                               T.C. Memo. 2017-235



                         UNITED STATES TAX COURT



          PATRICK S. BERO AND JENNIFER M. BERO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7873-14L.                          Filed November 27, 2017.



      Joseph Falcone, for petitioners.

      Alissa L. VanderKooi, Robert D. Heitmeyer, and Rebecca M. Clark, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


      GALE, Judge: Pursuant to sections 6320(c) and 6330(d)(1),1 petitioners

seek review of the determination of the Internal Revenue Service Office of Appeals


      1
        Unless otherwise noted, all section references are to the Internal Revenue
Code of 1986, as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure. All dollar amounts have been rounded to the nearest
dollar.
                                           -2-

[*2] (Appeals) to sustain a notice of Federal tax lien (NFTL) filing and a proposed

levy to collect petitioners’ unpaid joint Federal income tax liabilities for taxable

years 2008, 2009, 2010,2 and 2011. The issues for decision are: (1) whether the

settlement officer (SO) who conducted petitioners’ collection due process (CDP)

hearing abused her discretion in sustaining the NFTL filing and the proposed levy

and (2) whether petitioners underwent a material change in circumstances between

the CDP hearing and trial warranting a remand to Appeals for consideration of

their changed circumstances.

                                FINDINGS OF FACT

      Some of the facts are stipulated and are so found. The stipulation of facts

and its exhibits are incorporated herein by this reference. Petitioners resided in

Michigan when they filed their petition.

      Respondent issued to each petitioner a Letter 1058, Final Notice of Intent to

Levy and Notice of Your Right to a Hearing (levy notice), proposing a levy to

collect an aggregate of $55,648 in tax, penalties, and accrued interest for 2008,




      2
       The parties agree that the 2010 liability was paid after respondent initiated
these collection actions and is not at issue in this case.
                                          -3-

[*3] 2009, and 2011.3 Petitioners timely requested a CDP hearing with respect to

the levy notices.

      Respondent also issued to petitioners a Letter 3172, Notice of Federal Tax

Lien Filing and Your Right to a Hearing Under IRC 6320 (lien notice), advising

them of the filing of a lien to secure the collection of income tax liabilities in the

same amounts as specified in the levy notices (excluding penalties and accrued

interest) for 2008, 2009, and 2011.4 Petitioners timely requested a CDP hearing

with respect to the lien notice.

      On January 14, 2014, as part of a CDP hearing covering both the lien and

levy notices, petitioners’ representative sent a letter to the SO proposing an

installment agreement. Under its terms, petitioners would pay $260 per month for

three years starting in April 2014, $725 per month for three years starting in April

2017, and $1,018 per month starting in April 2020 until their outstanding tax

liabilities were satisfied in full. Petitioners claimed they proposed these stepped




      3
       Petitioners’ 2008 and 2009 liabilities arise from a stipulated decision
entered in this Court sustaining deficiencies and penalties for those years, and the
2011 liability represents the unpaid tax reported as due on their 2011 Federal
income tax return. Petitioners do not dispute the underlying tax liabilities.
      4
       The NFTL also listed an outstanding liability for 2010 which has been paid.
See supra note 2.
                                         -4-

[*4] increases because, once they had paid off a loan from a credit union, the credit

union would lend them additional funds to pay off their outstanding tax liabilities.

      On January 20, 2014, petitioners submitted a Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed Individuals, to the SO

which showed, after taking into account their monthly income and expenses, they

had $1,545 left over each month to pay towards their outstanding tax liabilities.

On the same day, petitioners’ representative provided the SO with documentation5

supporting their computations. The SO calculated that petitioners could pay

$2,497 per month towards their outstanding tax liabilities after adjusting the Form

433-A as follows:




      5
       Submitted documentation supporting petitioners’ unsecured debt included:
(1) JPMorgan Chase Bank statements showing monthly payments of $615 on a
small business loan, (2) a Discover credit card payment history showing monthly
payments of approximately $225, and (3) an ACS Education Services student loan
payment history showing monthly payments of $304.
                                           -5-

 [*5]                              Total living expenses
                                        Actual monthly         Allowable
           Expense items             (taxpayer calculated)   (SO calculated)   Difference
 Food, clothing, and misc.                  $1,710               $1,465         ($245)
 Housing and utilities                        2,796               2,796           ---
 Vehicle ownership costs                         737               737            ---
 Vehicle operating costs                         790               590           (200)
 Health insurance                                398               398            ---
 Out of pocket health care costs                 240               240            ---
 Life insurance                                  507               ---           (507)
 Current year taxes
 (income/FICA)                                3,411               3,411           ---
 Secured debts                                   600                600           ---
 Other expenses                               1,265               1,265           ---
  Total living expenses                      12,454              11,502          (952)
 Net difference/ability to pay
  (petitioners’ total income of
  $13,999!total living expenses)              1,545               2,497           952

        In her ability-to-pay calculation, the SO accounted for the three items of

unsecured debt that petitioners substantiated as follows. First, petitioners’ Form

433-A claimed the $615 monthly payment on the JPMorgan Chase Bank loan as an

expense of petitioner Patrick S. Bero’s sole proprietorship in reaching the income

figure for that business. The SO accepted that calculation. Second, the $225

monthly payment on the Discover credit card debt was accounted for in that the SO
                                         -6-

[*6] used the maximum amount allowable under the national standards for “Food,

Clothing, and Misc.”, the category under which credit card payments are taken into

account. See Internal Revenue Manual (IRM) pt. 5.15.1.8(1) (Oct. 2, 2012).

Third, petitioners’ Form 433-A listed the $304 monthly payment on the student

loan as an “Other expense” in reaching total monthly living expenses, and the SO

accepted that figure.

      The SO did not accept petitioners’ proposed installment agreement, but

instead offered two alternatives: (1) monthly payments of $2,500 (in accordance

with her calculation of their ability to pay) or (2) an initial payment of $1,000 to

bring their outstanding liabilities below $50,000, rendering them eligible for a

“streamlined installment agreement”6 requiring payments of only $700 per month.

Petitioners rejected both alternatives and indicated that if their own proposed

installment agreement was not accepted they wished to proceed to Tax Court.



      6
        A “streamlined installment agreement” is designed to reduce taxpayer
burdens by eliminating the requirement to submit a Form 433-A. Internal Revenue
Manual (IRM) pt. 5.14.5.1 (Aug. 5, 2010). Such agreements were previously
limited to taxpayers with unpaid balances of assessments (excluding accrued
penalties and interest) not exceeding $25,000. See id. pt. 5.14.5.2(1) (Mar. 11,
2011). The SO proposed the “streamlined installment agreement” alternative on
January 21, 2014. Interim guidance in effect at that time had raised the $25,000
ceiling to $50,000. I.R.S. Mem. SBSE-05-0313-021 (Mar. 1, 2013). The $50,000
ceiling was later reflected in a change to the IRM. See IRM pt. 5.14.5.2(1)
(May 23, 2014).
                                         -7-

[*7] On March 11, 2014, the SO issued notices of determination rejecting

petitioners’ proposed installment agreement and sustaining the NFTL filing and the

proposed levy. Each notice stated that during a February 10, 2014, call with

petitioners’ representative, “[t]he SO explained to the representative that his

financials show he [Mr. Bero] can pay more and the agreement he wants will not

pay within the collection statute expiration date”.7 The notices also showed

petitioners’ “Minimum Monthly Payment Amount” as $2,497.

      At trial neither party sought to supplement the administrative record, and

petitioners expressly conceded that the administrative record which the parties had

stipulated was accurate and sufficient for purposes of deciding whether the SO

abused her discretion in rejecting petitioners’ proposed installment agreement. A

trial was conducted for the purpose of receiving evidence with respect to

petitioners’ claim that a change in their circumstances between the issuance of the

notices of determination and trial warranted a remand to Appeals for a

supplemental determination.

      Petitioners offered the testimony of Mr. Bero to the effect that a creditor had

agreed shortly before trial to consolidate his outstanding nontax debts in a manner

      7
        A document in the stipulated CDP administrative file suggests the
collection period expiration date for the 2009 liability was August 27, 2022, and
that full payment of that liability under petitioners’ proposed installment agreement
would not occur until October 28, 2022.
                                          -8-

[*8] that would permit larger monthly payments (i.e., $750) on the outstanding tax

liabilities for 48 months, followed by monthly payments of $1,000 for another 12

months, at which time the creditor would consolidate the remaining tax debt and

advance funds for paying the Government in full. Petitioners offered no

documentary evidence of this agreement.

                                      OPINION

I.    Statutory Framework

      Section 6301 empowers the Secretary to collect the taxes imposed by the

internal revenue laws. To further that objective, Congress has provided that the

Secretary may effect the collection of taxes by, among other methods, liens and

levies. See generally Living Care Alts. of Utica, Inc. v. United States, 411 F.3d

621, 624-625 (6th Cir. 2005). Section 6321 imposes a lien in favor of the United

States on all property and rights to property of any person liable for taxes

(taxpayer) after a demand for the payment of the taxes has been made and the

taxpayer fails to pay those taxes. The lien arises at the time assessment is made

and continues until the liability is satisfied or becomes unenforceable by lapse of

time. Sec. 6322. The Secretary generally must file a lien notice with certain State

or local authorities where a taxpayer’s property is situated for the lien to be valid

against certain categories of third parties. Sec. 6323(a), (f); Behling v.
                                          -9-

[*9] Commissioner, 118 T.C. 572, 575 (2002). Section 6331(a) authorizes the

Secretary to levy upon all property or property rights of a taxpayer if the taxpayer

fails to pay the tax within 10 days after notice and demand for payment is made.

      When the Secretary pursues collection by lien or levy, he must notify the

affected taxpayer in writing of his right to a CDP hearing with an impartial

Appeals employee (Appeals officer). See sec. 6320(a) and (b) (relating to liens);

sec. 6330(a) and (b) (relating to levies). At the hearing the taxpayer may raise any

relevant issue, including challenges to the appropriateness of the collection actions

and possible collection alternatives such as an installment agreement. Sec.

6330(c)(2)(A). Additionally, the taxpayer may challenge the existence or amount

of the underlying tax liability, but only if he did not receive a notice of deficiency

with respect to, or otherwise have an opportunity to dispute, it. See sec.

6330(c)(2)(B).

      Following the hearing, the Appeals officer must issue a notice of

determination concerning the proposed collection action. See sec. 301.6320-

1(b)(2), Q&A-B3, sec. 301.6330-1(e)(3), Q&A-E8(i), Proced. & Admin. Regs. In

making the determination the Appeals officer is required to take into consideration:

(1) whether the requirements of applicable law and administrative procedure have

been met; (2) any relevant issues raised by the taxpayer; and (3) whether the
                                          - 10 -

[*10] proposed collection action appropriately balances the need for efficient

collection of taxes with the taxpayer’s legitimate concerns that the collection action

be no more intrusive than necessary. Sec. 6330(c)(3).

      Pursuant to sections 6320(c) and 6330(d)(1), we have jurisdiction to review

the Appeals officer’s determination. See Murphy v. Commissioner, 125 T.C. 301,

308 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). To the extent that the validity of the

underlying tax liability is properly at issue, the Court will review the determination

de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). To the extent that

the validity of the underlying tax liability is not properly at issue, the Court will

review the determination for abuse of discretion. Id. at 182.

      An abuse of discretion occurs when the Appeals officer’s determination is

without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. at 308

(citing Freije v. Commissioner, 125 T.C. 14, 23 (2005)); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999); Fowler v. Commissioner, T.C. Memo.

2004-163. In reviewing for abuse of discretion, the Court does not make an

independent evaluation of what would be an acceptable collection alternative. See

Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Murphy v. Commissioner,

125 T.C. at 320; Lipson v. Commissioner, T.C. Memo. 2012-252, at *9. If an

Appeals officer follows all statutory and administrative guidelines and provides a
                                        - 11 -

[*11] reasoned and balanced decision, the Court will not reweigh the equities.

Thompson v. Commissioner, 140 T.C. at 179. As petitioners do not challenge their

underlying tax liabilities, we will review the SO’s determinations for abuse of

discretion.

II.   Parties’ Arguments

      Respondent argues that the SO did not abuse her discretion in sustaining the

NFTL filing and the proposed levy after rejecting petitioners’ proposed installment

agreement because their monthly ability to pay, even by their own calculation, was

substantially greater than the amount offered in their proposed agreement.

Petitioners counter that: (1) the notices of determination did not include a finding

that petitioners’ proposed installment agreement offered less than their ability to

pay; (2) the SO erred in determining that petitioners’ proposed installment

agreement would fail to pay their outstanding tax liabilities before the limitations

period expired; (3) the administrative record is insufficient for the Court to review

the SO’s calculations underlying such a determination; and (4) the refinancing of

their nontax debts between the CDP hearing and trial constitutes a material change

in circumstances warranting a remand to Appeals. With respect to petitioners’

changed circumstances argument, respondent disagrees, arguing that any increased

liquidity should not qualify them for remand.
                                        - 12 -

[*12] A.     Ability To Pay

      Section 6159(a) authorizes the Secretary to enter into an installment

agreement, allowing the taxpayer to pay a tax liability over time, upon determining

that the proposed installment agreement would facilitate full or partial collection of

the liability. See Thompson v. Commissioner, 140 T.C. at 179; sec. 301.6159-1(a),

Proced. & Admin. Regs. The Court gives due deference to the Secretary’s

determination because the Secretary has the discretion to accept or reject any

proposed installment agreement. Thompson v. Commissioner, 140 T.C. at 179;

sec. 301.6159-1(a), (c)(1)(i), Proced. & Admin. Regs.

      Petitioners argue that the notices of determination did not make a

determination that their proposed installment agreement offered less than their

ability to pay and did not reject the proposed agreement on that ground. See SEC

v. Chenery Corp., 318 U.S. 80, 93-95 (1943); Antioco v. Commissioner, T.C.

Memo. 2013-35, at *24-*25.

      We disagree. Each notice referenced a telephone call the SO made to

petitioners’ representative in which she advised him that petitioners’ financials

showed they could pay more than they were offering. Each notice also showed

that the SO calculated petitioners’ “Minimum Monthly Payment Amount” to be

$2,497. We are satisfied that one of the principal reasons the SO rejected
                                         - 13 -

[*13] petitioners’ proposed installment agreement was its failure to offer monthly

payments equal to their ability to pay and that she advised them of that reason.

      This reason fully justified rejection of petitioners’ proposed installment

agreement. For such agreements, an Appeals officer may accept, at a minimum, a

monthly payment equal to the taxpayer’s ability to pay, equal to the excess of his

monthly income over allowable expenses. Boulware v. Commissioner, T.C.

Memo. 2014-80, at *29; Friedman v. Commissioner, T.C. Memo. 2013-44, at *9;

IRM pt. 5.14.1.3(7) (Mar. 4, 2011). The SO was well within her discretion to

reject petitioners’ proposed installment agreement since their proposed initial

monthly payments of $260 (for 36 months) did not equal or exceed their own

calculation of their ability to pay, which was $1,545 per month.8 The IRM

      8
        The SO made three downward adjustments to petitioners’ allowable
expenses, increasing their monthly ability to pay to $2,497. Her $245 reduction in
the “Food, Clothing, and Misc.” expense is in conformance with IRM pt.
5.15.1.7(3) (Oct. 2, 2012), which provides that taxpayers are allowed the monthly
national standard amount for their family size regardless of actual expenses.
Petitioners’ claimed expense exceeded the then-current national standard amount
for a four-person household. The SO’s reasoning behind the two other adjustments
is not clear from the record. She likely reduced petitioners’ claimed “Vehicle
Ownership Costs” by $200 because petitioners’ figure exceeded the local standard
for 2013, see id. pt. 5.15.1.7(4), and her elimination of their claimed “Life
Insurance” expense of $507 presumably arose from a determination that it was a
whole life rather than a term policy, see id. pt. 5.15.1.10(3). Petitioners have not
taken issue with these adjustments. In any event, we need not consider them
further, as the monthly payment petitioners offered in their proposed installment
agreement fell so short of their own computation of their monthly ability to pay
                                                                          (continued...)
                                        - 14 -

[*14] provision applicable at the time the SO made her determination to reject

petitioners’ proposal stated: “Installment agreements must reflect taxpayers’

ability to pay on a monthly basis throughout the duration of agreements.” IRM

pt. 5.14.1.4(4) (June 1, 2010) (emphasis added).9 An Appeals officer properly

exercises his discretion by adhering to IRM provisions governing acceptance of

collection alternatives. See Veneziano v. Commissioner, T.C. Memo. 2011-160;

Etkin v. Commissioner, T.C. Memo. 2005-245; Schulman v. Commissioner, T.C.

Memo. 2002-129. The SO was not required to “haggle” with petitioners on the

monthly payment amount after they rejected both of her alternative payment

proposals. See Boulware v. Commissioner, at *31.

      The Court does not recalculate a taxpayer’s ability to pay nor substitute its

judgment for that of the Appeals officer. O’Donnell v. Commissioner, T.C. Memo.

2013-247. However, the Court can consider whether the Appeals officer’s

decision to reject an installment agreement was the result of a failure to properly

consider the taxpayer’s financial information in the record. See Gurule v.


      8
        (...continued)
that the SO’s adjustments are immaterial. Her rejection of petitioners’ proposed
agreement would be justified even if her adjustments were not taken into account.
      9
        This provision was subsequently liberalized to state: “Generally
Installment agreements should reflect taxpayers’ ability to pay on a monthly basis
throughout the duration of agreements.” IRM pt. 5.14.1.4(4) (Sept. 19, 2014).
                                          - 15 -

[*15] Commissioner, T.C. Memo. 2015-61. In a pretrial memorandum and at trial,

petitioners’ counsel contended that the SO had not properly accounted for

petitioners’ unsecured debt, including their bank and credit card loans, in

calculating their ability to pay. Petitioners’ posttrial briefs are silent regarding this

argument, and we deem it abandoned. See Rule 151(e)(4) and (5) (requiring that a

party’s brief state the points and arguments on which he relies); McLaine v.

Commissioner, 138 T.C. 228, 243 (2012) (finding that the taxpayer abandoned his

claim by failing to raise the issue on brief).

      Even if the argument were not abandoned, it lacks merit as the SO’s ability-

to-pay calculation accounted for all three items of unsecured debt that petitioners

substantiated. The $615 monthly payment on the JPMorgan Chase Bank loan was

claimed as an expense of Mr. Bero’s sole proprietorship and accepted by the SO.

The $225 monthly payment on the Discover credit card debt was effectively

accounted for as part of petitioners’ “Food, Clothing, and Misc.” expenses.10

      10
        Payments on credit card debt are classified in Publication 1854, How to
Prepare a Collection Information Statement, and IRM pt. 5.15.1.8(1) (Oct. 2, 2012)
as an expense that is included under the “Miscellaneous” category within the
“Food, Clothing, and Misc.” amount. The “Food, Clothing, and Misc.” allowable
amount is based on national standards. Deviation from this amount is allowed
when a taxpayer provides documentation substantiating that the expenses are a
necessary living expense. Id. pt. 5.15.1.8(3). While petitioners provided a
payment history for their Discover credit card, they did not produce itemized
statements proving necessary expenses beyond the standard amount. IRM pt.
                                                                        (continued...)
                                          - 16 -

[*16] The $304 monthly payment on Mr. Bero’s student loan was claimed on the

Form 433-A in reaching total (monthly) living expenses, and that figure was

accepted by the SO. The SO therefore properly accounted for all of petitioners’

unsecured debt that was substantiated in the record in calculating their ability to

pay.

       B.       Collection Statute Expiration

       We are satisfied that (1) the SO made a determination that the initial

monthly payments offered in petitioners’ proposed installment plan did not equal

their ability to pay, (2) the SO advised petitioners of this determination, and (3) the

determination was reasonable and was not an abuse of discretion. Because the

foregoing is sufficient to sustain the rejection of petitioners’ proposed installment

agreement, we find it unnecessary to consider whether the SO correctly determined

that their proposed installment agreement would not have resulted in the full

payment of all liabilities before expiration of the period of limitations on

collection.11 Even if petitioners’ contentions were correct, it would not change the

       10
         (...continued)
5.15.1.8(3) also states that “[d]eviations from the standard amount are not allowed
for miscellaneous expenses.” The SO allowed the maximum amount under these
standards, and therefore petitioners’ credit card debt was accounted for in the
ability-to-pay calculation.
       11
            Although the Court must extrapolate somewhat, the administrative record
                                                                        (continued...)
                                         - 17 -

[*17] fact that their offer of $260 per month for the first 36 months fell far short of

their ability to pay.

       C.     Material Change in Circumstances

       While the Court generally may not consider either (1) issues or arguments

that a taxpayer does not raise as part of a CDP hearing or (2) information that the

Appeals officer did not have at the time of a CDP hearing, see Giamelli v.

Commissioner, 129 T.C. 107, 112-113 (2007); Magana v. Commissioner, 118 T.C.

488, 493 (2002), a limited exception is made where there has been a material

change in a taxpayer’s circumstances between the time of the CDP hearing and

trial that would justify a remand for reconsideration of his ability to pay, see

Gurule v. Commissioner, T.C. Memo. 2015-61; Churchill v. Commissioner, T.C.

Memo. 2011-182. But see Kehoe v. Commissioner, T.C. Memo. 2013-63.



       11
        (...continued)
tends to support the SO’s conclusion that the collections limitation period would
have expired before full payment of petitioners’ liabilities under their proposed
installment agreement. A document in the stipulated CDP administrative file
suggests the expiration date for the 2009 liability was August 27, 2022, and that
full payment of that liability under petitioners’ proposed installment agreement
would not occur until October 28, 2022. As for petitioners’ contention that the
administrative record is insufficient for our review of the SO’s calculations
underlying such a conclusion, petitioners’ counsel waived that argument at trial
when he represented to the Court that the stipulated administrative record was
sufficient for purposes of deciding whether the SO had abused her discretion in
rejecting their proposed installment agreement.
                                       - 18 -

[*18] Petitioners rely principally on Gurule and Churchill to support their claim

that refinancing their nontax loans into a smaller monthly payment is a material

change in circumstances. In Gurule the Court granted a remand because of a

material change in circumstances: The taxpayers’ son’s death after issuance of the

notice of determination caused them to have to borrow additional amounts from

their section 401(k) plan account to pay for funeral expenses. Similarly, in

Churchill the Court granted a remand for a material change in circumstances where

the taxpayer divorced between the CDP hearing and trial. In each case the

taxpayers suffered an adverse change in circumstances affecting their ability to

pay. See Gurule v. Commissioner, at *35-*36; Churchill v. Commissioner, T.C.

Memo. 2011-182, slip op. at 13. By contrast, in Kehoe, the Court rejected the

taxpayer’s request for remand on the ground of changed circumstances where, after

issuance of the notice of determination, he became eligible to make penalty-free

withdrawals from his IRA, thus improving his liquidity. The Court reasoned that

this improvement in financial circumstances would not have affected the

Commissioner’s decision to proceed with the NFTL filing. Kehoe v.

Commissioner, at *14-*16.

      Petitioners claim that the newly arisen opportunity to refinance their nontax

debt would increase their liquidity and enable them to make larger monthly
                                        - 19 -

[*19] payments of $750-$1,000 as part of a new installment agreement. However,

even putting aside their failure to substantiate the claimed refinancing opportunity,

any such change would not constitute the kind of adverse change in circumstances

that has been found to justify a remand to Appeals under our caselaw.

Consequently, we conclude that a remand is not warranted.

      To reflect the foregoing,


                                                 Decision will be entered for

                                        respondent.
