                        T.C. Memo. 2020-60



                  UNITED STATES TAX COURT



             ABIGAIL RICHLIN, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 16301-16L.                       Filed May 18, 2020.



        P and her late husband, M, filed a joint return for 2005 and
elected to apply the overpayment shown on that return to their
estimated tax for 2006. M made additional estimated payments for
2007 between June 2006 and January 2007 and also made a payment
with a request for an extension of time to file a 2006 return. P and M
divorced in January 2007 and M died the following August. P filed a
separate return for 2006 in which she claimed credit for half of the
2005 overpayment, the estimated payments M made between June
2006 and January 2007, and M's extension payment. R issued a
notice of Federal tax lien concerning the collection of unpaid tax
liability of P for 2006. After a collection due process (CDP) hearing,
P and R's Appeals Office (Appeals) executed a summary notice of
determination on Form 12257, Summary Notice of Determination,
Waiver of Right to Judicial Review of a Collection Due Process
Determination, and Waiver of Suspension of Levy Action, stating that
the lien would be released because P was entitled to credit for the
payments shown on her return. R then issued a notice of intent to
levy in regard to P's 2006 taxable year, which led to a second CDP
                                       -2-

[*2] hearing and execution of a second Form 12257 that confirmed the
     result of the first. After M's estate claimed credit for the full amount
     of the payments in issue and Appeals received advice from counsel
     supporting the estate's claim, Appeals "continued" the second CDP
     hearing and, thereafter, issued a notice of determination upholding the
     proposed levy action.

             Held: The Forms 12257 were not contracts that obligated R to
      refrain from further collection action concerning P's 2006 taxable
      year.

            Held, further, Internal Revenue Manual pt. 8.22.9.13 (Nov. 13,
      2013), which prohibits rescission of a notice of determination, does
      not apply to Forms 12257; consequently, Appeals was free to make a
      determination contrary to those reflected in the Forms 12257 without
      abusing its discretion.

             Held, further, Appeals is not bound by equitable estoppel from
      making a determination contrary to those reflected in the Forms
      12257 because (1) Appeals had no duty to inform P of the efforts of
      M's estate to secure credit for the payments in issue or its receipt of
      legal advice supporting the estate's position, and (2) P has not
      established detrimental reliance on Appeals' failure to inform her of
      those facts.

            Held, further, because the evidence does not support Appeals'
      finding that M intended the estimated payments he made between
      June 2006 and January 2007 to have been for his own account, that
      finding was clearly erroneous.

            Held, further, the doctrine of SEC v. Chenery Corp., 318 U.S.
      80 (1943), does not require remand to Appeals as a result of its
      erroneous factual finding; M's estimated payments between June 2006
      and January 2007, if treated as joint payments, should be allocated in
      the same manner as the joint 2005 overpayment.
                                          -3-

[*3]          Held, further, an agreement between a husband and wife can
       govern the allocation, under sec. 1.6654-2(e)(5)(ii), Income Tax
       Regs., of joint estimated payments made for a year for which they file
       separate returns even if the agreement does not specifically address
       the allocation of estimated payments.

              Held, further, implementation of a general principle embodied
       in a premarital agreement between P and M requires the allocation of
       the payments in issue entirely to M's account; Appeals thus did not
       err as a matter of law in making that allocation.



       Robert D. Grossman, Jr., for petitioner.

       Miles B. Fuller, for respondent.



                           MEMORANDUM OPINION


       HALPERN, Judge: This case is before us to review a determination by the

Internal Revenue Service (IRS) Appeals Office (Appeals) upholding the proposed

collection by levy of Federal income tax (including a penalty and interest)

allegedly owed by petitioner for her taxable year ended December 31, 2006. The

parties have submitted the case under Rule 122, which allows for the submission

of a case without trial when sufficient facts have been established by stipulation or
                                         -4-

[*4] other means.1 The evidence which the parties have stipulated is limited to the

administrative record available to Appeals. The parties agree on petitioner's tax

liability for 2006. The sole issue before us is whether petitioner has satisfied that

liability with credits available to her for estimated tax payments.

                                     Background

Petitioner's Residence

      When she filed the petition, petitioner resided in Nevada.

Premarital Agreement

      Before petitioner married her late husband, Milton Schwartz, in 1993, the

two of them executed a premarital agreement. Paragraph Twenty-Seventh of that

agreement provides: "MILTON shall be liable for any [and] all taxes, interest,

penalties, and other costs related to taxes incurred during the marriage of the

parties, and MILTON agrees to hold ABIGAIL harmless from any such liability

excluding income generated by the separate property of ABIGAIL or income

generated directly by ABIGAIL's efforts during marriage."




      1
      Unless otherwise indicated, all section 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.
                                        -5-

[*5] 2005 Overpayment; Estimated and Extension Payments for 2006

      Petitioner and Milton filed a joint Federal income tax return for the taxable

year ended December 31, 2005, that showed an overpayment of tax. On that

return, they elected to apply their overpayment to their estimated tax for 2006.

      Milton signed checks dated June 13, 2006, September 12, 2006, and January

12, 2007, drawn on the account of an irrevocable trust of which he was trustee.

Each check was accompanied by an estimated tax payment voucher that gave both

Milton's and petitioner's names and Social Security numbers.

      Milton signed another check on the trust account, dated April 16, 2007,

which accompanied a Form 4868, Application for Automatic Extension of Time

To File U.S. Individual Income Tax Return, for 2006. The extension form names

both Milton and petitioner and gives both of their Social Security numbers.

Divorce Proceedings

      On January 24, 2007, a Nevada district court entered a decree of divorce in

response to a complaint Milton had filed in April 2006.

      In May 2007, Milton filed a motion with the divorce court requesting "an

Order compelling * * * [petitioner] to pay her portion of the parties' 2006 taxes."

The brief Milton submitted in support of his motion asserts as an undisputed fact

that petitioner recognized a gain of about $1.5 million from the sale in January
                                         -6-

[*6] 2006 of property she had purchased in 2001. Correspondence attached to

Milton's motion indicates that he understood that the tax on petitioner's property

sale was included in the extension payment, if not the prior estimated payments.

Milton's brief further asserts that, while petitioner had continually acknowledged

her responsibility for paying tax on that gain, including in testimony before the

divorce court, she had refused to reimburse Milton for his payment of the tax. The

brief thus described the requested order as one directing petitioner "to reimburse

him". In March 2008, following Milton's death the previous August, the divorce

court granted Milton's motion, concluding that petitioner was responsible "to pay

any gains or obligations related to * * * [her] property."

Petitioner's 2006 Return

      Petitioner filed her own return for the taxable year ended December 31,

2006. That return, as amended, claimed a filing status of married filing separately.

The return reports estimated payments and an extension payment that, together,

exceed the reported tax liability. The claimed credits equal half of (1) the

overpayment shown on the 2005 joint return she filed with Milton, (2) the

estimated payments Milton made between June 2006 and January 2007, and

(3) the extension payment Milton made in April 2007.
                                         -7-

[*7] The 2010 Notice of Federal Tax Lien

      In September 2010, respondent notified petitioner's counsel that a Notice of

Federal Tax Lien (NFTL) had been filed in regard to the collection of the unpaid

tax liability of petitioner for her 2006 taxable year. In response, petitioner

requested a collection due process (CDP) hearing. The request states the

following grounds:

      The Commissioner erred in computing liability and credit. Taxpayer
      does not owe the amount assessed because IRS failed to give her
      proper credit for tax payments made on her behalf by her husband. In
      the alternative, taxpayer cannot pay what taxpayer owes. The
      Commissioner should not take enforced collection action because
      there exist less intrusive alternatives, namely an installment payment
      agreement or Offer in Compromise.

      In June 2012, following a CDP hearing the previous December, petitioner

and Appeals executed a Form 12257, Summary Notice of Determination, Waiver

of Right to Judicial Review of a Collection Due Process Determination, and

Waiver of Suspension of Levy Action (2012 summary notice). The 2012 summary

notice states:

      At the hearing the issue raised was the transfer of the taxpayer's
      portion of a joint 2005 refund and her portion of the 2006 estimated
      payments.

      It was determined by Appeals that the Campus inappropriately
      transferred these credits back to her deceased husband's taxes for the
      same year.
                                         -8-

[*8] The correct resolution is to credit the taxpayer with these amounts.
     This will eliminate the tax liability and the Notice of Federal Tax
     Lien will be released.

2013 Levy Notice

      Notwithstanding the 2012 summary notice, respondent renewed collection

activity concerning petitioner's 2006 tax liability, sending her a notice of intent to

levy dated December 2013, which covered both 2006 and 2012.2 In response,

petitioner (through her counsel), requested another CDP hearing, which led to the

execution of a second Form 12257 in August 2014. The 2014 summary notice

states: "Appeals does not sustain the proposed levy action as a collection

alternative has been reached." It then refers to the determination stated in the

2012 summary notice.

"Continuation" of Second CDP Hearing

      In response to the transfer back to petitioner's account of the credits she

claimed on her 2006 return in accordance with the 2012 summary notice, Milton's

estate claimed entitlement to those credits and sought the assistance of the

Taxpayer Advocate Service (TAS) to obtain them. TAS sought advice from

counsel, which supported the claim of Milton's estate. Appeals thus concluded


      2
       The parties have stipulated that petitioner's tax liability for 2012 has now
been fully paid; consequently, that year is not before us.
                                         -9-

[*9] that the determination reflected in the 2014 summary notice was incorrect and

offered petitioner a "continuation" of the CDP hearing concerning the levy notice,

which would allow her to seek judicial review of an adverse determination.

      The continuation hearing was held on April 28, 2016. At that meeting,

petitioner's representatives declined to discuss collection alternatives. Instead,

they rested their case on petitioner's entitlement to the credits she claimed on her

2006 return.

Notice of Determination

      The notice of determination (NOD) that gave rise to the present case was

issued in June 2016. The NOD states Appeals' determination to uphold the

proposed levy action to collect the unpaid tax liability for 2006. Appeals based its

determination on petitioner's failure to offer collection alternatives and "on advice

from counsel that the 2005 credit-elect and the 2006 estimated tax payments

should be applied to * * * [Milton's] separate account for 2006 and his 2006

estimated tax payments are individual payments that should be applied only to his

2006 separate account".

      Appeals determined that petitioner's and Milton's 2005 joint overpayment

should be allocated entirely to Milton in accordance with an agreement between

them. On the basis of advice from counsel, Appeals read the couple's premarital
                                        - 10 -

[*10] agreement to impose on Milton "all taxes except taxes resulting from * * *

[petitioner's] separate property or earnings". The NOD states: "Abigail's 2006

income tax liability was the result of the sale of her separate property, placing

responsibility for its payment squarely on Abigail pursuant to the Agreement."

The NOD also refers to Abigail's testimony before the divorce and expresses the

view that that testimony "disclaimed all interest" in the joint 2005 overpayment.

Appeals took the divorce court's order regarding the payment of 2006 taxes as

confirmation of that view.

      Appeals determined that Milton was entitled to credit for the estimated

payments and extension payment he made on the basis of its finding that Milton

intended those payments to have been for his own account. The NOD explains

that finding as follows:

      The tax-related provisions of the [premarital] Agreement * * * seem
      to clearly indicate that these were individual estimated tax payments
      at the time they were made. * * * [T]he fact that under the
      Agreement, * * * [petitioner] was solely responsible for taxes on her
      separate property and earnings, and Milton controlled whether the
      parties filed joint weigh heavily toward a conclusion that the
      payments were individual payments rather than joint.

      The conclusion is also supported by the fact that, with the exception
      of the first payment [made on April 16, 2006], the payments were all
      made during the divorce. * * *
                                         - 11 -

[*11] Additionally, Milton's intent was further demonstrated by letters he
      sent to Abigail demanding that she contribute her portion of the 2006
      joint tax liability if the parties were going to file joint. The amount
      Milton demanded as contribution was intended to cover taxes that
      were ultimately reported on * * * [petitioner's] 2006 tax return.

      Finally, there is (again) the fact that * * * [petitioner], while testifying
      in court, agreed that she was solely responsible for payment of her
      2006 taxes.

                                      Discussion

I.    Statutory Provisions; Standard and Scope of Review

      Sections 6320 and 6330 provide a taxpayer the right to notice and the

opportunity for an Appeals hearing before the Commissioner can collect unpaid

tax by means of a lien or a levy against the taxpayer's property. If a taxpayer

requests a CDP hearing, the Appeals officer conducting the hearing must verify

that the requirements of any applicable law or administrative procedure have been

met. Secs. 6320(c), 6330(c)(1). The taxpayer may raise at the hearing any

relevant issue relating to the unpaid tax or the collection action, including

appropriate spousal defenses, challenges to the appropriateness of collection

actions, and offers of collection alternatives. See sec. 6330(c)(2)(A). Section

6330(d)(1) allows a taxpayer to "appeal * * * to the Tax Court" a determination

under section 6320 or 6330.
                                        - 12 -

[*12] When a taxpayer's underlying liability is at issue in a CDP case, we review

Appeals' determination de novo; otherwise, we review that determination for

abuse of discretion. E.g., Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

As we wrote in Melasky v. Commissioner, 151 T.C. 89, 92 (2018), aff'd, __

F. App'x __, 2020 WL 536259 (5th Cir. Feb 3, 2020): "A question about whether

the IRS properly credited a payment is not a challenge to a tax liability".

Therefore, our standard of review in the present case is abuse of discretion.

"Under an abuse of discretion standard, 'we do not interfere unless the

Commissioner's determination is arbitrary, capricious, clearly unlawful, or without

sound basis in fact or law.'" Robinette v. Commissioner, 123 T.C. 85, 93 (2004)

(quoting Ewing v. Commissioner, 122 T.C. 32, 39 (2004), vacated 439 F.3d 1009

(9th Cir. 2006)), rev'd, 439 F.3d 455 (8th Cir. 2006).

      In some cases, we face a question concerning the scope of our review--in

particular whether our review is limited to the administrative record. In Robinette

v. Commissioner, 123 T.C. at 95, we held that, "when reviewing for abuse of

discretion under section 6330(d), * * * our review is not limited to the

administrative record." Since then, three Courts of Appeals have rejected that

view, including that of the Ninth Circuit, to which appeal of the present case

would normally lie. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir.
                                        - 13 -

[*13] 2009), aff'g in part T.C. Memo. 2006-166, and aff'g in part, vacating in part

decisions in related cases; Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir.

2006), aff'g 125 T.C. 301 (2005); Robinette v. Commissioner, 439 F.3d 455.

Although all three Courts of Appeals that have considered the issue have rejected

our position that the record rule is inapplicable to CDP cases, we have not yet

expressly overruled our Opinion in Robinette. Nonetheless, as we explained in

Hinerfeld v. Commissioner, T.C. Memo. 2019-47, at *17-*19, some of our more

recent Opinions call into question our rationale in Robinette. See also Kasper v.

Commissioner, 150 T.C. 8, 17, 19 (2018); Porter v. Commissioner, 130 T.C. 115,

118, 120 (2008). Hinerfeld did not require us to reconsider our position on the

applicability of the record rule because the result in that case would have been the

same regardless of whether we limited our review to the administrative record.

Similarly, the present case does not give us reason to address the continued

viability of our Opinion in Robinette because the evidence which the parties have

stipulated is limited to the administrative record available to Appeals.

II.   Petitioner's Arguments

      Petitioner offers four grounds for her claim that Appeals abused its

discretion in sustaining the proposed levy action to collect allegedly unpaid tax for

her 2006 taxable year. First, she claims that the summary notices that she and her
                                       - 14 -

[*14] counsel executed with respondent's representatives in 2012 and 2014

"constitute enforceable, binding contracts" in which respondent "agree[d] not to

enforce collection" in regard to her 2006 taxable year. She characterizes the

issuance of the NOD as "reneging" on the prior summary notices. Second,

petitioner contends that the NOD "rescind[ed]" the prior summary notices in

violation of Internal Revenue Manual (IRM) pt. 8.22.9.13 (Nov. 13, 2013).

Although petitioner accepts that "the I.R.M. does not bind this Court", she argues

that "Appeals' failure to abide by I.R.M. § 8.22.9.13 here constitutes abuse of

discretion". Third, petitioner argues that, "[i]n the event the Court somehow finds

respondent's Determinations are not enforceable contracts * * * respondent is

estopped from denying his Determinations are enforceable on the grounds of

equitable estoppel." And fourth, petitioner contends that "respondent's decision to

apply [to Milton's account] the entire 2005 joint payment and all 2006 estimated

payments is erroneous as a matter of law and violates respondent's regulations."

For the reasons explained below, we conclude that none of petitioner's claims

demonstrates an abuse of discretion. Consequently, we will sustain Appeals'

determination.
                                       - 15 -

[*15] III.    Summary Notices as Binding Contracts

        While CDP cases such as the one before us can be resolved by binding

contracts, petitioner has not convinced us that respondent was contractually

obligated, by reason of the summary notices, to refrain from any further action

concerning the collection of tax from petitioner for her 2006 taxable year. As we

observed in Tucker v. Commissioner, 135 T.C. 114, 140 (2010), aff'd, 676 F.3d

1129 (D.C. Cir. 2012): "If * * * [a] CDP officer or employee enters into an

installment agreement under section 6159, a closing agreement under section

7121, or an OIC [offer-in-compromise] under section 7122 with the taxpayer, then

of course the agency will be bound under general contract principles to honor the

agreement." But we concluded that determinations of Appeals personnel not

reflected in such an agreement are not final and binding on the IRS. Id. at 163-

164.3




        3
        Once a case is docketed before this Court, it can be settled by means of an
agreement that does not meet the requirements of a closing agreement under sec.
7121. In the prepetition context, however, secs. 7121 and 7122 provide the
exclusive means of effecting a binding settlement. See generally Dormer v.
Commissioner, T.C. Memo. 2004-167, 2004 WL 1567747, at *5-*7. Thus,
petitioner's reliance on Dorchester Indus. Inc. v. Commissioner, 108 T.C. 320
(1997), aff'd, 208 F.3d 205 (3d Cir. 2000), is misplaced: Those cases involved a
settlement agreement entered into during their pendency before us.
                                       - 16 -

[*16] Petitioner attempts to dismiss Tucker as having "nothing whatsoever to do

with the issue of finality of respondent's Determinations." The principal issue in

Tucker was concededly a constitutional issue not present in petitioner's case. The

taxpayer in Tucker argued that the Appeals personnel involved in his case were

officers who were not appointed in compliance with Article II, Section 2, Clause 2

of the Constitution (commonly referred to as the Appointments Clause). To

address that issue, however, we had to consider whether Appeals personnel

exercised "'final' decision-making power". Tucker v. Commissioner, 135 T.C.

at 164.4

      Moreover, even if we were to accept that the parties' execution of the

summary notices resulted in binding contracts, we would find nothing in either

notice that precludes respondent from subsequently reaching a determination

contrary to that described in the notice. Each summary notice simply describes the


      4
        In affirming our decision in Tucker v. Commissioner, 135 T.C. 114 (2010),
aff'd, 676 F.3d 1129 (D.C. Cir. 2012), the appellate court relied on Appeals
employees' "lack of discretion", and appeared to accept that their decisions had
"effective finality * * * within the executive branch." Tucker v. Commissioner,
676 F.3d at 1134. To the extent that the Court of Appeals suggested that Appeals'
decisions might be final, that suggestion is, of course, dicta. Moreover, the court
may have meant only that Appeals' decisions bind those outside of the Office of
Appeals. Thus, we do not read the appellate court's opinion in Tucker as
establishing that Appeals itself cannot change its mind, on the basis of changed
circumstances or otherwise.
                                       - 17 -

[*17] disposition of a CDP proceeding involving petitioner's 2006 taxable year as

of a given time, on the basis of information then available.

IV.   Respondent's Ability To Rescind Summary Notices

      Petitioner's claim that respondent's notice of determination "rescind[ed]" the

summary notices in violation of a directive in the IRM rests on a failure to

differentiate between a notice of determination (Letter 3193) and a summary

notice on Form 12257. Because a taxpayer, in executing a summary notice,

waives her right to request judicial review of Appeals' determination, Form 12257

is typically used only when a CDP hearing reaches a result satisfactory to the

taxpayer. See Michael I. Saltzman & Leslie Book, IRS Practice and Procedure,

para. 14B.15[2], at 14B-62 (rev. 2d ed. 2018). By contrast, a notice of

determination gives the taxpayer the right to judicial review of Appeals'

determination.5 See secs. 6320(c), 6330(d)(1).

      IRM pt. 8.22.9.13, which petitioner alleges respondent to have violated,

states the IRS Office of Chief Counsel's determination that "Appeals cannot

rescind a Notice of Determination * * * in any circumstance." It does, however,

      5
        Petitioner's failure to differentiate between a notice of determination and a
summary notice is reflected in her characterization of the notice giving rise to this
case as "respondent's third Summary Notice of Determination". If that notice had
been a third summary notice on Form 12257, petitioner would have been unable to
petition this Court to review respondent's determination.
                                       - 18 -

[*18] allow for a notice of determination to be amended during the 30-day period

in which the taxpayer can petition this Court, provided no such petition has been

filed. The reference to the possibility of a Tax Court petition confirms that IRM

pt. 8.22.9.13 addresses notices of determination and not summary notices, in

which the taxpayer waives the right to seek judicial review of Appeals'

determination.

V.    Equitable Estoppel

      As we explained in Wilkins v. Commissioner, 120 T.C. 109, 112-113

(2003):

      Equitable estoppel is a judicial doctrine that precludes a party from
      denying its own representations which induced another to act to his or
      her detriment. The Court has recognized that estoppel is applied
      against the Commissioner "with the utmost caution and restraint."
      The taxpayer must establish the following elements before equitable
      estoppel will be applied against the Government: (1) A false
      representation or wrongful, misleading silence by the party against
      whom the estoppel is claimed; (2) an error in a statement of fact and
      not in an opinion or statement of law; (3) the taxpayer's ignorance of
      the truth; (4) the taxpayer's reasonable reliance on the acts or
      statements of the one against whom estoppel is claimed; and (5)
      adverse effects suffered by the taxpayer from the acts or statements of
      the one against whom estoppel is claimed. Estoppel requires a
      finding that the taxpayer relied on the Government's representations
      and suffered a detriment because of that reliance. [Citations omitted.]

      Petitioner, as far as we can tell, makes no claim that respondent

affirmatively made a false representation. Instead, she seems to claim that
                                         - 19 -

[*19] respondent maintained a "wrongful, misleading silence" by keeping her "in

the dark" concerning the facts of her case. And what facts does she feel entitled to

have been apprised of? Apparently that her stepson, on behalf of his father's

estate, pursued the transfer of the credits in issue from her account to the estate's

account and that Appeals received legal advice contrary to the determinations

made in the summary notices. Those, she claims, are the relevant "true facts" of

which she was left "ignorant". She offers no reason, however, why respondent

was obliged to disclose those facts to her sooner than he did. She suggests that,

had she known of those facts earlier, she would have set aside assets to satisfy an

obligation whose payment at this point would "result in her losing her home and

all her assets". In her initial request for a CDP hearing, however, petitioner

averred that she could not then pay the tax respondent sought to collect;

consequently, she requested collection alternatives. Therefore, her relinquishment

of assets sufficient to pay the tax apparently occurred before respondent's

consideration of either the CDP case concerning the NFTL or the subsequent case

concerning the levy notice at issue. Her failure to retain sufficient assets cannot

have been induced by any actions respondent took in considering those cases.

      We thus conclude that petitioner has not established that the traditional

elements of equitable estoppel, as articulated in Wilkins, are present in this case.
                                        - 20 -

[*20] Given that conclusion, we need not consider the additional conditions

imposed by the Court of Appeals for the Ninth Circuit for applying equitable

estoppel against the Government. Cf. Estate of Brocato v. Commissioner, T.C.

Memo. 1999-424, 1999 WL 1261490, at *3.

VI.   Allocation of Estimated Payments

      For the reasons explained above, we conclude that respondent is not bound

by the determinations reflected in the two summary notices. Appeals was thus free

to reconsider those determinations and the allocation between Milton's and

petitioner's accounts of their 2005 overpayment and the estimated tax payments

Milton made between June 2006 and April 2007. The question remaining is

whether Appeals abused its discretion when it ultimately determined that

petitioner is not entitled to credit for any of those amounts.

      Section 1.6654-2(e)(5)(ii)(A), Income Tax Regs., provides that, if a couple

makes a joint payment of estimated tax in regard to a year for which they end up

filing separate returns "the payment made on account of the estimated tax for that

taxable year may be treated as a payment on account of the tax liability of either

the husband or wife for the taxable year, or may be divided between them in such

manner as they may agree." In the absence of such an agreement, the estimated
                                        - 21 -

[*21] payments are allocated between the two taxpayers in proportion to their

separate tax liabilities. Sec. 1.6654-2(e)(5)(ii)(B), Income Tax Regs.

      We begin by considering the allocation of the extension payment Milton

made in April 2007. A different--and simpler--analysis applies to that payment

than to the other amounts in issue. When Milton made that payment, the divorce

court had entered its decree of divorce. Section 1.6654-2(e)(5)(i), Income Tax

Regs., provides that "a joint payment of estimated tax may not be made if the

husband and wife are separated under a decree of divorce or of separate

maintenance." Therefore, as a matter of law, Milton's April 2007 payment was not

a joint payment of estimated tax, regardless of his intent, and no portion of that

payment can be treated under section 1.6654-2(e)(5)(ii), Income Tax Regs., as

having been made on account of petitioner's 2006 tax liability.6 Appeals thus did

not abuse its discretion in allocating that payment entirely to Milton's account.

      The parties have not called to our attention any legal rules that bear on the

determination of whether the payments made on June 13, 2006, September 12,

2006, and January 12, 2007, were joint payments of estimated tax, and our own


      6
        Petitioner's contention that "Milton intended to pay all 2006 taxes for both
parties even after the divorce" thus has no bearing on her entitlement to credit for
any part of the payment Milton made in April 2007, after entry of the divorce
decree.
                                         - 22 -

[*22] research discloses no such rules. Therefore, we will treat that determination

as factual, governed by Milton's intent in making the payments, and consider

whether Appeals' finding that Milton intended the payments to be for his

individual account was clearly erroneous.

      The NOD cites four grounds for Appeals' finding that Milton intended the

estimated tax payments he made between June 2006 and January 2007 to have

been for his individual account rather than joint payments of estimated tax. First,

the NOD cites the premarital agreement. Second, it observes that Milton made the

payments in issue while the divorce proceeding was pending. Third, it refers to

Milton's demand for reimbursement. And fourth, it relies on petitioner's alleged

testimony before the divorce court in which she acknowledged her responsibility

for paying tax on the gain from the sale of her property.7

      The grounds Appeals cited do not support its factual finding. First, Milton's

ability to choose to file either a joint return or a separate return does not establish

that, when he made the payments in issue, he intended to file a separate return for

2006. (Indeed, as explained below, his demand for reimbursement of a portion of

      7
       The record does not, so far as we can tell, include a transcript of the divorce
proceedings. When respondent, on brief, refers to the testimony on which Appeals
apparently relied, he cites only a description of that testimony included in the
argument Milton submitted to the divorce court in support of his motion for an
order concerning the payment of 2006 tax.
                                        - 23 -

[*23] those payments shows that he expected to file a joint return for that year.)

Second, the pendency of a divorce proceeding does not preclude the parties to that

proceeding from filing joint income tax returns. Third, and most important,

Milton's demand for reimbursement actually cuts against Appeals' finding. If

Milton had anticipated filing a separate return for 2006 and thus made estimated

payments only for his own individual account, he would not have been entitled to

reimbursement. His right to reimbursement could arise only from his having made

payments intended to cover a tax liability arising from petitioner's activities or

separate property. Fourth, any acknowledgment by petitioner that the premarital

agreement made her responsible, as an economic matter, for paying tax on the sale

of her property would not be evidence of Milton's intent in making the estimated

payments in issue.

      We thus conclude that Appeals' factual finding regarding the intent

underlying the estimated payments Milton made between June 2006 and January

2007 was clearly erroneous. Normally, our finding that a determination by

Appeals rests on a clearly erroneous finding of fact would require us to remand the

case. As a general rule, we cannot uphold such a determination on grounds other

than those Appeals relied on. See SEC v. Chenery Corp., 332 U.S. 194 (1947);

SEC v. Chenery Corp., 318 U.S. 80 (1943); Hinerfeld v. Commissioner,
                                        - 24 -

[*24] at *21-*27. Instead, the Chenery doctrine generally requires us to allow an

agency to address, in the first instance, matters committed to its administrative

discretion. In the present case, however, we know how Appeals would have

treated the estimated payments Milton made between June 2006 and January 2007

if it had viewed them as joint payments. On the basis of the principle reflected in

Paragraph Twenty-Seventh of the premarital agreement, Appeals would have

allocated any joint estimated payments under section 1.6654-2(e)(5)(ii), Income

Tax Regs., in the same manner that it allocated the couple's 2005 joint

overpayment. If we conclude that Appeals did not err, as a matter of law, in

allocating the 2005 overpayment entirely to Milton's account, we can also

conclude, without improperly encroaching on Appeals' discretion, that it did not

err in allocating the estimated payments in the same manner.

      Petitioner and Milton indicated on their 2005 joint return their desire to

apply the overpayment shown on that return to their estimated tax for 2006. See

sec. 301.6402-3(a)(5), Proced. & Admin. Regs. Accordingly, respondent properly

treated the 2005 overpayment as a joint estimated payment for 2006.

      Applying to the facts at hand the rules of section 1.6654-2(e)(5)(ii), Income

Tax Regs., we ask whether petitioner and Milton agreed to allocate their 2005

overpayment (and the estimated payments Milton made between June 2006 and
                                         - 25 -

[*25] January 2007) in a manner other than in proportion to their separate tax

liabilities. As far as the record discloses, petitioner and Milton did not reach an

agreement on that specific question. Appeals relied instead on the premarital

agreement Milton executed years before the question of the allocation of estimated

payments for 2006 arose. That the premarital agreement does not include a

provision that specifically addresses the allocation of joint estimated payments

made for a year in which the parties end up filing separate returns, however, does

not prevent it from governing the allocation of the amounts in issue under section

1.6654-2(e)(5)(ii)(A), Income Tax Regs. That provision of the regulations

requires allocation of joint estimated payments "in such manner as * * * [the

parties] may agree." It does not specify how that agreement is to be evidenced or

indicate that effect will be given only to an agreement that specifically concerns

the allocation of estimated payments. Therefore, if the premarital agreement

establishes a general principle whose application directs a particular allocation of

the amounts in issue, the agreement will govern for purposes of section 1.6654-

2(e)(5)(ii)(A), Income Tax Regs.8

      8
        Petitioner argues that, because the premarital agreement "applies only to
the parties as between themselves and not respondent", the agreement, as
interpreted by the divorce court, "is not relevant to the issue of petitioner's tax
liability to respondent". Any agreement between a husband and wife regarding an
                                                                          (continued...)
                                         - 26 -

[*26] We agree with respondent that the premarital agreement establishes such a

principle. Paragraph Twenty-Seventh of that document assigns to petitioner the

economic burden of any tax liability arising from "income generated by the

separate property of * * * [petitioner] or income generated directly by * * *

[petitioner's] efforts during marriage." Both petitioner and respondent read the

agreement as establishing that basic principle. Their interpretations of the

agreement differ only in the mechanics by which that principle is to be

implemented. Petitioner reads the agreement as having required Milton to have

paid, in the first instance, all tax arising during their marriage. If any tax Milton

were to pay arose from petitioner's own property or activities, petitioner

acknowledges, she would have been required to reimburse him. Respondent

counters: "That interpretation of the agreement makes no sense." We see no

cause for resolving the parties' dispute about the mechanics of implementation.

The general principle that both parties read the premarital agreement as having




      8
        (...continued)
allocation of joint estimated payments, however, would by definition be between
the two of them. The Commissioner would seldom, if ever, be a party to the
agreement. Any such agreement would affect the amount of tax each spouse owes
to the Commissioner, however, because, under the governing regulation, it would
determine the allocation between them of joint estimated payments.
                                        - 27 -

[*27] established requires that the joint estimated payments made for 2006

(including the 2005 overpayment) be allocated entirely to Milton.

      If any of the joint estimated payments were allocated to petitioner, she

would, to that extent, be relieved of the economic burden of the tax liability on her

separate income for 2006. Petitioner makes no claim that she funded any of the

estimated payments in issue. We find no evidence in the record that petitioner had

an interest in the trust account from which Milton made the payments. We also

find no evidence of the source of the payments that gave rise to the overpayment

shown on petitioner's and Milton's 2005 joint return, but, again, petitioner makes

no claim that she funded any part of those payments.

      Our conclusion might be different if we had evidence that petitioner had

reimbursed Milton for any of the estimated payments in issue. To that extent, she

could be viewed as having "bought into" a share of the credits for those payments.

Allocating to her any portion of the estimated payments for which she reimbursed

Milton would not relieve her of the economic burden of the liability for tax on her

own income. But the record provides no evidence that petitioner ever reimbursed

Milton (or his estate or its beneficiaries) for any portion of the estimated payments

he made.
                                        - 28 -

[*28] Petitioner's interpretation of the premarital agreement would subordinate the

general principle established by Paragraph Twenty-Seventh of the agreement to

the specific mechanics of its implementation. As petitioner reads the agreement,

its principal import was that she was never required to pay to the IRS tax arising

during her marriage to Milton. Instead, he was always required to pay all of the

tax in the first instance. Her only obligation was to reimburse him for any tax he

paid on her income. But she acknowledges that the record provides no evidence

that she reimbursed Milton's estate or its beneficiaries for the tax on her 2006

income and, moreover, she makes no claim that she did so. Therefore, under her

reading of the premarital agreement, she would end up realizing the windfall of

having her 2006 tax liability paid with Milton's funds unless, at this late date,

Milton's estate (or, more likely, its beneficiaries) were able to--and did--enforce

her reimbursement obligation.

      On the other hand, upholding respondent's allocation to Milton of the

credits arising from the estimated payments made for 2006 would extinguish any

remaining reimbursement obligation. Any claim for reimbursement would depend

on Milton's having paid tax on petitioner's income. Allocating the estimated

payments for 2006 entirely to Milton, as respondent now seeks to do, would mean

that Milton's funds would ultimately satisfy only his own tax liability.
                                        - 29 -

[*29] Nothing in the divorce court's order concerning petitioner's and Milton's

2006 tax liabilities compels a different conclusion. The court acted in response to

Milton's request for "an Order compelling * * * [petitioner] to pay her portion of

the parties' 2006 taxes." In his argument in support of his motion, Milton

anticipated an order directing petitioner "to reimburse him". That characterization

of the requested order, however, reflected the premise that he had "paid the tax"

due from petitioner's sale of her own property. When the divorce court granted

Milton's order, it concluded that petitioner was responsible "to pay any gains or

obligations related to * * * [her] property." It did not mandate that the

contemplated payment take the form of reimbursement to Milton. Thus, whatever

amounts petitioner pays as a result of the levy action upheld by the NOD would

satisfy her obligation under the divorce court's order.

      In sum, we agree with Appeals that Paragraph Twenty-Seventh of the

premarital agreement petitioner executed with Milton establishes a general

principle that requires the allocation entirely to Milton's account of the

overpayment shown on the joint return petitioner filed with Milton for 2005. That

same analysis applies to the estimated payments Milton made between June 2006

and January 2007. Thus, Appeals did not err, as a matter of law, in allocating
                                         - 30 -

[*30] entirely to Milton's account the credits for those payments, as well as the

joint 2005 overpayment.

      We sympathize with petitioner's frustration at having received inconsistent

determinations regarding the payment of her tax liability for 2006. Respondent's

handling of her case was not ideal. But we also appreciate the challenge

respondent faced in adjudicating competing claims for credit of the same amounts.

In an organization as large as the IRS, the right hand may not always know what

the left is doing, and efforts to coordinate the treatment of conflicting claims to

credit for payments and handling those claims consistently can be complicated. It

would have been easier for all involved if respondent had adhered to a single

position regarding the allocation of the credits. But, for the reasons explained

above, Appeals was entitled to change its position regarding petitioner's

entitlement to the credits. And Appeals' ultimate position, though contrary to prior

determinations, did not reflect an abuse of discretion. Petitioner does owe--and

always has--the tax respondent seeks to collect. The record provides no evidence

that petitioner was prejudiced by the initial determinations that the credits she

claimed satisfied her liability. As noted above, her stated interest in pursuing

collection alternatives in her initial CDP hearing suggests that, if she has indeed

failed to preserve assets sufficient to pay the tax, that failure occurred before
                                        - 31 -

[*31] Appeals' consideration of either the NFTL or the levy notice. If paying the

amount she owes at this point would cause her financial hardship, she should have

requested consideration of collection alternatives at the April 28, 2016, hearing,

instead of acquiescing in her representatives' pursuit of an all-or-nothing strategy

to avoid collection altogether.

      Because Appeals did not abuse its discretion in approving the proposed levy

action to collect petitioner's unpaid income tax for her 2006 taxable year, we will

sustain Appeals' determination.


                                                 Decision will be entered for

                                       respondent.
