                            151 T.C. No. 7



                  UNITED STATES TAX COURT



JAMES LOVELAND, JR., AND TINA C. LOVELAND, Petitioners v.
   COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 10482-17L.                         Filed September 25, 2018.



       R issued a notice of intent to levy to Ps. Ps submitted an offer-
in-compromise that included all requested financial information. R’s
collections officer rejected the offer. Ps chose to forgo an Appeals
Office hearing so that they could continue negotiations over an
installment agreement. Those negotiations faltered.

      Later, R filed a notice of Federal tax lien against Ps’ property.
Ps requested a collection due process (CDP) hearing under I.R.C. sec.
6320. They requested that R consider the previously rejected offer-
in-compromise. Ps also requested an installment agreement and
requested relief due to economic hardship. Ps did not submit
financial information beyond what they had provided with the
previously rejected offer-in-compromise.

      R declined to review the offer-in-compromise because Ps had
had a prior opportunity for a hearing. Without reviewing the
financial information that Ps had previously provided, R also declined
                                  -2-

to review the installment agreement and the claim of economic
hardship because Ps did not submit financial information.

      Under sec. 301.6320-1(e)(1), Proced. & Admin. Regs., a
“taxpayer may not raise an issue that was raised and considered at a
previous CDP hearing under section 6330 or in any other previous
administrative or judicial proceeding if the taxpayer participated
meaningfully in such hearing or proceeding.”

      Held: A meeting with a collections officer is not a prior
administrative proceeding under I.R.C. sec. 6330(c)(4)(A)(i) and sec.
301.6320-1(e)(1), Proced. & Admin. Regs.

       Held, further, the Commissioner abused his discretion by
failing to consider the proposed offer-in-compromise.

       Held, further, the Commissioner abused his discretion by
failing to consider the proposed installment agreement.

       Held, further, the Commissioner abused his discretion by
failing to consider the claim of economic hardship.

       Held, further, we will remand this case to the Appeals Office
for further consideration consistent with this Opinion.



James Loveland, Jr., and Tina C. Loveland, pro sese.

Samuel M. Warren, for respondent.
                                        -3-

                                    OPINION


      BUCH, Judge: This collection case comes before the Court on the

Commissioner’s motion for summary judgment. In that motion the Commissioner

argues that he is entitled to a judgment in his favor because Mr. and Mrs.

Loveland did not submit the necessary financial information during their appeal to

allow the Commissioner to consider their proposed installment agreement. The

Lovelands contend that they submitted the necessary financial information. They

also argue that the Commissioner did not consider the issues that they raised in

their CDP hearing including an offer-in-compromise, an installment agreement,

and economic hardship that reduced their ability to pay. We find that the

Commissioner abused his discretion when he failed to consider the offer-in-

compromise, the proposed installment agreement, and the claim of economic

hardship.

                                   Background

      Mr. Loveland is a retired boilermaker, and Mrs. Loveland is a retired

teacher. The last decade has held more than its share of challenges for the

Lovelands. In the wake of the recent recession and housing crisis the Lovelands

lost their home to foreclosure. At around the same time Mr. Loveland became
                                          -4-

disabled as a result of a heart condition and had to leave the workforce. Mrs.

Loveland survived breast cancer. During this tumultuous time the Lovelands

stopped paying their taxes, resulting in outstanding tax liabilities for 2011, 2012,

2013, and 2014 totaling over $60,000.

      In 2015 the Commissioner issued a notice of intent to levy, in response to

which the Lovelands entered into negotiations with a collections officer. As a part

of those negotiations the Lovelands made an offer-in-compromise. To submit the

offer they completed a Form 433-A (OIC), Collection Information Statement for

Wage Earners and Self-Employed Individuals, and appended a range of financial

information including bank statements, pension and income documentation, and

information about expenses and assets. As a part of that offer-in-compromise, the

Lovelands argued that their health problems and the foreclosure constituted

special circumstances that limited their ability to pay.

      The collections officer rejected the offer-in-compromise. She found, on the

basis of the financial information provided, that the Lovelands could pay the full

amount and that the “special circumstances * * * [the Lovelands] raised * * * did

not warrant a decision to accept * * * [the] offer.” The Lovelands initially

appealed the decision. They also wanted to pursue an installment agreement, but

they were informed that a proposed installment agreement would not be
                                         -5-

considered if they had a pending appeal of the rejected offer-in-compromise. As a

result, the Lovelands withdrew their appeal so that they could continue

negotiations with the collections officer.

      As a part of those negotiations over the installment agreement, the

Lovelands agreed to make voluntary payments of $800 each month. Mr. Loveland

believed that the agreement constituted an accepted installment agreement. The

Lovelands made at least two $800 payments.

      While they were working on the installment agreement with the collections

officer, the Lovelands were also working to borrow money, secured by an

additional mortgage against a property they owned. They planned to use the

proceeds from the loan to make an $11,500 payment to bring their tax liability

below $50,000, which would qualify them for streamlined processing of their

installment agreement. They submitted a loan application on October 21, 2016.

On the same day the Commissioner filed a notice of Federal tax lien on the

property. With the Federal tax lien having been filed, the Lovelands were unable

to secure the loan and the settlement negotiations came to a halt.

      The Commissioner issued a notice of Federal tax lien filing on October 25,

2016, and the Lovelands timely requested an Appeals Office hearing under section
                                         -6-

6320.1 As part of that appeal, the Lovelands requested that the lien be released

and argued that the lien “disrupted a mortgage refinance and has caused economic

hardship.”

      On January 23, 2017, an Appeals officer sent the Lovelands a letter

scheduling a hearing for March 2, 2017, and informing them that, for a collection

alternative to be considered, they would need to submit a “completed Collection

Information Statement Form 433-A for individuals” as well as supporting

documents.

      In response to the January 23, 2017, letter Mr. Loveland sent a letter

requesting that the Appeals officer take “a second look at * * * [the] offer in

compromise.” He attached several documents to the letter including the

completed Form 433-A (OIC), the Lovelands’ earlier letter requesting an appeal of

the previous decision to reject the offer-in-compromise, and a Form 433-D,

Installment Agreement, for $800 per month. In the letter he stated: “Paying any

amount at this time will result in economic hardship or hasten my demise.” He

called the Commissioner’s attention to his health problems and specifically asked

what would be classified as exceptional circumstances.

      1
       All section references are to the Internal Revenue Code in effect for all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure, unless otherwise indicated.
                                          -7-

      The Appeals officer declined to review the offer-in-compromise and the

proposed $800-per-month partial-pay installment agreement. In declining to

review either the offer-in-compromise or the proposed installment agreement, the

Appeals officer concluded that the offer-in-compromise was not properly appealed

and that the Lovelands had not submitted the necessary financial information for

the proposed partial-pay installment agreement.

      Although the Appeals officer did not review the Lovelands’ partial-pay

installment agreement, she did calculate a monthly payment amount that would

allow the Lovelands to fully pay the liability in 84 months. She determined on the

basis of the amount the Lovelands owed that they would qualify for an 84-month

installment agreement of $853 per month to fully discharge the liability.

      On March 2, 2017, the Appeals officer conducted a hearing over the phone

with Mr. Loveland. During the hearing the Appeals officer explained the hearing

process to Mr. Loveland and asked whether Mr. Loveland had appealed the

rejection of his offer-in-compromise. Mr. Loveland explained that he had not

appealed because he had hoped to work out an installment agreement. Mr.

Loveland informed the Appeals officer that the Lovelands had been working to

secure a loan against their property and that the filing of the notice of Federal tax
                                          -8-

lien had halted the loan application. He said that he wanted the lien removed so

that he could continue the refinancing process.

       The Appeals officer rejected the Lovelands’ proposed $800-per-month

partial-pay installment agreement. There is no evidence in the administrative

record that the Appeals officer considered the financial information that the

Lovelands had provided.

       On April 7, 2017, the Appeals officer closed the Lovelands’ appeal. On

April 11, 2017, a notice of determination was sent to the Lovelands informing

them of the Commissioner’s determination and their right to appeal the decision to

the Tax Court. The notice states that the Lovelands requested the withdrawal of

the lien and an installment agreement. The notice also states that the Appeals

officer did not consider their proposed installment agreement because the

Lovelands “did not provide any financial information.” Neither the notice of

determination nor the case history notes discussed Mr. Loveland’s medical

condition or the effect of his disability on the Lovelands’ ability to pay the tax

liability.

       On May 11, 2017, while residing in Michigan, the Lovelands filed a petition

for redetermination of the decision to sustain the lien. In that petition the

Lovelands stated that they disagreed with the determination because it caused
                                          -9-

economic hardship, their “Due Process rights were violated”, and their “[s]pecial

circumstances [were] not truly considered.”

      On January 17, 2018, the Commissioner filed a motion for summary

judgment, arguing that the Lovelands had not submitted the requested paperwork

and financial information and that it was not an abuse of discretion to refuse to

consider the offer-in-compromise or to refuse to withdraw the lien. In the motion

for summary judgment the Commissioner stated that the declaration of the

Appeals officer that conducted the hearing would be forthcoming.

      Meanwhile the Court ordered the Lovelands to respond to the motion. They

submitted a response stating that they “disagree with the Commissioner and the

facts he has provided.” They argued that they did submit financial information

when they submitted the Form 433-A (OIC) and substantiating documents and that

the lien has caused economic hardship. They also cited regulations that detail

compromises to promote effective tax administration related to taxpayers with

medical conditions or disabilities that limit their ability to pay.

      It wasn’t until after the Lovelands filed their response that the

Commissioner submitted the declaration of the Appeals officer. The Court

continued the case to give the Lovelands the opportunity to respond to the

declaration.
                                       -10-

      In their response the Lovelands again argue that they provided financial

information. Their response included the list of documents they submitted. The

Lovelands also attached to the response copies of the Form 433-A (OIC) and the

substantiating documents as well as the rejected loan application and their 2015

Form 1040, U.S. Individual Income Tax Return.

                                    Discussion

      The question before the Court is whether the Commissioner is entitled to

summary judgment in his favor as a matter of law. To answer that, we must first

answer three questions: first, whether the Commissioner abused his discretion by

failing to consider the Lovelands’ proposed offer-in-compromise; second, whether

the Commissioner abused his discretion by failing to consider the financial

documents submitted with the Form 433-A (OIC) when considering the

Lovelands’ proposed installment agreement of $800 per month; and third, whether

the Commissioner abused his discretion when he failed to consider whether the

Lovelands’ “special circumstances” and claim of economic hardship warranted an

installment agreement or some other collection alternative as a compromise to

promote effective tax administration as described in section 301.7122-

1(c)(3)(i)(A), (B), or (C), Proced. & Admin. Regs.
                                        -11-

I.    Summary Judgment

      Under Rule 121(a), either party may move for summary judgment regarding

all or any part of the legal issues in controversy. The purpose of summary

judgment is to expedite litigation and avoid unnecessary and expensive trials. Fla.

Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary

judgment only if there is no genuine dispute as to any material fact. Rule 121(b);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The party moving for summary

judgment bears the burden of demonstrating that there is no genuine dispute as to

any material fact. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),

aff’d, 17 F.3d 965 (7th Cir. 1994).

      In deciding whether to grant summary judgment, the Court must consider

the factual materials and the inferences drawn from them in the light most

favorable to the nonmoving party. FPL Grp., Inc. v. Commissioner, 115 T.C. 554,

559 (2000). When a motion for summary judgment is made and properly

supported, the nonmoving party may not rest on mere allegations or denials but

must set forth specific facts showing that there is a genuine dispute for trial. Rule

121(d).
                                         -12-

II.   Judicial Review of Appeals Determinations

      In a CDP hearing, a taxpayer may raise any issue that is relevant to an

unpaid tax, notice of Federal tax lien, or proposed levy, including challenges to the

appropriateness of the collection action and offers of collection alternatives. Secs.

6320(c), 6330(c)(2)(A). In addition, a taxpayer may challenge the existence or

amount of the underlying tax liability if the taxpayer did not have the opportunity

to dispute the liability. Sec. 6330(c)(2)(B).

      When the underlying liability is not at issue, we review the Commissioner’s

collection determination for abuse of discretion. Sego v. Commissioner, 114 T.C.

604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). In

reviewing for abuse of discretion we do not conduct an independent review of the

collection alternatives. We do not substitute our judgment for that of the

Commissioner; we only ensure that the Commissioner’s decision was not

arbitrary, capricious, or without sound basis in fact or law. See Klein v.

Commissioner, 149 T.C. __, __ (slip op. at 12) (Oct. 3, 2017); Murphy v.

Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).

      Generally, the Commissioner’s determination must take three things into

consideration: (1) verification that the requirements of applicable law and

administrative procedure have been met; (2) issues raised by the taxpayer; and (3)
                                        -13-

whether any proposed collection action balances the need for efficient tax

collection with the legitimate concern of the taxpayer that any collection action be

no more intrusive than necessary. Secs. 6320(c), 6330(c)(3); Lunsford v.

Commissioner, 117 T.C. 183, 184 (2001). If the Commissioner “has not

considered all relevant factors * * * the proper course, except in rare

circumstances, is to remand * * * for additional investigation or explanation.” Fla.

Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985).

      The Lovelands raised three issues. In their formal request for a hearing, the

Lovelands sought to have the lien released and to have an $800-per-month partial-

pay installment agreement considered. In his letter, Mr. Loveland requested that

the Commissioner review the offer-in-compromise and explain the term

“exceptional circumstance” with respect to offers-in-compromise. The

Commissioner did not consider the installment agreement or the offer-in-

compromise and made no mention of exceptional circumstances in the

administrative record.

      A.     Consideration of the Lien Release and Offer-in-Compromise

      Section 7122(a) authorizes the Secretary to “compromise any civil or

criminal case arising under the internal revenue laws prior to reference to the

Department of Justice”. Section 301.7122-1, Proced. & Admin. Regs., sets out the
                                        -14-

grounds for compromise as well as the rules for evaluating proposed compromises.

The sections governing CDP hearings provide that taxpayers may offer collection

alternatives, “which may include * * * an offer-in-compromise.” Secs.

6330(c)(2)(A)(iii), 6320(c). We are faced with a unique question here: whether

negotiations with a collections officer constitute a previous administrative

proceeding under section 6330(c)(4)(A)(i) and section 301.6320-1(e)(1), Proced.

& Admin. Regs. The Lovelands made an offer-in-compromise in a separate

collection proceeding that is not before us. Then, in the CDP hearing underlying

this case, they renewed their offer-in-compromise. In response to a January 23,

2017, letter from the Commissioner, the Lovelands resubmitted their previously

rejected offer-in-compromise along with their financial information.2

      Section 6330(c)(4)(A)(i) precludes an issue from being raised if “the issue

was raised and considered at a previous hearing under section 6320 or in any other

previous administrative or judicial proceeding”. But what constitutes a previous

administrative proceeding? Section 301.6320-1(e)(1), Proced. & Admin. Regs.,

states that “the taxpayer may not raise an issue that was raised and considered at a

previous CDP hearing under section 6330 or in any other previous administrative


      2
       Contrary to the Lovelands’ submission, the Commissioner stated that they
“did not provide any financial information.” The record is clear that they did.
                                        -15-

or judicial proceeding if the taxpayer participated meaningfully in such hearing or

proceeding.” Whether a previously rejected collection alternative can be raised at

a CDP hearing does not hinge on whether the taxpayer had a prior opportunity to

challenge the rejection; it hinges on whether the rejected collection alternative was

actually considered at a previous administrative or judicial proceeding. In other

words it is not a question of whether there was a prior opportunity, but whether

there was a prior proceeding.

      Unlike the standard for review of an underlying liability, which hinges on

the mere prior opportunity to challenge the liability, the standard for whether a

collection issue can be raised at a CDP hearing is whether the issue was actually

considered in a previous administrative or judicial proceeding. Sec. 301.6320-

1(e)(1), Proced. & Admin. Regs. The Lovelands had a prior opportunity for a

CDP hearing regarding their offer-in-compromise, but they never availed

themselves of that opportunity. Because they only negotiated with the collections

officer and did not have a CDP hearing regarding her rejection of their offer-in-

compromise, they never had a prior hearing. Accordingly, they may request

consideration of the same offer-in-compromise in a subsequent CDP hearing on

the same tax for the same period.
                                         -16-

      The regulations under section 6320 confirm this analysis. In the question

and answer section of the regulations the Commissioner specifically contemplates

what can and cannot be raised at a CDP hearing under section 6320 when a

taxpayer has received a prior notice under section 6330 for the same period and

tax and did not request a CDP hearing regarding that notice.

      Q-E7. What issues may a taxpayer raise in a CDP hearing under
      section 6320 if the taxpayer previously received a notice under
      section 6330 with respect to the same tax and tax period and did not
      request a CDP hearing with respect to that notice?

      A-E7. The taxpayer may raise appropriate spousal defenses,
      challenges to the appropriateness of the NFTL filing, and offers of
      collection alternatives. The existence or amount of the underlying
      liability for any tax period specified in the CDP Notice may be
      challenged only if the taxpayer did not have a prior opportunity to
      dispute the tax liability. If the taxpayer previously received a CDP
      Notice under section 6330 with respect to the same tax and tax period
      and did not request a CDP hearing with respect to that earlier CDP
      Notice, the taxpayer had a prior opportunity to dispute the existence
      or amount of the underlying liability.

Sec. 301.6320-1(e)(3), Q&A-E7, Proced. & Admin. Regs. While this regulation is

explicit that a prior opportunity to dispute the underlying liability in a CDP

hearing precludes its consideration in a subsequent CDP hearing, the regulation is

noticeably silent as to “spousal defenses, challenges to the appropriateness of the

NFTL filing, and offers of collection alternatives.” Id. This leaves open the

opportunity for a taxpayer to raise a previously rejected collection alternative if
                                         -17-

that taxpayer did not have a CDP hearing on the issue. In failing to consider the

Lovelands’ offer-in-compromise, the Commissioner abused his discretion.

      B.     Consideration of the Installment Agreement

      Section 6159(a) gives the Secretary discretionary authority “to enter into

written agreements with any taxpayer under which such taxpayer is allowed to

make payment on any tax in installment payments if the Secretary determines that

such agreement will facilitate full or partial collection of such liability.” The

Commissioner has the discretion to accept or reject an installment agreement

proposed by a taxpayer. See sec. 301.6159-1(c)(1)(i), Proced. & Admin. Regs.

We review the Commissioner’s rejection of an installment agreement for abuse of

discretion. See Orum v. Commissioner, 123 T.C. 1, 12-13 (2004), aff’d, 412 F.3d

819 (7th Cir. 2005). As with an offer-in-compromise, we do not conduct an

independent review of what would be an acceptable installment agreement, nor do

we substitute our judgment for that of the Appeals officer. See Murphy v.

Commissioner, 125 T.C. at 320.

      The Lovelands submitted a proposal for an $800-per-month partial-pay

installment agreement in anticipation of their CDP hearing and explicitly asked the

Commissioner to consider their proposal. The Commissioner refused to review

the installment agreement proposal because the Lovelands “did not provide any
                                        -18-

financial information.” The Lovelands argue that they provided financial

information in the form of their completed Form 433-A (OIC).

      We have previously held that it is not an abuse of discretion for the Appeals

officer to reject a collection alternative when the taxpayer does not provide the

financial information necessary to evaluate the merits of the collection alternative.

Chandler v. Commissioner, T.C. Memo. 2005-99, 89 T.C.M. (CCH) 1133, 1135

(2005). The Commissioner requested that the Lovelands provide a completed

Form 433-A, Collection Information Statement, to have their proposed installment

agreement considered. The question before us now is whether the Lovelands’

Form 433-A (OIC) and accompanying documents satisfied that request.

      We have previously held that it is not an abuse of discretion to decline to

consider a collection alternative when the Commissioner has requested but not

received updated financial information when that information is out of date. Long

v. Commissioner, T.C. Memo. 2010-7. And Internal Revenue Manual pt.

5.8.5.3(2) (Sept. 30, 2013) states that, if financial information becomes older than

12 months and it appears that significant changes have occurred, a request for

updated information may be appropriate. But here, the administrative record does

not indicate that the Commissioner ever considered the financial information, the

age of that information, or whether significant changes had occurred. The stated
                                        -19-

reason for the Commissioner’s rejection of the Lovelands’ proposed installment

agreement was that the Lovelands did not provide financial information. But they

did. The Commissioner abused his discretion in failing to consider that

information.

      C.       Consideration of Economic Hardship

      Throughout the negotiations within the administrative process and this

Court proceeding, the Lovelands have argued that their poor health affects their

ability to pay. While the Lovelands did not raise the issue of a compromise using

the words “effective tax administration” until this Court proceeding, they argued

that collection of the full liability would cause economic hardship. In their

attachments to the offer-in-compromise the Lovelands explicitly argued that

paying the liability in full would cause economic hardship.

      There is no evidence in the record showing that the Commissioner

considered the Lovelands’ claim of economic hardship or whether a compromise

to promote effective tax administration was appropriate. While the Commissioner

noted the Lovelands’ economic hardship argument in the administrative record

and the notice of determination, he never evaluated that claim.

      It is an abuse of discretion for the Commissioner to neglect to consider all

of the issues raised by a taxpayer. Secs. 6320(c), 6330(c)(3). The Lovelands
                                           -20-

explicitly raised the issue of economic hardship, and the Commissioner abused his

discretion in failing to consider it.

                                        Conclusion

      On the basis of the administrative record, the Commissioner abused his

discretion when he refused to consider the Lovelands’ offer-in-compromise,

refused to consider their installment agreement, and refused to consider whether

full payment of the liability would cause economic hardship. We will remand this

case to the Appeals Office for further consideration consistent with this Opinion.


                                                  An appropriate order will be issued.
