                        T.C. Memo. 2011-21



                     UNITED STATES TAX COURT



                BARRY B. KREISLER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17641-08L.            Filed January 25, 2011.



     Barry B. Kreisler, pro se.

     G. Roger Markley, for respondent.



                        MEMORANDUM OPINION


     MORRISON, Judge:   The respondent (whom we refer to here as

the IRS) notified petitioner Barry B. Kreisler that it intended

to collect his 2000 income-tax liability by levy.   Kreisler

requested a pre-levy hearing with the IRS Appeals Office.   After

the hearing, he received an adverse determination from that
                               - 2 -

office.   He has appealed that determination to this Court.     We

sustain the determination.

                             Background

     We adopt the stipulation of facts that was executed by

Kreisler and the IRS.   The original due date of Kreisler’s 2000

income-tax return was April 15, 2001.1    Kreisler was therefore

required to pay his 2000 income-tax liability by April 15, 2001.2

On April 15, 2001, the IRS credited Kreisler’s 2000 income-tax

liability with $11,266.78 for prepayments made through

withholding.   The filing deadline for the 2000 return was

extended by the IRS to October 15, 2001.3    According to IRS

records, Kreisler filed his return on October 18, 2001.    He

reported a tax liability of $101,053.




     1
      Sec. 6072(a) provides that income-tax returns made on the
basis of the calendar year must be filed on or before Apr. 15 of
the following year. Unless otherwise indicated, all section
references are to the Internal Revenue Code.
     2
      Sec. 6151(a) requires the taxpayer to pay the tax at the
time fixed for filing the return (without regard for any
extension of time for filing the return).
     3
      Sec. 6081(a) authorizes the IRS to extend the deadline for
filing a return by 6 months.
                                - 3 -

     On November 26, 2001, the IRS assessed the following

liabilities related to the tax year 2000:     a tax liability of

$101,053;4 a late-payment penalty of $3,591.45;5 an estimated-tax

penalty of $4,171.56; and interest of $4,154.12.    On December 3,

2001, the IRS assessed interest of $136.61.    On April 15, 2002,

the IRS applied a tax credit of $35,993.17 to Kreisler’s tax

account for his 2000 income tax.

     On June 5, 2002, Kreisler filed a Chapter 11 bankruptcy

petition.   On June 19, 2002, the IRS filed a proof of claim.      In

November 2002, Kreisler’s bankruptcy case was converted from

Chapter 11 to Chapter 7.   On April 15, 2003, the IRS applied a

tax credit of $3,725.08 to Kreisler’s tax account for his 2000

income tax.

     On June 3, 2004, Kreisler received a discharge.     On August

31, 2004, the IRS filed a “second amended (current) proof of

claim” in the Chapter 7 case.   It asserted an unsecured priority

claim, under 11 U.S.C. sec. 507(a)(8), of $57,001.62.6    The


     4
      Note that the amount assessed was the amount shown on the
return, $101,053, and was not reduced by the $11,266.78 of
prepayments. As explained in Saltzman, IRS Practice and
Procedure, par. 10.02[3], at 10-13 (rev. 2d ed. 2002): “When a
taxpayer files a return showing that a tax is due, * * * if only
partial payment is enclosed with the return, the tax reported is
assessed”.
     5
      The $3,591.45 is equal to (0.5 percent) x (8 months) x
($101,053 - $11,266.78).
     6
      The $57,001.62 comprised year 2000 tax due of $49,767.97
                                                   (continued...)
                                 - 4 -

second amended (current) proof of claim also asserted an

unsecured nonpriority claim of $11,597.72.    The $11,597.72 was

described on the second amended (current) proof of claim as

“Penalty to date of petition on unsecured priority claims

(including interest thereon).”    The second amended (current)

proof of claim did not assert that the IRS had a secured claim.

     On July 29, 2006, the IRS mailed to Kreisler a Final Notice

of Intent to Levy and Notice of Your Right to a Hearing for

income tax for the year 2000.    The notice stated that the IRS

intended to levy on Kreisler’s property unless Kreisler requested

a pre-levy hearing or paid $84,815.10.    The $84,815.10 comprised

the following amounts:

     •    $61,821.71 assessed balance for income tax for the 2000

          year,

     •    $20,133.81 accrued interest on unpaid income tax for

          the 2000 year,

     •    $2,859.58 late-payment penalty on unpaid income tax for

          the 2000 year.

     Around August 15, 2006, Kreisler mailed a written request

for a pre-levy hearing.    The request asserted that the IRS had a


     6
      (...continued)
(assessed on Nov. 20, 2001) and interest on unpaid 2000 taxes,
accrued to the petition date, of $7,233.65. (The record does not
explain why the assessment date was noted on the second amended
(current) proof of claim as Nov. 20, 2001, instead of Nov. 26,
2001, the date noted on the IRS transcript as the date of
assessment).
                               - 5 -

“preferred claim” in the bankruptcy case of $108,317.59, that the

trustee held over $702,000 in assets, that the other “preferred

claims” totaled only $100,000, and that the IRS would soon

receive the full amount of “its claim” from the bankruptcy

estate.   The request asked the IRS to refrain from levying.    It

did not present any challenges to the amount of the 2000 income-

tax liability, including interest and penalties.   It did not seek

consideration of an offer-in-compromise or an installment

agreement.   After receiving the request for the hearing, the

Appeals officer assigned to handle the hearing had numerous

communications with Kreisler and with Kreisler’s representative.

Kreisler and the Appeals officer came to an understanding that

the hearing would not concern the amount of his tax liability,

interest, or penalties.   Rather, the hearing would concern only

the question of whether the IRS should delay the levy because of

the prospect that the IRS priority claim might be paid by the

bankruptcy estate.

     On June 12, 2008, the Appeals officer met with Kreisler and

Kreisler’s representative for the pre-levy hearing.   At the

hearing, the Appeals officer advised for the first time that the

IRS would forbear from collecting the IRS claim in bankruptcy,

pending the trustee’s release of funds from the estate, but would

require that a portion of the penalty and interest that it

contended had accrued after the petition date be paid immediately
                                - 6 -

in order to avoid collection action.7   In lieu of immediate

payment, the Appeals officer offered to enter into an installment

agreement.    As the Appeals officer’s notes reflect, the penalty

and interest that were required to be paid amounted to

$39,896.44.   The notes state that this $39,896.44 comprised

$29,196.33 of interest computed from the discharge date of June

3, 2004, until June 5, 2008 and $10,700.11 for the failure-to–pay

penalty.   The notes indicate that the $10,700.11 failure-to-pay

penalty was computed as accruing until January 2008 because,

according to the Appeals Office’s calculations, the maximum 50

months was reached then.8   (However, the IRS contends in its

brief that the $10,700.11 “had accrued from the bankruptcy

discharge date of June 3, 2004 until June 5, 2008”.)   Kreisler

did not agree with these amounts.   He asked for 30 days to

research whether these penalty and interest amounts were correct.


     7
      The parties stipulated:

     SO Adams [the Appeals officer assigned to handle
     Kreisler’s hearing] and the petitioner and his
     representative attended a CDP hearing on June 12, 2008,
     at which time SO Adams for the first time advised that
     the respondent would forebear from collecting the
     respondent’s claim in bankruptcy, pending the trustee’s
     release of funds from the estate, but would require
     that the penalty and interest she contended had accrued
     after the petition date be paid immediately in order to
     avoid collection action.
     8
      For every month that a taxpayer fails to pay the tax
reported on a return, the penalty increases by 0.5 percent of the
tax reported until the penalty reaches 25 percent. Sec.
6651(a)(2).
                               - 7 -

The Appeals officer refused his request.   On June 19, 2008, the

Appeals Office mailed to Kreisler a notice of determination.

Kreisler filed a timely petition with the Tax Court.   At the time

he filed the petition, Kreisler lived in Illinois.9

     On November 5, 2009, the bankruptcy court signed an agreed

order allowing the IRS’s unsecured priority claim of $57,001.62

and its unsecured nonpriority claim of $11,597.72.    The Tax Court

case was tried on December 9, 2009.    As of the date of trial, the

administration of the bankruptcy estate was ongoing, and the tax

liability had not been paid.

                            Discussion

1.   Standard of Review

     Section 6330 forbids the IRS to levy until the IRS notifies

the taxpayer of the taxpayer’s right to a pre-levy hearing with

the Appeals Office.   At the pre-levy hearing, the taxpayer may

raise any relevant issue relating to the unpaid tax or the

proposed levy, including challenges to the appropriateness of

collection actions and “offers of collection alternatives, which

may include * * * an installment agreement”.   Sec. 6330(c)(2)(A).



     9
      The filing of the bankruptcy petition by Kreisler on June
5, 2002, triggered an automatic stay of all proceedings and
actions against Kreisler, see 11 U.S.C. sec. 362(a)(1) (2006),
including the commencement of any Tax Court case concerning the
tax liability of Kreisler for the tax year 2000, see 11 U.S.C.
sec. 362(a)(8). When Kreisler received a discharge on June 3,
2004, the automatic stay was terminated. See 11 U.S.C. sec.
362(c)(2)(C).
                                 - 8 -

A taxpayer may contest the “existence or amount of the underlying

tax liability” if the taxpayer did not receive a notice of

deficiency for the tax liability in question and did not

otherwise have an earlier opportunity to dispute the tax

liability.    Sec. 6330(c)(2)(B); Oyer v. Commissioner, T.C. Memo.

2003-178, 85 T.C.M. (CCH) 1510, 1513-14, affd. 97 Fed. Appx. 68

(8th Cir. 2004).    For these purposes the underlying tax liability

includes penalties and interest.     Montgomery v. Commissioner, 122

T.C. 1, 8 (2004).    Following the hearing, the Appeals officer

must make a determination that considers the issues raised by the

taxpayer and other mandatory issues.     Sec. 6330(c)(3).   We have

jurisdiction to review the Appeals officer’s determination.     Sec.

6330(d)(1).     Since the underlying tax liability is not at issue,

we review the Appeals officer’s determination for abuse of

discretion.     Sego v. Commissioner, 114 T.C. 604, 609-610 (2000).

Abuse of discretion has been defined as “determinations [that]

were arbitrary, capricious, or without sound basis in fact or

law.”   Giamelli v. Commissioner, 129 T.C. 107, 111 (2007).

2.   Analysis

     The only issue Kreisler raised at the hearing was whether

the Appeals officer should decline to levy because of the

prospect that the IRS’s priority claim would be paid by the

bankruptcy estate.    We do not believe that the decision against

delaying the levy was an abuse of discretion.     First, delaying
                               - 9 -

the levy could have pushed back the date on which the IRS would

have collected the tax liability.   That is because the levy could

have resulted in collection of the liability sooner than the IRS

would have received assets in distribution from the bankruptcy

estate.   Second, delaying the levy would have reduced the number

of ways in which the IRS could seek collection.   The levy would

operate against Kreisler’s personal assets.10   By contrast, the

distributions by the bankruptcy trustee could occur only out of

the assets of the bankruptcy estate.   11 U.S.C. secs. 726 (2006)

(requiring trustee to distribute property of the estate),

541(a)(1) (property of estate is all property of debtor when

debtor filed petition).   In this instance, it was within the

discretion of the Appeals officer to attempt to collect the

liability sooner rather than later, and to attempt to use two

methods of collection rather than one.

     As recounted above, the Appeals officer proposed an

installment agreement under which the IRS would decline to levy

if Kreisler would agree to pay postdischarge penalties and

interest in installments.   Kreisler refused this offer.   Kreisler

now charges that the Appeals officer mishandled the installment

agreement offer by attaching to the offer the condition that


     10
      A discharge in bankruptcy absolves the debtor of all
personal liability. 11 U.S.C. sec. 524(a) (2006). However, it
does not discharge tax debts that arose 3 years before
bankruptcy. 11 U.S.C. sec. 523(a)(1)(A) (2006), 11 U.S.C. sec.
507(a)(8) (2006).
                              - 10 -

Kreisler pay postdischarge penalties and interest and by refusing

to allow him the opportunity to dispute his liability for the

postdischarge penalties and interest.

     How to analyze the Appeals officer’s handling of its

installment agreement offer depends upon whether the offer is

related to “offers of collection alternatives, which may include

* * * an installment agreement”, see sec. 6330(c)(2)(A)(iii), or

is instead related to a challenge to the “existence or amount of

the underlying tax liability”, see sec. 6330(c)(2)(B).   Under

either view, the Appeals officer did not err.   Viewed as an issue

related to an offer of collection alternatives, the offer was

handled appropriately by the Appeals officer.   Kreisler failed to

indicate in his request for a hearing or in any communications

with the Appeals Office before the hearing that he wished to

discuss an installment agreement.   Under these circumstances, the

Appeals Office was within its discretion to make an installment

agreement offer on its own accord and to refuse to allow Kreisler

additional time to consider the offer.11   To find fault in the

conditions by which the Appeals Office presented the installment

agreement offer for negotiation would discourage the Appeals



     11
      To the extent Kreisler was requesting that the Appeals
officer postpone the levy, wait until the bankruptcy case was
closed, and then at some future date consider issues related to
the levy, it was not an abuse of discretion for the Appeals
officer to refuse to delay the collection of tax through such a
drawn-out procedure.
                              - 11 -

Office from bringing up collection alternatives on its own

initiative.   The purpose of collection-review procedures is to

foster the Appeals Office’s consideration of alternatives to

collection, not to discourage such consideration.

     Alternatively, if viewed as related to a potential challenge

by Kreisler to the existence or amount of his underlying tax

liability, the installment agreement offer was handled

appropriately by the Appeals officer.   By statute, the Appeals

officer was required to consider any challenge by Kreisler to the

existence or amount of the underlying tax liability.    See sec.

6330(c)(3)(B).   Thus, if Kreisler had challenged the amount of

his 2000 income-tax liability, a challenge which could have

encompassed at least some of his liability for penalties and

interest, the Appeals officer would have been obliged to consider

Kreisler’s arguments.   We find that Kreisler chose not to raise,

as an issue for the hearing, his underlying tax liability.     In

his written request for a hearing, Kreisler did not discuss his

tax liability.   Furthermore, he reached an understanding with the

Appeals officer before the hearing that he would not challenge

the liability.   As Kreisler says in his reply brief:

     the Petitioner and his representative came fully
     prepared to address the only issue of which Petitioner
     was aware–that the priority claim would be paid in full
     by the trustee and to again request that no action be
     taken to the detriment of the Petitioner until the
     priority claim was paid.
                              - 12 -

Kreisler chose to limit his issues before the Appeals officer to

only one thing.   He wanted the levy delayed until the bankruptcy

estate made payments to the creditors.    Thus, we are not

authorized to consider the issue of his tax liability.    Sec.

301.6330-1(f)(2), A-F3, Proced. & Admin. Regs.

     Kreisler also complains that before the hearing, the IRS

Appeals officer failed to understand that the bankruptcy estate

had funds sufficient to pay the priority claim in full.      Yet the

Appeals officer apparently agreed with Kreisler during the

hearing that the priority claim would be paid in full.    Kreisler

cannot complain that the Appeals officer accepted Kreisler’s own

theory.   The real problem was that Kreisler rested all his hopes

on convincing the Appeals officer to wait until the IRS’s

priority claim had been paid without taking action to collect

Kreisler’s other debts.

     Kreisler also argues that the IRS erred by not pressing to

receive payment of its priority claim by the bankruptcy trustee.

The first problem with this argument is that it is new.      Kreisler

never brought it up with the Appeals Office.    Therefore, Kreisler

is barred from making the argument now.    See sec. 301.6330-

1(f)(2), A-F3, Proced. & Admin. Regs.    Second, Kreisler does not

explain what the IRS should have or could have done differently

to protect its claim in the bankruptcy proceeding.    We therefore

reject his argument.   We have considered all of Kreisler’s other
                              - 13 -

arguments and determined that they are irrelevant to whether the

Appeals Office abused its discretion.12

     To reflect the foregoing,


                                          Decision will be entered

                                   for respondent.




     12
      In making its determination, the Appeals Office had a duty
to verify that the requirements of any applicable law or
administrative procedure had been met. See sec. 6330(c)(1). We
are satisfied that the Appeals Office did not err in performing
this duty. The Appeals Office also had a duty to take into
consideration whether the proposed levy balanced the need for
efficient collection of taxes with the legitimate concern of
Kreisler that any collection action be no more intrusive than
necessary. See sec. 6330(c)(3)(C). We are satisfied that the
Appeals Office did not err in performing this duty.
