                                               NORMAN HINERFELD, PETITIONER v. COMMISSIONER                                     OF
                                                       INTERNAL REVENUE, RESPONDENT
                                                         Docket No. 20946–08L.               Filed September 27, 2012.

                                                       R issued to P a final notice of intent to levy with regard to
                                                    P’s unpaid trust fund recovery penalties totaling $471,696. P
                                                    timely requested a collection due process (CDP) hearing with
                                                    the Office of Appeals (Appeals) and submitted to Appeals an
                                                    offer-in-compromise (OIC) of $10,000, followed by an amended
                                                    OIC of $74,857. The settlement officer assigned to the case
                                                    recommended that the amended OIC be accepted and sub-
                                                    mitted the matter to R’s Area Counsel for review in accord-
                                                    ance with I.R.C. sec. 7122(b). Upon review, Area Counsel
                                                    discovered that P and his wife were named as defendants in
                                                    a lawsuit alleging that P had fraudulently conveyed assets to
                                                    his wife. Area Counsel recommended that P’s amended OIC
                                                    be rejected, and the Appeals Team Manager agreed. Appeals
                                                    issued to P a final notice of determination rejecting his
                                                    amended OIC and determining that it was appropriate to pro-
                                                    ceed with the proposed levy. P filed a timely petition for
                                                    review with the Court. Held: Although the matter was raised
                                                    for the first time in P’s posttrial briefs, the Court will consider
                                                    P’s argument that Appeals and Area Counsel engaged in
                                                    prohibited ex parte communications during the CDP hearing.
                                                    Held, further, Appeals and Area Counsel were obliged to
                                                    communicate with regard to P’s amended OIC in accordance
                                                    with I.R.C. sec. 7122(b), and consequently their communica-
                                                    tions were not prohibited ex parte communications within the
                                                    meaning of Rev. Proc. 2000–43, 2000–2 C.B. 404. Held, fur-
                                                    ther, Appeals did not abuse its discretion in deciding to accept
                                                    Area Counsel’s recommendation to reject P’s amended OIC or
                                                    in determining to proceed with the proposed levy.

                                            Richard Stephen Kestenbaum, for petitioner.
                                            Donald Alan Glasel, for respondent.
                                       GALE, Judge: Pursuant to section 6330(d), 1 Norman
                                     Hinerfeld (petitioner) seeks review of respondent’s deter-
                                     mination to proceed with a levy to collect petitioner’s unpaid
                                     trust fund recovery penalties (trust fund penalties), assessed
                                     pursuant to section 6672, for the quarterly periods ended
                                     September 30 and December 31, 2002, March 31, September
                                     30, and December 31, 2003, and June 30, 2004. The issues
                                     for decision are: (1) whether respondent’s Office of Appeals
                                     (Appeals) and Area Counsel in the Small Business/Self
                                           1 All   section references are to the Internal Revenue Code of 1986, as amended.


                                                                                                                                     277




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                                     278                 139 UNITED STATES TAX COURT REPORTS                                    (277)


                                     Employed Division of the Office of Chief Counsel (Area
                                     Counsel) engaged in prohibited ex parte communications
                                     during petitioner’s collection due process (CDP) hearing, and
                                     (2) whether Appeals abused its discretion in rejecting peti-
                                     tioner’s amended offer-in-compromise.
                                                                         FINDINGS OF FACT

                                        Some of the facts have been stipulated and are so found.
                                     The stipulation of facts and the attached exhibits are incor-
                                     porated herein by this reference. The parties agree that all
                                     of the stipulated exhibits are part of the administrative
                                     record of the proposed collection action at issue. At the time
                                     the petition was filed, petitioner resided in New York.
                                        On June 10, 2006, respondent sent to petitioner by cer-
                                     tified mail a Final Notice of Intent to Levy and Notice of
                                     Your Right to a Hearing with respect to unpaid trust fund
                                     penalties totaling $471,696. Petitioner submitted to Appeals
                                     a timely Form 12153, Request for a Collection Due Process
                                     or Equivalent Hearing, indicating that he was preparing an
                                     offer-in-compromise (OIC). Petitioner does not dispute that he
                                     is liable for the trust fund penalties at issue as a responsible
                                     person of Thermacon Industries, Inc. (Thermacon).
                                        On July 17, 2006, petitioner submitted to Appeals an OIC
                                     of $10,000 based on doubt as to collectibility and a Form
                                     433–A, Collection Information Statement for Wage Earners
                                     and Self-Employed Individuals.
                                        On August 7, 2007, Settlement Officer Carol Berger (SO
                                     Berger) notified petitioner that his case had recently been
                                     transferred to her, and she requested that he update his
                                     Form 433–A. On August 16, 2007, petitioner submitted to SO
                                     Berger a revised Form 433–A. SO Berger subsequently deter-
                                     mined that petitioner’s reasonable collection potential was
                                     $74,857. 2 In early January 2008 petitioner amended his OIC
                                     to $74,857 (amended OIC).
                                        On February 5, 2008, SO Berger recommended that the
                                     Internal Revenue Service (IRS) accept petitioner’s amended
                                     OIC, and she requested Area Counsel’s verification and
                                     review. Upon review of the matter, Area Counsel discovered
                                       2 At the time of petitioner’s hearing, reasonable collection potential was defined as the amount

                                     that could be collected from a taxpayer from all available means. See Internal Revenue Manual
                                     (IRM) pt. 5.8.4.4 (Sept. 1, 2005). That definition currently appears at IRM pt. 5.8.4.3 (June 1,
                                     2010).




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                                     (277)                         HINERFELD v. COMMISSIONER                                      279


                                     that petitioner and his wife, Ruth Hinerfeld, were named as
                                     codefendants (along with other alleged business associates)
                                     in a lawsuit filed in the U.S. District Court for the District
                                     of New Jersey on October 2, 2007. The pending lawsuit,
                                     styled Multi-Glass Atlantic, Inc. v. Alnor Assocs., LLC, No.
                                     1:07–cv–04760 (D.N.J. filed Oct. 2, 2007) (Multi-Glass law-
                                     suit), concerned the sale of substantially all of Thermacon’s
                                     assets pursuant to an asset purchase agreement petitioner
                                     signed on Thermacon’s behalf on September 13, 2004, to
                                     Reelan Industries, Inc. (Reelan), a corporation wholly owned
                                     by petitioner’s children and RJTL, Inc., a corporation wholly
                                     owned by Ruth Hinerfeld and petitioner’s children. The asset
                                     purchase agreement valued the assets at $2.2 million.
                                       Multi-Glass claimed that petitioner and the other defend-
                                     ants fraudulently conveyed substantially all of Thermacon’s
                                     assets to Reelan, purposefully leaving Thermacon unable to
                                     satisfy obligations to its creditors, including Multi-Glass,
                                     which had obtained a $734,889 (Canadian dollars) default
                                     judgment against Thermacon in earlier litigation. Multi-
                                     Glass claimed an interest in the assets that Thermacon had
                                     transferred to Reelan under the asset purchase agreement.
                                       After Area Counsel brought the Multi-Glass lawsuit to SO
                                     Berger’s attention, she sent a letter to petitioner dated April
                                     14, 2008, posing the following questions related to
                                     Thermacon:
                                     2. An amended complaint of the above action [Multi-Glass lawsuit] filed
                                     10/05/2007 names you as an officer of Thermacon Industries Inc. and
                                     Thermacon Penetec Systems, Inc. Are you currently an officer/owner/share-
                                     holder of either of these entities? If not, when did your association cease?
                                     Who did you sell to and what was the sale price? (Provide verification.)
                                     Skip to question 4 if you were not an officer/owner of Thermacon or
                                     Thermacon Penetec Systems, Inc.
                                     3. Under the complaint in the plaintiff ’s proposed discovery plan (filed 01/
                                     21/2008) they allege Thermacon transferred all of its assets to Reelan
                                     Industries, Inc. Who were/are the officer/owners of Reelan Industries, Inc?

                                       By letter dated April 17, 2008, petitioner responded to SO
                                     Berger’s questions as follows:
                                     2. I terminated my employment with the Thermacon and Penetec compa-
                                     nies in 2003. Since that date I have not been an officer or shareholder of
                                     either entity. All of the assets of of [sic] Thermacon and Penetec were
                                     liened by the LaSalle Bank supporting a $5.7 million loan to Thermacon.




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                                     280                 139 UNITED STATES TAX COURT REPORTS                                      (277)


                                     In 2003 my wife purchased the LaSalle lien, which covered all of the
                                     Thermacon and Penetec assets, for $3.5 million. The net assets of
                                     Thermacon and Penetec totaled $2.2 million at that time. Immediately
                                     after assuming the lien why [sic] wife sold the Thermacon and Penetec
                                     assets to the Reelan Corporation for $2.2 million in the form of Notes and
                                     Preferred Stock. Reelan never paid the Cash/Notes portion of the purchase
                                     price and the Preferred Stock is worthless since Reelan was liquidated in
                                     1986 [sic] with no net assets.
                                     3. N.A.

                                       Petitioner’s responses conflicted with information in Area
                                     Counsel’s possession. In response to question 2, petitioner
                                     claimed that he had not been an officer or shareholder of
                                     Thermacon since 2003 and that his wife sold the Thermacon
                                     assets. However, in his answer to the amended complaint in
                                     the Multi-Glass lawsuit, which is part of the administrative
                                     record, petitioner specifically admitted that he signed the
                                     asset purchase agreement on behalf of Thermacon on or
                                     about September 13, 2004. Further, even though petitioner
                                     admitted in the Multi-Glass lawsuit that he had acted on
                                     behalf of Thermacon in the 2004 asset sale to Reelan, he
                                     treated question 3 concerning Reelan’s ownership as inappli-
                                     cable to him on the grounds that he had no role in
                                     Thermacon’s affairs in 2004.
                                       Area Counsel reviewed petitioner’s responses to SO
                                     Berger’s April 14, 2008, letter and concluded that it would be
                                     premature to accept his amended OIC because the resolution
                                     of the Multi-Glass lawsuit might show that petitioner had
                                     participated in a fraudulent transfer of Thermacon’s assets,
                                     exposing Ruth Hinerfeld as petitioner’s nominee and pro-
                                     viding a new source for the IRS to collect petitioner’s unpaid
                                     trust fund penalties. 3
                                       The disposition of petitioner’s OIC, which was first sub-
                                     mitted to Appeals on July 17, 2006, was subject to the 24-
                                     month time restriction prescribed by section 7122(f). 4 In this
                                       3 Respondent suggested at trial and on brief that petitioner’s transfer of a residence to his wife

                                     was a fraudulent transfer. When this issue was considered in petitioner’s CDP hearing, Appeals
                                     concluded that it was not a fraudulent transfer and Area Counsel agreed. The transfer of the
                                     residence accordingly played no role in the determination to reject petitioner’s offer-in-com-
                                     promise, and we decline to consider the issue further.
                                       4 Sec. 7122(f) was added to the Internal Revenue Code as part of the Tax Increase Prevention

                                     and Reconciliation Act of 2005 (TIPRA), Pub. L. No. 109–22, sec. 509(b)(2), 120 Stat. at 363,
                                     and provides that an OIC shall be deemed accepted by the Secretary if the OIC is not rejected
                                     by the Secretary before the date which is 24 months after the date of submission of the OIC.
                                     Sec. 7122(f) is effective for OICs submitted on or after July 16, 2006. TIPRA sec. 509(d).




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                                     (277)                         HINERFELD v. COMMISSIONER                                      281


                                     regard, SO Berger conducted a telephone conference with
                                     petitioner’s counsel on June 4, 2008, and informed him that
                                     her supervisor, Appeals Team Manager John O’Dea (ATM
                                     O’Dea), agreed with Area Counsel’s recommendation to reject
                                     petitioner’s amended OIC. 5 During this same telephone con-
                                     ference, SO Berger informed petitioner’s counsel that
                                     Appeals was amenable to designating petitioner’s liability
                                     ‘‘currently not collectible’’. 6 Petitioner rejected the proposal
                                     to place his account in currently not collectible status. By
                                     letter dated June 25, 2008, ATM O’Dea informed petitioner
                                     that his amended OIC had been rejected.
                                        On July 28, 2008, Appeals sent petitioner a Notice of
                                     Determination Concerning Collection Action(s) Under Section
                                     6320 and/or 6330 (notice of determination) rejecting the
                                     amended OIC and sustaining the proposed levy. The notice of
                                     determination stated, in relevant part: (1) the amended OIC
                                     was investigated and recommended for approval by Appeals,
                                     but Area Counsel determined that there might be additional
                                     collection potential once a pending lawsuit was resolved, and
                                     (2) Appeals offered to designate petitioner’s account currently
                                     not collectible as a less intrusive alternative to the proposed
                                     levy.
                                        Petitioner filed a timely petition with the Court contesting
                                     respondent’s determination to proceed with the proposed
                                     levy. Petitioner alleged that respondent erred: (1) in failing
                                     to agree to refrain from the proposed levy, and (2) in con-
                                     cluding that designating petitioner’s account currently not
                                     collectible was an appropriate collection alternative.
                                        Petitioner alleged in paragraph 5 of the petition that
                                     ‘‘Although an Offer in Compromise was submitted, and was
                                     recommended for approval by the Appeals Officer, [Area]
                                     Counsel determined that there may be additional collection
                                     potential based upon the possible resolution of an unrelated
                                     litigation.’’ Petitioner did not expressly challenge the pro-
                                     priety of the communications between Appeals and Area
                                     Counsel in the petition or at any time before or during the
                                     trial of this case. Petitioner argued for the first time in his
                                       5 SO Berger disagreed with Area Counsel’s opinion that petitioner’s amended OIC should be

                                     rejected. However, authority to accept petitioner’s OIC resided with ATM O’Dea. See Johnson
                                     v. Commissioner, 136 T.C. 475, 496 (2011) (and authorities thereat cited); see also Delegation
                                     Order 5–1 (Rev. 2), IRM pt. 1.2.44.2 (May 19, 2006).
                                       6 See IRM pt. 5.16.1.1 (Dec. 1, 2006).




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                                     282                 139 UNITED STATES TAX COURT REPORTS                                    (277)


                                     posttrial briefs that Appeals had engaged in prohibited ex
                                     parte communications with Area Counsel.

                                                                                  OPINION

                                     I. Collection Procedures
                                        Section 6331(a) authorizes the Secretary to levy upon all
                                     property and rights to property belonging to a taxpayer liable
                                     for taxes who fails to pay those taxes within 10 days of notice
                                     and demand for payment. The levy authorized in section
                                     6331(a) may be made only if the Secretary has given written
                                     notice to the taxpayer at least 30 days before the day of the
                                     levy identifying the amount of the unpaid tax and informing
                                     the taxpayer of his right to a CDP hearing with Appeals. Secs.
                                     6331(d), 6330(a).
                                        If the taxpayer submits a timely request for a CDP hearing,
                                     section 6330(c)(1) requires Appeals to obtain verification from
                                     the Secretary that the requirements of any applicable law or
                                     administrative procedure have been met. In addition, the
                                     taxpayer may raise at the CDP hearing any relevant issue
                                     relating to the unpaid tax or the proposed levy, including
                                     offers of collection alternatives such as OICs, or, in certain
                                     circumstances, a challenge to the underlying liability. Sec.
                                     6330(c)(2)(A) and (B). At the conclusion of the CDP hearing,
                                     Appeals must determine whether to proceed with the collec-
                                     tion action and shall take into account the required
                                     verification, issues raised by the taxpayer, and whether any
                                     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 nec-
                                     essary. Sec. 6330(c)(3).
                                        This Court has jurisdiction to review Appeals’ administra-
                                     tive determinations. Sec. 6330(d)(1). Because petitioner does
                                     not dispute his liability for the trust fund penalties, we
                                     review Appeals’ determination for abuse of discretion. See
                                     Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v.
                                     Commissioner, 114 T.C. 176, 182 (2000). In reviewing a CDP
                                     determination for abuse of discretion, generally we consider
                                     only issues raised in the CDP hearing. See Giamelli v.




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                                     (277)                         HINERFELD v. COMMISSIONER                                      283


                                     Commissioner, 129 T.C. 107, 115 (2007); see also sec.
                                     301.6330–1(f)(2), Q&A–F3, Proced. & Admin. Regs. 7
                                     II. Ex Parte Communications
                                        As a preliminary matter, we consider whether petitioner
                                     should be permitted to raise the issue of whether Appeals
                                     and Area Counsel engaged in prohibited ex parte commu-
                                     nications. Respondent asserts that petitioner’s argument
                                     regarding the communications is a new issue and that the
                                     Court should decline to consider it now because it was not
                                     raised in the pleadings or at trial.
                                        The principle that a party may not raise a new issue on
                                     brief is not absolute. Rather, it is founded upon the exercise
                                     of judicial discretion and frequently turns on a determination
                                     whether the opposing party will be prejudiced in having to
                                     respond to a belated issue which precludes or limits that
                                     party’s opportunity to present pertinent evidence. See Ware
                                     v. Commissioner, 92 T.C. 1267, 1268 (1989), aff ’d, 906 F.2d
                                     62 (2d Cir. 1990); see also Toyota Town, Inc. v. Commis-
                                     sioner, T.C. Memo. 2000–40, aff ’d sub nom. Bob Wondries
                                     Motors, Inc. v. Commissioner, 268 F.3d 1156 (9th Cir. 2001).
                                        Petitioner’s argument regarding impermissible ex parte
                                     contacts is not inconsistent with the pleadings, and
                                     respondent does not contend that he would suffer any mean-
                                     ingful prejudice if the Court considered the argument.
                                     Indeed, the record includes all the information the Court
                                     needs to resolve what is in essence a legal issue. Accordingly,
                                     we will consider petitioner’s argument notwithstanding that
                                     it was raised for the first time in his posttrial briefs.
                                        Congress directed the Commissioner to develop a plan to
                                     restrict ex parte communications between Appeals employees
                                     and other IRS employees, as part of the Internal Revenue
                                     Service Restructuring and Reform Act of 1998 (RRA 1998),
                                     Pub. L. No. 105–206, sec. 1001(a)(4), 112 Stat. at 689. RRA
                                     1998 sec. 1001(a)(4) provides as follows:



                                       7 Effective for CDP hearing requests made on or after November 16, 2006, the applicable

                                     version of the regulations is sec. 301.6330–1(f)(2), Q&A–F3, Proced. & Admin. Regs. See T.D.
                                     9291, 2006–2 C.B. 887.




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                                     284                 139 UNITED STATES TAX COURT REPORTS                                    (277)


                                     SEC. 1001. REORGANIZATION OF THE INTERNAL REVENUE
                                                SERVICE.
                                       (a) IN GENERAL.—The Commissioner of Internal Revenue shall develop
                                     and implement a plan to reorganize the Internal Revenue Service. The
                                     plan shall—

                                                              *    *  *   *    *   *   *
                                       (4) ensure an independent appeals function within the Internal Revenue
                                     Service, including the prohibition in the plan of ex parte communications
                                     between appeals officers and other Internal Revenue Service employees to
                                     the extent that such communications appear to compromise the independ-
                                     ence of the appeals officers.

                                     In accordance with this congressional mandate, the Commis-
                                     sioner issued Rev. Proc. 2000–43, 2000–2 C.B. 404, which
                                     provides guidelines in question and answer format that are
                                     designed to distinguish prohibited and permissible ex parte
                                     communications between Appeals and other IRS employees
                                     during an administrative appeal. 8 In so doing, the review
                                     procedure does not adopt ‘‘formal ex parte procedures that
                                     would apply in a judicial proceeding’’ but instead attempts to
                                     ‘‘ensure the independence of the Appeals organization, while
                                     preserving the role of Appeals as a flexible administrative
                                     settlement authority, operating within the Internal Revenue
                                     Service’s overall framework of tax administration responsibil-
                                     ities.’’ Id. sec. 2.
                                        Citing Rev. Proc. 2000–43, supra, and certain other
                                     administrative guidance, petitioner argues that the discus-
                                     sions wherein Area Counsel alerted SO Berger to the Multi-
                                     Glass lawsuit and the possibility of a fraudulent conveyance
                                     and recommended rejection of petitioner’s OIC constituted
                                     prohibited ex parte communications which compromised the
                                     independence of Appeals. Consequently, petitioner contends,
                                     the case must be remanded for a supplemental hearing.
                                     Respondent contends that the discussions between Area
                                     Counsel and Appeals were not prohibited ex parte contacts.
                                     We agree with respondent.
                                        Rev. Proc. 2000–43, Q&A–11, 2000–2 C.B. at 406, specifi-
                                     cally addresses communications between Appeals and the
                                     Office of Chief Counsel. Acknowledging the need for Appeals
                                     employees to obtain legal advice from the Office of Chief
                                     Counsel, A–11 provides three limitations on communications
                                       8 Rev. Proc. 2000–43, 2000–2 C.B. 404, has been superseded by Rev. Proc. 2012–18, 2012–10

                                     I.R.B. 455, effective for communications after May 15, 2012.




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                                     (277)                           HINERFELD v. COMMISSIONER                                      285


                                     between Appeals employees and Office of Chief Counsel
                                     attorneys: (1) Appeals employees must not communicate with
                                     Chief Counsel attorneys who have previously provided advice
                                     to the IRS employees who made the determination Appeals is
                                     reviewing; (2) requests for legal advice where the answer is
                                     uncertain should be referred to the Chief Counsel’s National
                                     Office and handled as requests for field service advice or
                                     technical advice; and (3) although Appeals employees may
                                     obtain legal advice from the Office of Chief Counsel, they
                                     remain responsible for making independent evaluations and
                                     judgments concerning the cases appealed to them, and
                                     Counsel attorneys are prohibited from offering advice that
                                     includes settlement ranges for any issue in an appealed case.
                                        There is no evidence that the Area Counsel attorneys with
                                     whom Appeals conferred in this case had previously advised
                                     any employee who made the determination under Appeals
                                     review; that is, any employee of the Collection Division who
                                     made the determination to levy on petitioner’s property. In
                                     addition, the administrative record establishes that while SO
                                     Berger disagreed with Area Counsel’s recommendation to
                                     reject petitioner’s amended OIC, the decision to reject the OIC
                                     was made by ATM O’Dea who, rather than SO Berger, had
                                     the authority to do so. 9 Unlike SO Berger, ATM O’Dea agreed
                                     with Area Counsel’s recommendation to reject. Given the
                                     substantial evidence that Area Counsel had marshaled to
                                     support the conclusion that petitioner had made a fraudulent
                                     conveyance, 10 we are satisfied that ATM O’Dea exercised
                                     independent judgment as contemplated in Rev. Proc. 2000–
                                     43, supra, when he agreed with Area Counsel’s recommenda-
                                     tion. 11 Thus, the communications between Appeals and Area
                                           9 See
                                              supra note 5.
                                           10 In
                                              deciding this case, we are not required to and do not determine whether petitioner en-
                                     gaged in any fraudulent conveyance. It is sufficient for our purposes that Area Counsel had un-
                                     covered substantial evidence of such a conveyance. The evaluation of whether Appeals com-
                                     mitted an abuse of discretion turns in large part upon information available to it when a deter-
                                     mination is made. In this regard, we note that the administrative record indicates that peti-
                                     tioner’s answers to Appeals’ queries concerning the sale of Thermacon’s assets were on their face
                                     inconsistent with the position he took in his pleadings in the Multi-Glass lawsuit, and he made
                                     no effort to address those inconsistencies in the proceedings before Appeals or this Court.
                                        11 Petitioner makes much of the fact that SO Berger rather obviously disagreed with Area

                                     Counsel’s recommendation to reject petitioner’s amended OIC, contending that this fact dem-
                                     onstrates that SO Berger was unaware of her authority to reject Area Counsel’s advice and of
                                     her obligation to reach an independent determination as provided in Rev. Proc. 2000–43, supra.
                                     The short answer to petitioner’s argument is that SO Berger did not make the decision to reject
                                     the OIC; she lacked authority to do so. The decision on behalf of Appeals was made by ATM
                                                                                                   Continued




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                                     286                 139 UNITED STATES TAX COURT REPORTS                                    (277)


                                     Counsel in this case do not fall within the limitations pre-
                                     scribed in Rev. Proc. 2000–43, supra.
                                        Moreover, review by Area Counsel here was mandated by
                                     statute. Section 7122(a) permits the Secretary to compromise
                                     any civil case arising under the internal revenue laws. Sec-
                                     tion 7122(d)(1) provides that the Secretary shall prescribe
                                     guidelines for IRS officers and employees to determine
                                     whether an OIC is adequate and should be accepted to resolve
                                     a dispute. Section 7122(b), however, provides that if the Sec-
                                     retary makes a compromise in a civil case in which the
                                     unpaid amount of the tax assessed is $50,000 or more, an
                                     opinion of the General Counsel for the Department of the
                                     Treasury, or his delegate, shall be placed on file in the office
                                     of the Secretary. See also sec. 301.7122–1(e)(6), Proced. &
                                     Admin. Regs.; Internal Revenue Manual (IRM) pt. 33.3.2.1(2)
                                     (Aug. 11, 2004).
                                        Petitioner submitted his OIC to Appeals on the basis of
                                     ‘‘doubt as to collectibility’’, a concept that is defined in section
                                     301.7122–1(b)(2), Proced. & Admin. Regs., as any case where
                                     the taxpayer’s assets and income are less than the full
                                     amount of the liability. Section 301.7122–1(c)(2), Proced. &
                                     Admin. Regs., provides special rules for evaluating OICs
                                     based on doubt as to collectibility. Subdivision (ii)(A) of that
                                     provision states in relevant part:
                                     (ii) Nonliable spouses.—(A) In general.—Where a taxpayer is offering to
                                     compromise a liability for which the taxpayer’s spouse has no liability, the
                                     assets and income of the nonliable spouse will not be considered in deter-
                                     mining the amount of an adequate offer. The assets and income of a non-
                                     liable spouse may be considered, however, to the extent property has been
                                     transferred by the taxpayer to the nonliable spouse under circumstances
                                     that would permit the IRS to effect collection of the taxpayer’s liability
                                     from such property (e.g., property that was conveyed in fraud of creditors)
                                     * * *.

                                       General Counsel for the Treasury has delegated responsi-
                                     bility for the legal review of OICs under section 7122(b) to the
                                     Office of Chief Counsel, with the concomitant authority to re-
                                     delegate such responsibility. General Counsel Order No. 4
                                     (Rev. Jan. 19, 2001); IRM pt. 33.3.2.1(3). The Office of Chief
                                     Counsel redelegated this authority to IRS Division Counsel in
                                     the Small Business/Self Employed Division. IRM pt.
                                     O’Dea after what we are satisfied was an exercise of independent judgment.




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                                     (277)                         HINERFELD v. COMMISSIONER                                       287


                                     33.3.2.1(3). The Small Business/Self Employed Division in
                                     turn redelegated this authority to Area Counsel and Asso-
                                     ciate Area Counsel. IRM pt. 5.17.1.4.2(2)(D) (Oct. 16, 2007).
                                        IRM pt. 33.3.2.2(2) (Aug. 11, 2004) states that when
                                     Counsel review is required under section 7122(b), Counsel
                                     must determine whether the legal requirements for com-
                                     promise have been met, and, if so, Counsel shall review the
                                     proposed acceptance for consistent application of the IRS’ poli-
                                     cies regarding whether the proposed compromise amount is
                                     acceptable. IRM pt. 33.3.2.3.2(2)(iii) (Aug. 11, 2004) states
                                     that when a taxpayer has submitted an OIC based on doubt
                                     as to collectibility, Counsel’s review should include a deter-
                                     mination of ‘‘whether fraudulent conveyances and/or trans-
                                     feree liability issues have been properly resolved.’’ IRM pt.
                                     33.3.2.2(3) cautions, however, that in making its determina-
                                     tions concerning acceptance of all OICs (i.e., those based upon
                                     doubt as to collectibility as well as doubt as to liability and
                                     effective tax administration), ‘‘Counsel must rely upon fac-
                                     tual determinations made by the Service. These determina-
                                     tions should ordinarily not be reexamined by Counsel unless
                                     patently erroneous.’’
                                        In sum, Area Counsel’s review of and negative rec-
                                     ommendation concerning petitioner’s amended OIC, premised
                                     on its findings concerning the possibility of a fraudulent
                                     conveyance, was mandated by the statute, the regulations,
                                     and applicable administrative procedures. 12 Rev. Proc. 2000–
                                     43, supra, does not directly address ex parte communications
                                     that occur between Appeals and the Office of Chief Counsel
                                        12 Area Counsel obviously investigated and developed new facts not considered by Appeals

                                     with respect to petitioner’s possible fraudulent conveyance. While the IRM provision noted above
                                     covering all OICs states that ‘‘ordinarily’’ Counsel should not reexamine factual determinations
                                     made by the Service ‘‘unless patently erroneous’’, we are satisfied that the IRM provision specifi-
                                     cally addressed to OICs based on doubt as to collectibility, which directs Counsel to determine
                                     whether fraudulent conveyance issues have been ‘‘properly resolved’’, contemplates investiga-
                                     tions like those undertaken by Area Counsel in this case and constitutes an exception to the
                                     general requirement that Counsel ordinarily defer with respect to factual determinations.
                                        We further note that the prohibition on Appeals employees’ communications concerning ‘‘the
                                     accuracy of the facts presented by the taxpayer and the relative importance of the facts to the
                                     determination’’ appears in Q&A–5 of Rev. Proc. 2000–43, supra, concerning communications be-
                                     tween Appeals employees and employees of the ‘‘originating function’’ (i.e., the function where
                                     the determination was made that Appeals is reviewing). The prohibition is not stated in Q&A–
                                     11, concerning communications between Appeals employees and employees of the Office of Chief
                                     Counsel. Thus, to the extent communications between Appeals and Counsel concerning the facts
                                     of a case are restricted, those restrictions are found in the IRM rather than Rev. Proc. 2000–
                                     43, supra. The IRM nonetheless contemplates reexamination of facts by Chief Counsel employ-
                                     ees in certain circumstances, including in connection with review of fraudulent conveyance
                                     issues.




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                                     pursuant to a statutory mandate, such as section 7122(b).
                                     However, Rev. Proc. 2000–43, supra, covers a comparable
                                     scenario in Q&A–16 concerning communications between
                                     Appeals and the Commissioner or other Service officials who
                                     have overall supervisory responsibility for IRS operations.
                                     Noting the Commissioner’s supervisory responsibilities under
                                     section 7803, A–16 states that ex parte communications
                                     about specific cases are permissible between Appeals and the
                                     Commissioner and other IRS officials with overall supervisory
                                     responsibility. Thus, A–16 exempts ex parte communications
                                     that occur pursuant to the statutory responsibilities of IRS
                                     employees who communicate with Appeals employees in
                                     fulfillment of those responsibilities. We conclude that the
                                     same principle applies to Appeals employees’ communications
                                     with Office of Chief Counsel employees in fulfillment of their
                                     responsibilities under section 7122(b).
                                        In reaching this conclusion, we also apply the principle of
                                     statutory construction that where two statutes potentially
                                     conflict, a court should ‘‘ ‘read the statutes to give effect to
                                     each if we can do so while preserving their sense and pur-
                                     pose.’ ’’ Millsap v. Commissioner, 91 T.C. 926, 937 (1988)
                                     (quoting Watt v. Alaska, 451 U.S. 259, 267 (1981)). We
                                     should attempt to interpret or reconcile them in a manner
                                     which will not cause an arbitrary or unreasonable result. Id.
                                     The predecessor of section 7122(d) was first enacted in 1868,
                                     see Act of July 20, 1868, ch. 186, sec. 102, 15 Stat. at 166,
                                     and a $500 threshold for review was added as part of the
                                     Internal Revenue Code of 1954, ch. 74, sec. 7122(b), 68A
                                     Stat. at 849. The threshold in section 7122(b) for com-
                                     promised liabilities requiring General Counsel review was
                                     more recently raised to $50,000 from $500 in 1996. See Tax-
                                     payer Bill of Rights 2, Pub. L. No. 104–168, sec. 503(a), 110
                                     Stat. at 1461. Two years later in RRA 1998 sec. 1001(a)(4)
                                     Congress directed the Commissioner to develop a plan
                                     restricting ex parte communications between Appeals
                                     employees and other IRS employees. Nothing in the legisla-
                                     tive history of RRA 1998 sec. 1001(a)(4) suggests that Con-
                                     gress intended that directive to circumscribe the review of an
                                     OIC by the General Counsel (or his delegate) mandated in
                                     section 7122(b) where the OIC is the subject of Appeals
                                     consideration. Rev. Proc. 2000–43, supra, can be readily
                                     interpreted to permit full review by the Office of Chief




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                                     (277)                         HINERFELD v. COMMISSIONER                                      289


                                     Counsel of an OIC based on doubt as to collectibility,
                                     including nondeferential factual determinations incident to
                                     the issue of a fraudulent conveyance. The applicable IRM
                                     guidelines buttress that interpretation. We reject petitioner’s
                                     arguments to the contrary, which contend that Area Coun-
                                     sel’s investigation and development of the facts concerning a
                                     possible fraudulent conveyance and negative recommenda-
                                     tion to Appeals concerning the OIC as a result constitute
                                     prohibited ex parte communications contemplated by Con-
                                     gress and proscribed by Rev. Proc. 2000–43, supra.
                                        For the foregoing reasons, we hold that communications
                                     between employees of the Office of Chief Counsel and
                                     Appeals to facilitate compliance with section 7122(d) are not
                                     prohibited ex parte communications for purposes of RRA 1998
                                     sec. 1001(a)(4) or Rev. Proc. 2000–43, supra.
                                     III. Abuse of Discretion
                                        Aside from his ex parte communications argument, peti-
                                     tioner contends that an abuse of discretion occurred because
                                     Area Counsel exercised undue influence over what should
                                     have been an independent review of his amended OIC by
                                     Appeals and SO Berger did not understand she need not
                                     accept Area Counsel’s negative recommendation. As pre-
                                     viously discussed, Area Counsel’s review and recommenda-
                                     tion concerning petitioner’s OIC was mandated by statute and
                                     complied with applicable regulations and administrative
                                     procedures; SO Berger lacked authority to accept the OIC;
                                     and we are satisfied ATM O’Dea, who had such authority,
                                     exercised independent judgment in accepting Area Counsel’s
                                     recommendation. When he did so, ATM O’Dea had before him
                                     substantial evidence that petitioner had effected a fraudulent
                                     conveyance of the Thermacon assets and petitioner’s incon-
                                     sistent representations regarding when he ceased to control
                                     those assets.
                                        Generally, a doubt as to collectibility OIC may be accepted
                                     only when it equals or exceeds the taxpayer’s reasonable
                                     collection potential. IRM pt. 5.8.1.1.3(3) (Sept. 1, 2005); see
                                     also Rev. Proc. 2003–71, sec. 4.02(2), 2003–2 C.B. 517, 517.
                                     Amounts includible in a taxpayer’s reasonable collection
                                     potential include amounts collectible from third parties
                                     through judicial action, such as a suit to set aside a fraudu-




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                                     290                 139 UNITED STATES TAX COURT REPORTS                                    (277)


                                     lent conveyance. IRM pt. 5.8.4.4.1 (Sept. 1, 2005). The
                                     Thermacon assets for which there was substantial evidence
                                     of a fraudulent conveyance and about which petitioner
                                     appeared to be dissembling were conceded by him to be
                                     worth $2.2 million at the time of transfer. In view of the time
                                     constraints imposed by section 7122(f) and the apparently
                                     protracted nature of the Multi-Glass lawsuit, petitioner was
                                     offered the collection alternative of placing his account in
                                     currently not collectible status, which he rejected. In these
                                     circumstances, ATM O’Dea’s decision to reject an OIC to settle
                                     trust fund penalties totaling $471,696 for $74,857 was not an
                                     abuse of discretion. If anything, this case illustrates not an
                                     abuse of discretion by IRS employees but instead the wisdom
                                     of requiring the Office of Chief Counsel’s review of fraudulent
                                     conveyance issues.
                                     IV. Conclusion
                                        Petitioner did not challenge the existence or amount of his
                                     liability for the trust fund penalties that respondent seeks to
                                     collect, nor did he raise any other challenges to the appro-
                                     priateness of the collection action. Because we have found
                                     that there were no prohibited ex parte communications and
                                     that there was no abuse of discretion in rejecting petitioner’s
                                     amended OIC, we conclude that respondent correctly deter-
                                     mined to proceed with the proposed levy.
                                        To reflect the foregoing,
                                                                           Decision will be entered for respondent.

                                                                               f




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