                  T.C. Summary Opinion 2008-126



                      UNITED STATES TAX COURT



               LAURIE CALDER-GREEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1705-06S.              Filed September 22, 2008.


     Laurie Calder-Green, pro se.

     Steven M. Webster, for respondent.



     ARMEN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.


     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code of 1986, as amended.
                                - 2 -

     The primary issue for decision in this collection review

case is whether it was an abuse of respondent’s discretion to

deny effective tax administration relief to petitioner from her

self-reported tax liability for the taxable year 2001.      We hold

that it was not.    We must also decide whether it was an abuse of

respondent’s discretion not to abate interest on petitioner’s

underpayment of tax.    We hold that it was not.

                             Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ extremely

confusing stipulation of facts and morass of accompanying

exhibits.

     At the time the petition was filed, petitioner resided in

North Carolina.

     Petitioner and her ex-husband married in 1978 and separated

in 2000.    They divorced in 2001.   It was not an amicable divorce.

     Petitioner’s mother arranged for an attorney, a “golfing

buddy of [petitioner’s] brother-in-law”, to represent petitioner

during the divorce proceedings.      At the urging of her attorney,

petitioner agreed to purchase her ex-husband’s half of the

“marital estate” in South Carolina.2      Petitioner testified that


     2
        Even though petitioner and her ex-husband were not yet
divorced, they were separated and apparently negotiations on the
divorce settlement had begun. For clarity, we refer to
petitioner’s ex-husband as her ex-husband throughout this
                                                   (continued...)
                                - 3 -

her attorney arranged for a bank loan to enable her to refinance

the mortgage and purchase her ex-husband’s interest in the house.

When petitioner refused to pay the attorney’s bill, the attorney

refused to continue the representation, and the loan offer he had

arranged was rescinded.

     Petitioner’s mother gave her approximately $38,000 to

replace the lost loan and help petitioner keep the house.

Instead, petitioner used the money to move to an apartment in

North Carolina so her son could attend college there.   She also

paid off some debt and “fixed up” the house in South Carolina.

     In the fall of 2000, petitioner refinanced the “marital

estate” and received $53,000.   Petitioner did not use the

proceeds or any portion thereof to buy out her ex-husband;

instead, the proceeds were disbursed as follows:   Approximately

$3,581 went to closing costs; $6,724 went to pay off credit card

debt; and $42,695 went directly to petitioner.   She repaid her

mother and was left “about $3,000 to play with”.

     Petitioner’s divorce was finalized in the fall of 2001.

Despite her best efforts at negotiating a favorable divorce

settlement, petitioner was unhappy with the result.   A South

Carolina court ordered petitioner to pay her ex-husband




     2
      (...continued)
opinion, regardless of the time period involved.
                                - 4 -

$18,039.47 within 30 days in compensation for his interest in

both the house and a camper.3

     Finding herself in ever-increasing debt and having used all

of her available resources on other things, petitioner liquidated

the entire $41,494 balance of her individual retirement account

(IRA) in order to pay her ex-husband the now-court-ordered amount

of $18,039.47.    Petitioner spent the rest of the money making

payments on her van, remodeling, buying appliances, and paying

expenses for her children such as braces and “graduation/college

application fees”.

     Petitioner timely filed her Federal income tax return for

2001.    She properly reported the IRA distribution as taxable

income along with the section 72(t) additional 10-percent tax due

on a portion of the distribution.    See, e.g., sec. 72(t)(2), (7),

(8) (exempting from the 10-percent additional tax certain

qualified medical, educational, and home-buying expenses).

     When she filed her return, petitioner did not pay the tax

shown as due.    Under separate cover, petitioner mailed a letter

to the IRS offering to pay $3,000 in satisfaction of her




     3
        Petitioner argues that she should not have had to pay her
ex-husband so much for his share of the house; she testified that
he allegedly sold some of the fixtures and otherwise “destroyed”
the house. We can appreciate petitioner’s frustration with the
divorce proceedings, but any perceived inequities resulting from
those proceedings have no bearing on the tax consequences of the
issues before us.
                                   - 5 -

approximately $10,000 reported tax liability.       Respondent has no

record of having received petitioner’s offer letter.

       On May 27, 2002, respondent assessed the tax reported,

interest, and an addition to tax under section 6651(a)(2) for

failure to pay the amount shown on the return.

       Upon receiving petitioner’s Form 656, Offer in Compromise

(OIC), in September 2002, respondent requested more information.

Petitioner responded on October 21, 2002.       Petitioner was not

contacted again by respondent until April 9, 2003, when

respondent requested more information to properly evaluate the

OIC.       Discussions between the parties continued over the course

of the year, and forms and supporting documents were sent back

and forth.       Having determined that she could pay the liability in

full,4 respondent rejected petitioner’s OIC on December 2, 2003,

and further determined that petitioner did not meet the criteria

for an OIC on the basis of the effective tax administration (ETA)

provisions of section 7122 and its accompanying regulations.

       Petitioner did not like the response she received from the

IRS.       She interpreted the rejection of her OIC as a lack of

understanding as to how difficult things had been since her

divorce, and she spent time researching tax laws and offers-in-



       4
        Petitioner remarried in 2002 and is gainfully employed as
a teacher and athletic coach. Respondent determined that she had
both equity in her residence and future income potential
exceeding her total 2001 liability.
                                - 6 -

compromise.   In January 2004, petitioner appealed the rejection

of her OIC.   After more discussions and lengthy negotiations

between the parties, the rejection was sustained by respondent’s

Office of Appeals on December 17, 2004.    Petitioner’s requests

for interest abatement were also rejected.

     Respondent issued a Final Notice of Intent to Levy and Your

Right to a Hearing in April 2005.    After offsets from other

taxable years, petitioner’s Federal income tax liability for 2001

was approximately $8,522.

     Petitioner felt that no one at the IRS understood her plight

or her arguments, and she began contacting her legislators and

the IRS Taxpayer Advocate Service in the spring of 2005.    She

also filed a Form 12153, Request for a Collection Due Process

Hearing (CDP hearing).

     At the CDP hearing, petitioner submitted a second OIC, also

based on ETA, of $1,587.5   The record is unclear as to whether

the amount offered was inclusive of amounts already paid to or

collected by the IRS.    Further adding to the confusion,

respondent decided that petitioner’s changes to the Form 656

rendered the offer void.    Regardless, the OIC was evaluated and

rejected, and no offer of an installment agreement or other type



     5
        Although petitioner submitted two different offers-in-
compromise, we refer to them later in this opinion as a single
OIC because our reasoning applies with equal force to both of her
offers-in-compromise.
                                - 7 -

of collection alternative was agreed upon.6

      Having determined, again, that petitioner did not qualify

for an OIC on ETA grounds, and having explained, again, the

reasoning behind the rejection, respondent issued petitioner a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 on December 23, 2005.

      The case came before this Court in 2006 and was remanded to

respondent’s Office of Appeals for further consideration.

Petitioner’s OIC was once again rejected, and the reasons for the

rejection and refusal to abate interest were explained.   On

August 14, 2007, respondent issued the Supplemental Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 from which petitioner now appeals.

                            Discussion

A.   Collection Actions

      Section 6330 generally provides that the Commissioner cannot

proceed with collection by levy on a taxpayer’s property until

the taxpayer has been given notice of and the opportunity for an

administrative review of the matter (in the form of an Appeals

Office hearing) and, if dissatisfied, with judicial review of the

administrative determination.   See Davis v. Commissioner, 115


      6
        Petitioner claims she did not propose any other type of
collection alternative because no information had been provided
to her about her options. However, the record is clear that
petitioner rejected respondent’s offer of an installment
agreement on at least one occasion.
                               - 8 -

T.C. 35, 37 (2000); Goza v. Commissioner, 114 T.C. 176, 179

(2000).

     Section 6330(c)(1) imposes on the Appeals Office an

obligation to verify that the requirements of any applicable law

or administrative procedure have been met.   Section 6330(c)(2)

prescribes the matters that a person may raise at an Appeals

Office hearing.   In sum, section 6330(c)(2)(A) provides that a

person may raise collection issues such as spousal defenses, the

appropriateness of the Commissioner’s intended collection action,

and possible alternative means of collection.   Section

6330(c)(2)(B) further provides that the existence and amount of

the underlying tax liability can be contested at an Appeals

Office hearing if the person did not receive a notice of

deficiency for the tax in question or did not otherwise have an

earlier opportunity to dispute the tax liability.7   See Sego v.

Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner,

supra at 180-181; see also Magana v. Commissioner, 118 T.C. 488,

492 (2002); Wooten v. Commissioner, T.C. Memo. 2003-113.

     It is well settled that where the validity of the underlying

tax liability is properly at issue in a collection review

proceeding, the Court will review the matter de novo.     Goza v.


     7
        Sec. 6330 was amended Aug. 17, 2006. See Pension
Protection Act of 2006, Pub. L. No. 109-280, sec. 855(a), 120
Stat. 1019. Therefore, any determinations made at a CDP hearing
after Oct. 16, 2006, are the exclusive jurisdiction of this
Court. Id. sec. 855(b), 120 Stat. 1019.
                                   - 9 -

Commissioner, supra at 181-182.       Where the validity of the

underlying tax liability is not at issue, the Court will review

the Commissioner’s administrative determination for an abuse of

discretion.     See, e.g., id. at 182.

      An abuse of discretion occurs when the Commissioner takes

action that is arbitrary, capricious, without sound basis in fact

or law, or is not justifiable in light of the circumstances.

See, e.g., Woodral v. Commissioner, 112 T.C. 19, 23 (1999);

Mailman v. Commissioner, 91 T.C. 1079, 1084 (1988).

      Petitioner agrees that she owes the tax and never contested

her liability for the tax due; thus we review the case for an

abuse of discretion.       Petitioner, however, insists that it would

be unfair to make her pay the amount due given her circumstances,

and she argues that the ETA provision of section 7122 mandates

that she not be required to pay the liability, the addition to

tax, or any interest on her Federal income tax obligation.

B.   Effective Tax Administration

      Section 7122 and its accompanying regulations authorize the

Secretary to compromise any civil case arising under the internal

revenue laws.    Compromises may be made on three grounds:    (1)

Doubt as to liability; (2) doubt as to collectibility; and (3)

promotion of effective tax administration.      Sec. 301.7122-1(b),

Proced. & Admin. Regs.      ETA is further divided into hardship and

nonhardship ETA.     Id.    Respondent determined that petitioner does
                              - 10 -

not meet the criteria for acceptance of an OIC on ETA grounds;

because petitioner makes both hardship and nonhardship ETA

arguments at various points in the proceedings, we discuss both.

     Section 301.7122-1(c), Proced. & Admin. Regs., sets forth

factors that would support (but are not conclusive of) a finding

of economic hardship:   a long-term illness, medical condition, or

disability which is expected to exhaust the taxpayer’s financial

resources; the total depletion of a taxpayer’s income resulting

from the provision of dependent care; or the inability to exploit

existing asset wealth in order to finance basic living expenses

and satisfy the outstanding tax liability.   None of those factors

are present here.

     Petitioner also argues that her case is “so important and so

essential to * * * public policy” that it was an abuse of

discretion not to accept her OIC on public policy grounds.

However, this argument is not sound.

     Compromises are permitted on public policy and fairness

grounds where there is no doubt as to liability and the liability

could be collected in full without causing economic hardship; it

is up to the taxpayer to demonstrate that his or her

circumstances are compelling enough to justify the compromise

notwithstanding the inherent inequity to other taxpayers.    See

sec. 301.7122-1(b)(3)(ii), (c)(3)(iv), Proced. & Admin. Regs.;
                               - 11 -

see also IRM pt. 5.8.11.2.2 (May 15, 2004).     Petitioner has not

satisfied that burden.

     Tax jurisprudence is replete with cases more extreme than

the one at bar where taxpayers have found themselves in difficult

financial positions because of the application of a tax provision

that, as applied to them, had adverse consequences; these

taxpayers were denied relief under ETA provisions.     See, e.g.,

Speltz v. Commissioner, 124 T.C. 165 (2005), affd. 454 F.3d 782

(8th Cir. 2006);    Wai v. Commissioner, T.C. Memo. 2006-179.

Thus, we conclude that respondent did not abuse his discretion in

the instant case.

     Many people encounter financial difficulties as a result of

the economic changes that typically accompany divorce.    Although

we understand petitioner’s desire to help pay for her children’s

college educations, the fact that her children play Division I

sports and find it difficult to work during the school year does

not entitle petitioner to a compromised tax liability on the

basis of financial hardship or public policy.    More to the point,

petitioner has not satisfactorily demonstrated that her situation

is so unique or warrants disparate treatment from the myriad

other taxpayers who pay their taxes in full and on time when they

and their families, too, have opportunities which may be made

more difficult as a result of their tax obligations.    Thus it is
                                - 12 -

clear that in this case, petitioner must satisfy her tax

liability in full.

     1.   The Underlying Tax Liability8

     The South Carolina court ordered petitioner to pay her ex-

husband a sum of money.    Like many taxpayers, petitioner was

forced to use a portion of her retirement savings to meet her

financial obligations.    The fact that she had no alternative but

to withdraw money from her IRA does not necessarily bring

petitioner’s situation within the purview of economic hardship or

compelling public policy as envisioned by the provisions of the

ETA rules and regulations.

     2.   The 10-Percent Additional Tax

     Petitioner liquidated her IRA and received a $41,494 taxable

distribution in 2001.     Generally, a distribution from a qualified

plan such as petitioner’s IRA is includable in the distributee’s

gross income in the year of distribution.    See secs. 61(a)(11),

72, 401(a), 402(a), 408(d), 4974(c)(1).    Section 72(t)(1) imposes

an additional tax on a distribution from a qualified retirement

plan made prior to a taxpayer’s attaining the age of 59½ unless

an enumerated exception applies.    The additional tax is intended

to discourage premature distributions from retirement plans.

Dwyer v. Commissioner, 106 T.C. 337, 340 (1996); see also S.


     8
        Although not at issue here, we discuss petitioner’s
underlying liability to make clear the nature of petitioner’s
arguments. See supra p. 8.
                              - 13 -

Rept. 93-383, at 134 (1973), 1974-3 C.B. (Supp.) 80, 213.    The

additional tax equals 10 percent of the portion of such

distribution that is includable in gross income.

     It appears from the record that the taxable portion of

petitioner’s IRA distribution has already been reduced by the

application of exceptions for medical, educational, and first-

time home buyer expenses.9   The remaining $21,694 does not appear

to be subject to any exception, and petitioner does not contest

her liability for the 10-percent additional tax on that amount.

Rather, petitioner’s argument is that if she had been properly

represented by counsel throughout her divorce, her counsel would

have known she had no source of funds other than her IRA with

which she could satisfy the court order; her counsel would have

suggested obtaining a qualified domestic relations order (QDRO),

see sec. 72(t)(2)(C), to satisfy the obligation instead of

permitting petitioner to be forced into a situation where

liquidating her IRA was her only option.   Accordingly,

petitioner’s argument continues, her taxes would have been far

less under the other scenario, and fairness demands that she

should not have to pay the full amount she admits she owes.

However, the QDRO provision does not apply to distributions made



     9
        The fact that the record indicates petitioner received an
exception for a first-time homebuyer when she was not, in fact, a
first-time homebuyer is beyond the scope of our review in the
instant case.
                                 - 14 -

from IRAs; the QDRO provision exempts from tax only distributions

made from other types of qualified retirement plans.        See sec.

72(t)(3)(A).      Further, it is well settled that a “transaction

must be given its effect in accord with what actually occurred

and not in accord with what might have occurred.”       Frank Lyon Co.

v. United States, 435 U.S. 561, 576 (1978).       It was not an abuse

of discretion for respondent to reject petitioner’s OIC.

C.   Interest Abatement

      Regardless of respondent’s position at trial, the record

clearly supports our finding that petitioner requested an

abatement of interest during the prior administrative proceedings

and as part of her OIC.      We therefore have jurisdiction to

consider her request.      See Landry v. Commissioner, 116 T.C. 60,

62 (2001); Katz v. Commissioner, 115 T.C. 329, 340-341 (2000).

      Generally, interest on a Federal income tax liability begins

to accrue from the last date prescribed for payment of that tax

and continues to accrue, compounding daily, until payment is

made.      See secs. 6601(a), 6622.   Interest abatements are

permitted if a delay is attributable to unreasonable errors or

delays by an official or employee of the Internal Revenue Service

in performing a ministerial or managerial act.       Sec.

6404(e)(1);10 see also sec. 301.6404-2, Proced. & Admin. Regs.


      10
        Prior to 1996, sec. 6404(e) provided for the abatement
of interest attributable to “any error or delay by an * * *
                                                   (continued...)
                               - 15 -

Any abatement of interest applies only to the period of time

attributable to the failure to perform the ministerial or

managerial act.    See, e.g., Pettyjohn v. Commissioner, T.C. Memo.

2001-227; see also H. Rept. 99-426, at 844 (1985), 1986-3 C.B.

(Vol. 2) 1, 844; S. Rept. 99-313, at 208 (1986), 1986-3 C.B.

(Vol. 3) 1, 208.   Further, section 6404(e) requires that a

taxpayer not only identify an error or delay caused by a

ministerial or managerial act on the Commissioner’s part, but

also identify a specific period of time over which interest

should be abated as a result of such error or delay.    See, e.g.,

Spurgin v. Commissioner, T.C. Memo. 2001-290.

     We apply an abuse of discretion standard in reviewing the

Commissioner’s failure to abate interest.   See Krugman v.

Commissioner, 112 T.C. 230, 239 (1999); Woodral v. Commissioner,

112 T.C. at 23.

     Petitioner mailed her first offer in April 2002.   Respondent

has no record of having received this letter.   She resubmitted

the offer as an official OIC in September 2002.   Requests for


     10
      (...continued)
employee of the Internal Revenue Service * * * in performing a
ministerial act”. Congress amended sec. 6404(e) to permit the
abatement of interest for “unreasonable” error and delay in
performing a ministerial or “managerial” act. Taxpayer Bill of
Rights 2, Pub. L. 104-168, sec. 301(a), 110 Stat. 1457 (1996).
The amendment applies to interest accruing with respect to
deficiencies or payments for taxable years beginning after July
30, 1996. Id. sec. 301, 110 Stat. 1457. Despite the change, the
reasoning of cases decided under the old version of the statute
is still generally applicable.
                              - 16 -

more information and responses went back and forth between the

parties.   According to petitioner’s own timeline, discussions

concerning petitioner’s financial situation continued for a long

time until the OIC was rejected in December 2003.   After that,

there was an administrative appeal process.   There was a CDP

hearing and a new OIC.   The numbers were revised as the

discussions continued.   There was a Tax Court proceeding and the

case was remanded to respondent’s Office of Appeals for further

consideration.   A Supplemental Notice of Determination was issued

in November 2007 and the case is now before us for consideration.

Petitioner argues that the entire process took too long and with

every delay, interest accrued.   She claims it was an abuse of

discretion by respondent not to abate the interest.

     We acknowledge that the process from petitioner’s first

mailing of an offer to compromise her liability in April 2002 to

our receipt of the case for final disposition was lengthy, yet

there is no specific time period that we can identify that

reveals respondent was responsible for an “unreasonable” error or

delay.

     There is also no specific period of time petitioner has

identified where there is an error or delay attributable to a

ministerial or managerial act on respondent’s part.   Rather,

petitioner essentially requests that the interest with respect to

her 2001 taxable year be abated either in whole or in part.     As
                               - 17 -

we have previously held, such a request is, in effect, a request

for an exemption from interest rather than a request for an

abatement of interest; the scope of such a request is beyond that

contemplated by the statute.   See, e.g., Spurgin v. Commissioner,

supra; Donovan v. Commissioner, T.C. Memo. 2000-220.

     The biggest stretch of time between petitioner’s submission

of information and a reply from respondent was the period between

October 21, 2002, and April 9, 2003.    That 171-day period

encompassed the Veterans’ Day, Thanksgiving, Christmas, and New

Year’s holidays, among others.   Petitioner has not demonstrated

that 171 days is an unreasonably long time given respondent’s

workload and the time of year, particularly given respondent’s

need to review the voluminous documentation petitioner submitted

and the number of revisions she made to respondent’s own

documents.   Further, we have previously held that the mere

passage of time does not, by itself, suggest an unreasonable

delay or error caused by a ministerial or managerial act on the

Commissioner’s part such that an abatement of interest is

warranted.   See, e.g., Spurgin v. Commissioner, supra.

     In Downing v. Commissioner, 118 T.C. 22 (2002), the

taxpayers filed a return on which they correctly reported their

$32,561 tax liability, yet they included only $5,000 and an OIC

with the return instead of full payment.    The IRS misplaced the

taxpayers’ OIC for a year, yet we held that the Commissioner’s
                              - 18 -

refusal to abate the interest that accrued during that time was

not an abuse of discretion.   “If a taxpayer files a return but

does not pay the taxes due, [section 6404(e) does] not permit

abatement of [the] interest regardless of how long the IRS took

to contact the taxpayer and request payment.”   Id. at 30-31

(citing H. Conf. Rept. 99-841 (Vol. II), at II-811 (1986), 1986-3

C.B. (vol.4) 1, 811).

     Although we can identify mistakes on respondent’s part, we

are not convinced of unreasonable delay by respondent under the

circumstances.   Accordingly, we are not convinced that an

interest abatement is warranted here, and therefore we hold that

it was not an abuse of discretion by respondent to deny the

abatement request.

     Petitioner argues that having to pay interest is

“unwarranted, unfair, and undeserved.”   But the purpose of

interest is “to compensate the Government for delay in payment of

a tax”.   Goettee v. Commissioner, T.C. Memo. 2003-43 (citing Avon

Prods., Inc. v. United States, 588 F.2d 342, 343 (2d. Cir.

1978)), affd. 192 Fed. Appx. 212 (4th Cir. 2006).   Interest is

warranted because petitioner did not timely pay the tax due.

     We also note that respondent advised petitioner repeatedly

that she did not meet the criteria for an OIC on ETA grounds.     To

the extent petitioner persisted in challenging respondent’s

determination, the extra time spent was by her own choice.
                              - 19 -

D.   Conclusion

      We have considered all of petitioner’s arguments, and, to

the extent we did not specifically address them, we find that

they are without merit.

      To reflect our disposition of the disputed issues,



                                         Decision will be entered

                                    for respondent.
