’ decision for abuse of discretion only. Ibid.

      A taxpayer may dispute his underlying tax liability in a CDP case if he did

not receive a notice of deficiency or otherwise had no prior opportunity to contest

the liability. See sec. 6330(c)(2)(B). The liabilities for which the IRS filed the

NFTL were petitioner’s self-reported liabilities for 2009-2011. He was entitled to

contest those liabilities at his CDP hearing if he wished. See ibid.; Montgomery v.

Commissioner, 122 T.C. 1, 9 (2004).3

      The SO informed petitioner that he could contest the liabilities shown on the

NFTL by filing amended returns for 2009-2011 and by submitting a request justi-

      3
        Petitioner did have a prior opportunity to challenge the additional liability
for 2011 in his previous deficiency case at Dkt. No. 12974-15. See, e.g., Kyereme
v. Commissioner, T.C. Memo. 2012-174. In any event, those additional 2011 lia-
bilities are not covered by the NFTL and thus are not the subject of any collection
action in this case.
                                         -9-

[*9] fying abatement of the additions to tax. Because petitioner submitted none of

these documents, he did not properly challenge his underlying tax liabilities. See

Lunnon v. Commissioner, T.C. Memo. 2015-156, 110 T.C.M. (CCH) 182, 185,

aff’d, 652 F. App’x 623 (10th Cir. 2016); sec. 301.6320-1(f)(2), Q&A-F3, Proced.

& Admin Regs. Since petitioner’s underlying liabilities for 2009-2011 are thus

not before us, we will review the SO’s determination for abuse of discretion only.

See, e.g., Pough v. Commissioner, 135 T.C. 344, 349-350 (2010). Abuse of dis-

cretion exists when a determination is arbitrary, capricious, or without a sound

basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d,

469 F.3d 27 (1st Cir. 2006).

C.    Analysis

      In deciding whether the SO abused her discretion we consider whether she:

(1) properly verified that the requirements of any applicable law or administrative

procedure had been met; (2) considered any relevant issues petitioner raised; and

(3) considered “whether any proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of * * * [petitioner] that

any collection action be no more intrusive than necessary.” See sec. 6330(c)(3).

      Petitioner first challenges the SO’s rejection of his OIC. Under section

7122(a) and the regulations thereunder, the IRS may compromise an outstanding
                                         - 10 -

[*10] tax liability on three grounds: (1) doubt as to liability; (2) doubt as to

collectibility; or (3) the promotion of effective tax administration. See sec.

301.7122-1(b), Proced. & Admin. Regs. The IRS may execute a compromise

based on doubt as to collectibility--the ground petitioner advanced in his amended

OIC--where the taxpayer’s assets and income make it unlikely that the IRS will be

able to collect the entire balance. Id. subpara. (2). The IRS will generally reject

an offer where the taxpayer’s reasonable collection potential (RCP) exceeds the

amount he proposes to pay. Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517,

517; see Johnson v. Commissioner, 136 T.C. 475, 485-486 (2011), aff’d, 502 F.

App’x 1 (D.C. Cir. 2013).

       In reviewing the SO’s determination we do not make an independent evalu-

ation of what would be an acceptable collection alternative. Thompson v. Com-

missioner, 140 T.C. 173, 179 (2013); Murphy, 125 T.C. at 320; Lipson v. Com-

missioner, T.C. Memo. 2012-252, 104 T.C.M. (CCH) 262, 264. Rather, our re-

view is limited to determining whether the SO abused her discretion--that is,

whether her decision to reject petitioner’s offer was arbitrary, capricious, or with-

out sound basis in fact or law. Thompson, 140 T.C. at 179; Murphy, 125 T.C. at

320.
                                        - 11 -

[*11] The SO determined petitioner’s RCP by subtracting his monthly expenses

from his monthly income. Pursuant to Congress’ directive, the IRS has published

“national and local allowances” to ensure that taxpayers entering into collection

alternatives have adequate means to provide for basic living expenses. Sec.

7122(d)(1) and (2)(A). This Court has upheld the IRS’ use of such standards to

determine basic living expenses when evaluating proposed collection alternatives.

See Speltz v. Commissioner, 124 T.C. 165, 179 (2005), aff’d, 454 F.3d 782 (8th

Cir. 2006). Allowable expenses are those that are “necessary to provide for a tax-

payer’s * * * health and welfare and/or production of income.” See Internal Reve-

nue Manual (IRM) pt. 5.15.1.7(1) (Oct. 2, 2012).

      As directed by the IRM, the SO allowed petitioner the lesser of the applic-

able local standards or the amounts that he actually paid monthly for expenses.

See IRM pt. 5.15.1.9 (Nov. 17, 2014), 5.15.1.7(4) (Oct. 2, 2012). Deviations are

permitted only upon a showing that the standard amounts are “inadequate to pro-

vide for a specific taxpayer’s basic living expenses.” See id. pt. 5.15.1.7(5) (Oct.

2, 2012). The taxpayer bears the burden of providing sufficient information to jus-

tify a deviation from local standards. See Thomas v. Commissioner, T.C. Memo.

2015-182, 110 T.C.M. (CCH) 282, 288. Although petitioner disputes the SO’s

reliance on these standards, he submitted no evidence that these amounts were
                                        - 12 -

[*12] inadequate to provide for his basic living expenses. We accordingly hold

that the SO did not abuse her discretion in determining petitioner’s RCP as she

did. See Lunnon, 110 T.C.M. (CCH) at 185; sec. 301.6320-1(f)(2), Q&A-F3,

Proced. & Admin. Regs.

      Petitioner also contends that the SO improperly denied his request for a

face-to-face hearing. The regulations provide that a “CDP hearing may, but is not

required to, consist of a face-to-face meeting.” Secs. 301.6320-1(d)(2), Q&A-D6,

301.6330-1(d)(2), Q&A-D6, Proced. & Admin. Regs. We have repeatedly held

that the IRS is not required to afford a taxpayer a face-to-face hearing and that a

hearing conducted by telephone, correspondence, or document review will suffice.

See, e.g., Katz v. Commissioner, 115 T.C. 329, 337-338 (2000); Williamson v.

Commissioner, T.C. Memo. 2009-188, 98 T.C.M. (CCH) 110, 112; Stockton v.

Commissioner, T.C. Memo. 2009-186, 98 T.C.M. (CCH) 103, 106.4

      Finding that the SO did not abuse her discretion in any respect, we will

grant respondent’s motion for summary judgment and sustain the proposed collec-


      4
       Petitioner asserts that the OIC specialist improperly persuaded him to con-
cede his 2011 Tax Court case. The record reflects that the OIC specialist properly
advised petitioner of an available option; it was petitioner’s decision to pursue that
option. In any event, the NFTL that is the subject of this case covered only peti-
tioner’s self-assessed liabilities for 2009-2011, not the additional amounts shown
on the subsequently issued notices of deficiency.
                                        - 13 -

[*13] tion action. We note that petitioner is free to submit to the IRS, for its

consideration and possible acceptance, an IA or a new OIC to compromise his

outstanding liabilities.

      To reflect the foregoing,


                                                 An appropriate order and decision

                                        will be entered.
