                              T.C. Memo. 2013-214



                        UNITED STATES TAX COURT



   KEVIN P. MCCARTHY AND CANDACE C. MCCARTHY,1 Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent

     MCCARTHY COMPANIES, LLC, Petitioner v. COMMISSIONER OF
               INTERNAL REVENUE, Respondent



      Docket Nos. 7376-11L, 7394-11L.           Filed September 10, 2013.



      Kevin P. McCarthy, for petitioners.

      Jon D. Feldhammer, for respondent.




      1
        Candace C. McCarthy (petitioner wife) failed to appear at trial. The Court,
on its own motion, will dismiss petitioner wife from this case for lack of
prosecution. Kevin P. McCarthy (petitioner husband) and McCarthy Companies,
LLC (petitioner LLC) remain. Petitioner husband is the sole member of petitioner
LLC, a disregarded entity for Federal income tax purposes. We will therefore treat
petitioner husband and petitioner LLC as one and the same for purposes of this
matter, unless otherwise noted.
                                          -2-

[*2]         MEMORANDUM FINDINGS OF FACT AND OPINION


       KROUPA, Judge: These collection review matters are before the Court

because petitioners challenge the propriety of two determination notices. See sec.

6330(d)(1).2 Respondent issued the determination notices sustaining two final

notices of intent to levy and one notice of Federal tax lien (collectively, proposed

collection actions). The sole issue we are asked to decide is whether respondent

abused his discretion by relying on information provided by a county tax assessor

and a recorder of deeds office in sustaining the proposed collection actions. We

hold he did not.

                                FINDINGS OF FACT

       Some facts have been stipulated and are so found. The stipulations of facts

and their accompanying exhibits are incorporated by this reference. Petitioner

resided in Texas at the time he filed the petition.

       Petitioner operated several lines of business within the real estate industry

during 2000 through 2009 (years at issue). Petitioner’s business included

purchasing, renovating and selling (i.e., flipping) houses, as well as providing real


       2
      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, unless otherwise indicated.
                                           -3-

[*3] property title search and foreclosure services. Petitioner operated throughout

195 counties in Texas and Arkansas and had approximately 19 employees.

       Petitioner got behind on his Federal tax reporting and payment obligations

and apparently became overwhelmed with the task of becoming current. Petitioner

eventually became current with his Federal tax reporting obligations but failed to

pay all the liabilities reported on his late-filed tax returns (unpaid tax liabilities).3

Respondent thereafter assessed the unpaid tax liabilities, interest and penalties,

which were well in excess of $1 million when respondent issued the challenged

determination notices.

       Petitioner proposed an installment agreement to respondent and submitted

collection information statements (financial statements) as required. Petitioner

disclosed on the financial statements that he owned real property at 1000 W.

Louisiana Avenue in Midland, Texas (West Louisiana property), real property at

245 Mountain Springs Circle in Hot Springs, Arkansas (Mountain Springs

property), a Harley Davidson motorcycle, a Dodge pickup truck, a pontoon boat, a

      3
        Petitioner husband filed income tax returns for years 2000, 2001, 2002,
2005 and 2006 in late 2009. Petitioner LLC filed quarterly tax returns for quarters
ending June, September and December 2001, March, June, September and
December 2002, June 2003, September 2004, June, September and December
2007, March, June, September and December 2008 and March 2009 in mid-2009.
The challenged determination notices do not address the tax return petitioner LLC
filed for the quarter ending March 2009.
                                         -4-

[*4] GMC Yukon Denali, a Mitsubishi Eclipse, a Hummer, a Cadillac, a

Sharebuilder investment account and a life insurance policy. Respondent

discovered through his own research that petitioner also owned real property at

214 Shore Acres Drive in Hot Springs, Arkansas (Shore Acres property).

       Respondent reviewed petitioner’s assets and concluded that petitioner had

significant equity available to partially pay his unpaid tax liabilities.4 Respondent

repeatedly requested that petitioner borrow against or liquidate his equity so that

respondent could consider the proposed installment agreement. Respondent

informed petitioner that he would not consider the proposed installment agreement

unless and until petitioner borrowed against or liquidated the equity available in

his assets.

       Petitioner made some attempts to borrow against the available equity in his

assets. At least one lender denied petitioner’s loan request, and at least one lender

approved petitioner’s loan request. Petitioner, however, neither borrowed against

nor liquidated the available equity in his assets. Respondent’s collection division

therefore ultimately rejected the proposed installment agreement. Petitioner

appealed the rejection to the Collection Appeals Program, which upheld the

rejection.

      4
       A representative of respondent’s Collection Division personally observed
and noted the West Louisiana property as being in good condition.
                                          -5-

[*5] Respondent subsequently initiated the proposed collection actions to collect

petitioner’s unpaid tax liabilities. Petitioner timely requested a collection due

process hearing (collection hearing) to challenge the propriety of the proposed

collection actions. Respondent assigned Settlement Officer Joann Mares (SO

Mares) to conduct the requested collection hearing.

      Petitioner argued during the collection hearing that respondent had

overvalued the available equity in his assets. In this vein, petitioner argued he was

not the beneficial owner of the Shore Acres property. Petitioner also argued that

respondent had attached unduly high values to the Mountain View property and

the West Louisiana property. SO Mares determined petitioner had significant

equity available to partially pay his unpaid tax liabilities. Accordingly, SO Mares

sustained the rejection of the proposed installment agreement and issued the

determination notices to petitioner.

      Petitioners timely filed the petitions.

                                       OPINION

      We must now decide whether respondent abused his discretion in sustaining

the proposed collection actions. We begin with the general rules that apply to

proposed collection actions.
                                         -6-

[*6] A. Collection Hearing

      The Commissioner is authorized to collect an unpaid Federal tax liability by

lien or levy. Secs. 6321, 6331. The Commissioner must apprise a taxpayer of the

taxpayer’s right to a collection hearing before an officer with the Commissioner’s

Office of Appeals (Appeals officer). Secs. 6320(a), 6330(a). The Appeals officer

conducting the collection hearing must determine whether the Commissioner will

sustain a proposed collection action. Sec. 6330(c).

      An Appeals officer must take into account certain considerations in making

the determination to sustain a proposed collection action. Id. The Appeals officer

must verify that the Commissioner has satisfied all applicable legal and

administrative requirements. Sec. 6330(c)(3)(A). The Appeals officer must

consider all relevant issues a taxpayer raises. Sec. 6330(c)(3)(B). Finally, the

Appeals officer must balance the intrusiveness of a proposed collection action

against the need for effective tax collection. Sec. 6330(c)(3)(C). A taxpayer

dissatisfied with an Appeals officer’s determination sustaining a proposed

collection action may appeal the determination to this Court. Sec. 6330(d).

Taxpayers are expected to provide all relevant information requested by the

Appeals officer for consideration of the facts and issues involved in the collection

hearing. Secs. 301.6320-1(e)(1), 301.6330-1(e)(1), Proced. & Admin. Regs.
                                         -7-

[*7] B. Standard of Review

       We now focus on the standard we apply in determining whether respondent

abused his discretion. Petitioner does not argue the validity of the unpaid tax

liabilities. Accordingly, we review respondent’s sustaining the proposed

collection actions for abuse of discretion. Sego v. Commissioner, 114 T.C. 604,

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

therefore determine whether respondent acted in a manner that was arbitrary,

capricious or without sound basis in fact or law. See Murphy v. Commissioner,

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

C. Rejecting the Proposed Installment Agreement

       Petitioner makes several arguments contesting the proposed collection

actions. These arguments serve to advance one theory--that respondent

improperly rejected the proposed installment agreement. See sec. 6330(c)(3)(B),

(2)(A)(iii).

       We now review respondent’s rejecting the proposed installment agreement

under our standard of review. Based upon our examining the entire record before

us, we find respondent did not abuse his discretion.

       Petitioner first asserts that SO Mares abused her discretion by relying on

county tax assessor valuations to determine the fair market values of the Shore
                                          -8-

[*8] Acres property, the Mountain View property and the West Louisiana

property. Petitioner argues SO Mares erred by not using a licensed real estate

appraiser to determine the fair market values. Petitioner, however, cites no

authority, and we can find no authority, that would require SO Mares to use a

licensed real estate appraiser to determine the fair market values. Accordingly, we

disagree that SO Mares abused her discretion by relying on county tax assessor

valuations.

      Congress has provided the Commissioner with the discretion to enter into an

installment agreement with a taxpayer to facilitate the Commissioner’s collecting

an unpaid tax liability. Sec. 6159; see Etkin v. Commissioner, T.C. Memo. 2005-

245. The Internal Revenue Manual (IRM) establishes, in part, the procedures the

Commissioner will use in determining whether a proposed installment agreement

facilitates the Commissioner’s collecting an unpaid tax liability. See Friedman v.

Commissioner, T.C. Memo. 2013-44. This Court has upheld determinations by

the Commissioner that were based in part on the IRM. See, e.g., Schulman v.

Commissioner, T.C. Memo. 2002-129 (upholding a settlement officer’s proposed

monthly installment payment computed under IRM guidelines).

      The Commissioner will consider an installment agreement proposed by a

taxpayer if the taxpayer is unable to fully or partially satisfy an unpaid tax liability
                                          -9-

[*9] and the installment agreement will fully satisfy the unpaid tax liability. IRM

pt. 5.14.1.4(2) (June 1, 2010). The ability of a taxpayer to fully or partially satisfy

an unpaid tax liability is based, at least in part, on the taxpayer’s available equity

in real property. Id. pt. 5.15.1 (Oct. 12, 2012). The IRM requires that the

Commissioner use fair market value in determining a taxpayer’s equity in real

property. Id. pt. 5.15.1.30. Specifically, the Commissioner may use real estate tax

assessments to determine fair market value of real property. Id.

      Here, SO Mares followed administrative procedures by relying on county

real property tax assessments to determine the fair market values of the Mountain

View property, the Shore Acres property and the West Louisiana property rather

than using a licensed real estate appraiser. See id. Accordingly, her reliance on

county real property tax assessments was not an abuse of discretion.

      Petitioner also asserts SO Mares abused her discretion by not considering a

letter petitioner submitted regarding the value of the West Louisiana property.5

We are not so convinced. The letter petitioner submitted was a market evaluation

of the West Louisiana property, not an appraisal of that property. SO Mares

      5
        Petitioner also submitted a market evaluation for real property at 4722 Erie
Avenue in Midland, Texas (Erie Avenue property). SO Mares did not include the
value of the Erie Avenue property in her determination of how much equity
petitioner must liquidate before respondent could consider the proposed
installment agreement.
                                         -10-

[*10] received and considered the market evaluation letter. The record reflects

that SO Mares placed little to no weight on the market evaluation letter. Rather,

SO Mares relied on the Midland County real property tax assessor’s valuation of

the West Louisiana property and respondent’s own observations of the property.

Petitioner has not provided sufficient evidence to establish that SO Mares’ relying

on the Midland County real property tax assessor’s valuation and respondent’s

own observations of the property rather than the market evaluation letter was

arbitrary, capricious or without sound basis in fact or law.

      Petitioner next asserts that SO Mares abused her discretion by concluding

that petitioner owned the Mountain View property. Petitioner did not disclose his

owning the Mountain View property on the financial statements. Instead,

respondent discovered this through his own research. Petitioner argues that,

although he was the legal owner, his mother was in fact the beneficial owner at the

time he proposed the installment agreement. SO Mares nevertheless included the

Mountain View property’s value in her calculation of petitioner’s available equity.

      It appears that a substantial part of petitioner’s business has been searching

real property titles throughout 195 counties in Texas and Arkansas. As such, it

strikes us as ironic that petitioner now argues that SO Mares abused her discretion

by relying on the same sort of real property title searching that gave rise, at least in
                                          -11-

[*11] part, to petitioner’s unpaid tax liabilities. Irrespective of this irony,

petitioner failed to provide SO Mares with evidence of this alleged beneficial

ownership arrangement.6 SO Mares therefore did not abuse her discretion by

relying on the ownership of the Mountain View property as recorded in the

Garland County, Arkansas, Recorder of Deeds office. See secs. 301.6320-1(e)(1),

301.6330-1(e)(1), Proced. & Admin. Regs. (a taxpayer is expected to provide

relevant information for an Appeals officer to consider during a collection

hearing).

      Petitioner finally asserts that SO Mares abused her discretion by not setting

a specific date by which petitioner had to liquidate his assets. Petitioner argues

the IRM required SO Mares to provide him with a specific deadline. Respondent,

in turn, provides authority to the contrary. See secs. 301.6320-1(e)(3), Q&A-E9,

301.6330-1(e)(3), Q&A-E9, Proced. & Admin. Regs. (stating there is no deadline

by which an Appeals officer is required to issue a determination notice); see also

Kuretski v. Commissioner, T.C. Memo. 2012-262. Accordingly, SO Mares did

not abuse her discretion by not providing petitioner with a specific deadline by

which he had to liquidate the equity in his assets before she could consider

      6
       Petitioner claims that he offered to provide evidence of this beneficial
ownership arrangement but that SO Mares refused all of his calls. We find this
claim incredible and therefore place no weight on it.
                                         -12-

[*12] whether he could pay the unpaid tax liabilities through the proposed

installment agreement. Moreover, petitioner did not provide any credible evidence

that he would have been willing to borrow against or liquidate his available equity

had SO Mares actually provided him with a specific deadline.

D. Statute of Limitations

      Petitioner finally argues that the statute of limitations on collection should

not be suspended during the collection hearing and the present proceeding.

Petitioner fails, however, to cite any authority that would support his argument.

As is the case with deficiency notices, the statute of limitations on collection is

suspended while the case is pending. See sec. 6330(e)(1); see also Adams v.

Commissioner, T.C. Memo. 2013-92. Petitioner requested the collection hearing

and filed the petition. The statute of limitations on collection is therefore

suspended.

E. Conclusion

      Petitioner did not raise any other meritorious challenges to SO Mares’

determination to sustain the proposed collection actions. Nor did petitioner

otherwise introduce any credible evidence or make persuasive arguments that

would convince us that SO Mares acted in a manner that was arbitrary, capricious

or without sound basis in fact or law.
                                         -13-

[*13] The record reflects that SO Mares verified that respondent satisfied all

applicable legal and administrative requirements, considered all relevant issues

petitioner raised, and balanced the intrusiveness of the proposed collection actions

against the need for effective tax collection. See sec. 6330(c). We therefore

conclude SO Mares did not abuse her discretion by sustaining the proposed

collection actions.

         We have considered all arguments made in reaching our decision, and, to

the extent not mentioned, we conclude that they are moot, irrelevant or without

merit.

         To reflect the foregoing,


                                                      An appropriate order of

                                                dismissal and decision will be entered

                                                in docket No. 7376-11L, and decision

                                                will be entered for respondent in

                                                docket No. 7394-11L.
