                          T.C. Memo. 2008-165



                        UNITED STATES TAX COURT



         ARTHUR DALTON, JR. AND BEVERLY DALTON, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23510-06L.                Filed July 7, 2008.



     Ralph A. Dyer, for petitioners.

     Michael R. Fiore, for respondent.



                          MEMORANDUM OPINION


     WELLS, Judge:    This case is before the Court on respondent’s

motion for summary judgment pursuant to Rule 121.1    The instant

proceeding arises from a petition for judicial review filed in



     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
                                 - 2 -

response to identical Notices of Determination Concerning

Collection Actions(s) Under Section 6320 and/or 6330 issued

separately to each petitioner.    The issue to be decided is

whether it was an abuse of discretion by respondent’s Office of

Appeals to reject an offer-in-compromise from petitioners because

of an alleged nominee interest in a trust.

                           Background

     The facts set forth below are based upon examination of the

pleadings, moving papers, responses, and attachments.

     Petitioners are husband and wife (hereinafter referred to

individually as Mr. Dalton Jr. and Mrs. Dalton) who resided in

Maine at the time of filing the petition.    Before late 1997

petitioners lived and worked in Massachusetts; however, the

instant case centers on three parcels of improved real property

located off Johnson Hill Road in Poland, Maine (hereinafter

referred to individually as lot 3, lot 4, and lot 5, respectively,

and collectively as lots 3, 4, and 5, or as the Poland property).

Acquisition of Lots 3, 4, and 5

     By deed dated November 25, 1977, petitioners purchased lot 4,

and the deed to lot 4 was recorded with the appropriate county

registry on November 28, 1977.    Similarly, by deed dated November

24, 1980, petitioners purchased lot 3, and the deed to lot 3 was

recorded on December 1, 1980.    In connection with the latter
                                - 3 -

transaction petitioners obtained a bank loan which was secured by

a mortgage on lot 3.    The mortgage was likewise recorded on

December 1, 1980.

     By deed dated January 13, 1983, petitioners conveyed lot 3

and lot 4 to Mr. Dalton Jr.’s father, Arthur Dalton, Sr. (Mr.

Dalton Sr.).2   The deed recited that the transfer was made for

consideration of $1 and subject to the existing mortgage.

Petitioners and Mr. Dalton Sr. executed a notarized assignment and

assumption agreement dated April 1, 1983, reflecting the foregoing

transaction and Mr. Dalton Sr.’s assumption of the existing

mortgage.    The underlying deed was recorded on May 2, 1983, and

the Assignment and Assumption Agreement was recorded on August 16,

1985.

     Mr. Dalton Sr. acquired lot 5 by deed dated September 24,

1984.    The deed to lot 5 and a concomitant mortgage from Mr.

Dalton Sr. in favor of the seller were recorded on October 23,

1984.

Creation of J & J Trust

     On April 11, 1985, Mr. Dalton Sr. created the J & J Trust.

The underlying trust agreement named Mr. Dalton Sr. as grantor and

trustee and designated his two grandsons, i.e., petitioners’


     2
       Although petitioners refer to this conveyance as occurring
during April of 1983, the copy of the notarized deed in the
record is dated Jan. 13, 1983. The discrepancy is not further
elucidated in the record but, in any event, has no material
impact on the Court’s analysis of the pending motion.
                                - 4 -

sons Jonathan and Jeremy Dalton, as the beneficiaries.    The trust

agreement provided that Mr. Dalton Jr. would have the power to

designate and appoint a successor trustee.   Either petitioner

could be a trustee.   By deeds likewise dated April 11, 1985,

Mr. Dalton Sr. transferred title to lots 3, 4, and 5 to himself as

trustee of the J & J Trust.   The deed with respect to lot 3 stated

that the premises were conveyed subject to the 1980 mortgage given

by petitioners and assumed by Mr. Dalton Sr. pursuant to the 1983

Assignment and Assumption Agreement.    No other consideration was

recited.   The three deeds were recorded on August 16, 1985.

Use of Lots 3, 4, and 5

     As previously noted, before late 1997 petitioners lived and

worked in Massachusetts.   From 1983 through 1990 petitioners

operated in Massachusetts a successful equipment business that

they sold in 1991.    A significant portion of the sale price was

deferred, and the buyer defaulted and ceased making payments

sometime during 1992 or 1993.   Petitioners thereafter started a

building demolition business, Challenger Construction Corp.,

working primarily for one or two developers in eastern

Massachusetts.   An apparently related corporation, A & M Crane

Service, Inc., also seems to have been involved in the business,

but the exact nature of the relationship is unclear and

petitioners do not necessarily make a distinction between the two.
                                - 5 -

     Also during the early 1990s, petitioners’ son Jonathan began

a boat and jet-ski rental business in St. Martin, French West

Indies.    The business was destroyed by a hurricane during the fall

of 1993.   Jonathan thereafter became a Navy Seal and from that

time used the address of the Poland property as his domicile.

Jeremy chose a career as an emergency medical technician and

resided in Massachusetts, but he also made regular use of the

Poland property.

     On September 18, 1993, Mr. Dalton Sr., as trustee of the

J & J Trust, and Mrs. Dalton executed a $50,000 mortgage in favor

of Key Bank of Maine, secured by lots 3 and 4.   A $50,000 home

equity line of credit, i.e., loan, was thereby obtained.     Both

individuals signed as “mortgagor”, and contractual provisions

recited that the mortgagor, inter alia, promised to “lawfully own

the Property”.   Throughout the administrative and judicial

processes pertaining to this case, petitioners have maintained and

explained that Mrs. Dalton signed the mortgage as a concession to

and at the request of the bank, on account of concerns with

respect to Mr. Dalton Sr.’s advanced age.   The funds were

apparently employed by Mr. Dalton Sr. as trustee to assist

Jonathan, his grandson and a trust beneficiary, with the Caribbean

rental business and/or its aftermath.

     There is a house (the residence) on the Poland property which

was initially used as the summer home of Mr. Dalton Sr. and his
                                - 6 -

wife Beatrice Dalton (Mrs. Dalton Sr.) and later became their

retirement home.3   Petitioners and their sons visited Mr. Dalton

Jr.’s parents and the Poland property.    According to petitioners,

the Poland property and attendant mortgages were maintained and

supported before mid-1997 by Mr. Dalton Sr. and by contributions

from family members, including petitioners, and the trust

maintained a separate bank account for such funds.

     During 1996 petitioners’ demolition business in Massachusetts

suffered a reversal.   Mr. Dalton Jr. underestimated the cost of

performing a large job employing a significant number of people.

At the same time, the developer/customer on the project

encountered financial difficulty and defaulted on progress

payments.   Petitioners’ corporation(s) failed to pay withholding

taxes while awaiting payment, using remaining funds in an effort

to keep employees together and complete the job.    The

developer/customer, however, filed for bankruptcy, and

petitioners’ corporations were unable to continue business or to

pay obligations.    Petitioners “lost almost everything” in the

collapse when a third-party lender made a claim on a guaranty by

petitioners of a working capital loan to Challenger Construction

Corp.    The claim was settled through the sale of petitioners’ home




     3
       The record on this point is less than entirely clear, but
for purposes of this motion for summary judgment, facts are
viewed in favor of the nonmoving party. See infra I.A.
                               - 7 -

in Massachusetts, a sale from which all net proceeds were paid to

creditors.

     After losing their home in Massachusetts petitioners began

living in the residence, sharing occupancy with Mr. Dalton Jr.’s

parents.   The joint living arrangement was an oral agreement

requiring petitioners to manage and maintain the Poland property,

pay rent to cover overhead expenses such as mortgage debt service

and property taxes, and pay directly their costs of occupancy.

     On August 11 and September 29, 1997, the Internal Revenue

Service (IRS) recorded assessments against petitioners for trust

fund recovery penalties pursuant to section 6672 with respect to

employment taxes of Challenger Construction Corp. and A & M Crane

Service, Inc., for the June 30 and September 30, 1996, tax

periods, respectively.   Those assessments totaled $262,163.42.

     On September 13, 1999, Mr. Dalton Sr. died.   Petitioners

continued to live in the residence and to care at the residence

for Mrs. Dalton Sr., who suffered from advanced dementia and

Alzheimer’s disease, until she entered an assisted living facility

in 2004.   By a document dated June 8, 2000, Mr. Dalton Jr.

appointed Mrs. Dalton’s brother Robert Pray as successor trustee

of the J & J Trust, and Mr. Pray formally accepted that

appointment.   Mr. Pray resides in Texas.   Mr. Pray continued the

oral living arrangement that petitioners had with the J & J Trust

for the Poland property.
                               - 8 -

Administrative Proceedings

     Meanwhile, on or about December 9, 1999, petitioners

submitted to the IRS an offer-in-compromise of $5,000 with respect

to, inter alia, the trust fund recovery penalties referenced

above.   That offer was under consideration until rejected by

letter dated August 30, 2001, on the principal ground that an

acceptable offer would need to include an alter ego interest in

the property of the J & J Trust, for a total offer of at least

$240,576.   Throughout the process, petitioners sought to supply

information and documentation regarding income, expenses, serious

health conditions, and lack of employability, and they disputed

IRS conclusions with regard to the J & J Trust.

     By early to mid-2001, Mr. Dalton Jr. and Mr. Pray had become

aware that the J & J Trust had not since its formation filed

Federal income tax returns.   At that time they met with

petitioners’ certified public accountant, Thomas B. Anthony, to

raise the issue of the J & J Trust’s tax returns.   After looking

into the matter, Mr. Anthony prepared Forms 1041, U.S. Income Tax

Return for Estates and Trusts, for the J & J Trust for taxable

years 1997 through 2000, a practice that has continued for

succeeding years.   The returns were filed during or around October

of 2001, reporting the rental income from petitioners and various

trust expenses.
                                 - 9 -

     By letter dated October 1, 2001, petitioners submitted a

formal protest of the August 30, 2001, denial of their offer-in-

compromise, requesting reconsideration by the IRS Office of

Appeals.   The requested review commenced, and ongoing

communications ensued, including an Appeals hearing on October 23,

2002, with respect to the substance of petitioners’ claims.

However, in a letter dated March 6, 2003, the IRS Office of

Appeals provided written notice that petitioners’ offer-in-

compromise matter had to be closed.      The letter explained that

review of administrative files had revealed that petitioners’

protest requesting an Appeals hearing had not been filed timely.

The matter was effectively dismissed, thereby allowing further

collection activity, as appropriate.

     On July 2 and 6, 2004, the IRS issued separately to each

petitioner a Final Notice of Intent To Levy and Notice of Your

Right to a Hearing pertaining to the previously assessed trust

fund recovery penalties and accrued interest.      The balance due at

that time exceeded $400,000.   In response petitioners submitted a

Form 12153, Request for a Collection Due Process Hearing,

expressing their disagreement.    An extensive attachment chronicled

the history of petitioners’ personal circumstances and tax

matters, summarizing their present situation as follows:

     Since 1996, the taxpayers have been in contact with the
     IRS regarding the satisfaction of this obligation.
     Mr. Dalton is in his mid 60's. He is totally disabled
     as a result of workplace injuries suffered over time and
                              - 10 -

     resulting arthritis. Mr. Dalton has suffered cardiac
     problems and has undergone open chest by-pass surgery.
     Mr. Dalton has limited employment options and has been
     unable to work since 2000. Mrs. Dalton is in her mid-
     60's. Until recently, Mrs. Dalton has been the
     caretaker for Mr. Daltons [sic] elderly mother who
     suffers from senile dementia and other health problems.
     Mrs. Dalton has been and remains unemployable. The
     Daltons have not made enough money in any year since
     1999 to require the filing of federal tax returns.
     There is no possibility that they will ever be able to
     pay the accumulated tax obligation.

     The IRS Office of Appeals collection hearing process was

conducted through an ongoing exchange of correspondence and

telephone calls extending until late September of 2006.

Petitioners’ objective throughout the process was to establish

their entitlement to an offer-in-compromise premised on their

circumstances of financial hardship.   The proceeding centered on

whether the Poland property held by the J & J Trust should be

attributed to petitioners under a nominee theory, as the

financial information and documentation petitioners supplied

reflected their otherwise very limited resources.   During the

process, an advisory opinion was sought and obtained from the IRS

Office of Chief Counsel on the applicability of alter ego or

nominee principles to petitioners’ situation.   That opinion

considered various factors derived from Federal caselaw and

concluded that a nominee relationship did exist between

petitioners and the J & J Trust.   The document also included a

paragraph opining that a reachable interest in trust real estate

could be asserted against petitioners under a lien tracing theory,
                                 - 11 -

on the basis of their use of funds for mortgage payments, taxes,

and other property expenses.

     During consideration of their case petitioners suggested the

filing of a $10,000 offer-in-compromise, on the basis of the

amount that they believed they could borrow from their sons.       No

such offer was submitted, however, after Appeals personnel advised

that because the amount would not be acceptable, filing on the

basis of that amount would be “futile”, given the trust interest.

     On October 24, 2006, the IRS Office of Appeals issued to each

petitioner the separate Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 underlying

this proceeding.     In those notices the IRS sustained levy action

on the ground that no acceptable collection alternatives had been

submitted.   Attachments to the notices focused on, and explained

the determinations in terms of, the need for any collection

alternative to incorporate equity in real estate held by a trust

with respect to which petitioners stood in a nominee relationship.

No mention was made of the lien tracing theory.

                               Discussion

I.   General Rules

      A.   Summary Judgment

      Rule 121(a) allows a party to move “for a summary

adjudication in the moving party’s favor upon all or any part of

the legal issues in controversy.”     Rule 121(b) directs that a
                                   - 12 -

decision on such a motion shall be rendered “if the pleadings,

answers to interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law.”

     The moving party bears the burden of demonstrating that no

genuine issue of material fact exists and that the moving party is

entitled to judgment as a matter of law.       Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965

(7th Cir. 1994).   Facts are viewed in the light most favorable to

the nonmoving party.    Id.     However, where a motion for summary

judgment properly has been made and supported, the opposing party

may not rest upon mere allegations or denials contained in that

party’s pleadings but must by affidavits or otherwise set forth

specific facts showing that there is a genuine issue for trial.

Rule 121(d).

     B.    Collection Actions

     As a general rule, section 6331(a) authorizes the

Commissioner to levy upon all property and rights to property of a

person where there exists a failure on the part of such person to

pay any tax liability within 10 days after notice and demand for

payment.    Sections 6331(d) and 6330 set forth procedures generally

applicable to afford protections for persons in such levy

situations.    Section 6331(d) establishes the requirement that the
                               - 13 -

person be provided with at least 30 days’ prior written notice of

the Commissioner’s intent to levy before collection may proceed.

Section 6330(a) forbids collection by levy until the person has

received notice of the opportunity for administrative review of

the matter in the form of a hearing before the IRS Office of

Appeals.   Section 6330(b) grants a person who makes such a request

the right to a fair hearing before an impartial Appeals officer.

     Section 6330(c) addresses the matters to be considered at the

hearing:

          SEC. 6330(c). Matters Considered at Hearing.--In
     the case of any hearing conducted under this section--

                (1) Requirement of investigation.--The appeals
           officer shall at the hearing obtain verification
           from the Secretary that the requirements of any
           applicable law or administrative procedure have
           been met.

                (2) Issues at hearing.--

                     (A) In general.--The person may raise at
                the hearing any relevant issue relating to the
                unpaid tax or the proposed levy, including--

                          (i) appropriate spousal defenses;

                          (ii) challenges to the
                     appropriateness of collection actions;
                     and

                          (iii) offers of collection
                     alternatives, which may include the
                     posting of a bond, the substitution of
                     other assets, an installment agreement,
                     or an offer-in-compromise.

                     (B) Underlying liability.--The person may
                also raise at the hearing challenges to the
                existence or amount of the underlying tax
                                 - 14 -

                liability for any tax period if the person did
                not receive any statutory notice of deficiency
                for such tax liability or did not otherwise
                have an opportunity to dispute such tax
                liability.

     Once the Appeals officer has issued a determination regarding

the disputed collection action, section 6330(d) allows the person

to seek review in the Tax Court.4    In considering any relief from

the Commissioner’s determination to which the person may be

entitled, this Court has established the following standard of

review:

     where the validity of the underlying tax liability is
     properly at issue, the Court will review the matter on a
     de novo basis. However, where the validity of the
     underlying tax liability is not properly at issue, the
     Court will review the Commissioner’s administrative
     determination for abuse of discretion. [Sego v.
     Commissioner, 114 T.C. 604, 610 (2000).]

     C.   Offers-in-Compromise

     Section 7122(a), as pertinent here, authorizes the

Commissioner to compromise any civil case arising under the

internal revenue laws.   Regulations promulgated under section 7122

set forth three grounds for compromise of a liability:    (1) Doubt

as to liability, (2) doubt as to collectibility, or (3) promotion

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

Admin. Regs.   With respect to the third-listed ground, a


     4
       The Pension Protection Act of 2006, Pub. L. 109-280, sec.
855, 120 Stat. 1019, amended sec. 6330(d)(1) to provide that for
determinations made after Oct. 16, 2006, the Tax Court has
jurisdiction to review the Commissioner’s collection activity
regardless of the type of underlying tax involved.
                                - 15 -

compromise may be entered to promote effective tax administration

where:    (1)(a) Collection of the full liability would cause

economic hardship; or (b) exceptional circumstances exist such

that collection of the full liability would undermine public

confidence that the tax laws are being administered in a

fair and equitable manner; and (2) compromise will not undermine

compliance by taxpayers with the tax laws.    Sec. 301.7122-1(b)(3),

Proced. & Admin. Regs.

     D.   Nominee Principles

     As noted above, section 6331(a) generally authorizes

collection of tax by levy against “all property and rights to

property” belonging to a person liable for the tax or on which

there is a lien for the payment of such tax.   It is well settled

that the foregoing provision “‘is broad and reveals on its face

that Congress meant to reach every interest in property that a

taxpayer might have.’”    Drye v. United States, 528 U.S. 49, 56

(1999) (quoting United States v. Natl. Bank of Commerce, 472 U.S.

713, 719-720 (1985)).    Such a lien or levy reaches, inter alia, to

property held by a third party if that third party is holding the

property as a nominee or alter ego of the delinquent person.

G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-351 (1977);

Holman v. United States, 505 F.3d 1060, 1065 (10th Cir. 2007);

Spotts v. United States, 429 F.3d 248, 251 (6th Cir. 2005).
                               - 16 -

     However, because the Federal levy statute “‘creates no

property rights but merely attaches consequences, federally

defined, to rights created under state law’”, applicability of

nominee principles to support levy turns on a two-part inquiry.

United States v. Natl. Bank of Commerce, supra at 722 (quoting

United States v. Bess, 357 U.S. 51, 55 (1958)); see also Drye v.

United States, supra at 58 (“We look initially to state law to

determine what rights the * * * [person] has in the property the

Government seeks to reach, then to federal law to determine

whether the taxpayer’s state-delineated rights qualify as

‘property’ or ‘rights to property’ within the compass of the

federal tax lien legislation.”); Holman v. Commissioner, supra at

1067; Spotts v. United States, supra at 251.

     The first question is whether under State law the person held

an interest or rights in the property sought to be reached.

Holman v. Commissioner, supra at 1067-1068; Spotts v. United

States, supra at 251; May v. A Parcel of Land, 458 F. Supp. 2d

1324, 1334-1335 (S.D. Ala. 2006), affd. sub nom. May v. United

States, 100 AFTR 2d 2007-6602, 2007-2 USTC par. 50,799 (11th Cir.

2007); United States v. Krause, 386 Bankr. 785, 831 (Bankr. D.

Kan. 2008).   Upon an affirmative answer, the evaluation proceeds

to the second question of whether the IRS may reach the interest

under Federal nominee principles.   Holman v. Commissioner, supra
                               - 17 -

at 1067-1068; Spotts v. United States, supra at 251; May v. A

Parcel of Land, supra at 1334-1335; United States v. Krause, supra

at 831.

     For purposes of the second inquiry, a relatively well-defined

body of Federal common law has evolved.   Case

jurisprudence has established a series of factors considered in

determining whether an existing beneficial interest in property is

reachable to satisfy Federal tax liabilities under the theory that

the property is held by a nominee of the delinquent

taxpayer.   Commonly cited criteria include:   (1) Whether no

consideration or inadequate consideration was paid by the nominee

for the property and/or whether the taxpayer expended personal

funds for the nominee’s acquisition; (2) whether property was

placed in the nominee’s name in anticipation of a suit or the

occurrence of liabilities; (3) whether a close personal or family

relationship existed between the taxpayer and the nominee; (4)

whether the conveyance of the property was recorded; (5) whether

the taxpayer retained possession of, continued to enjoy the

benefits of, and/or otherwise treated as his or her own the

transferred property; (6) whether the taxpayer after the transfer

paid costs related to maintenance of the property (such as

insurance, tax, or mortgage payments); (7) whether, in the case of

a trust, there were sufficient internal controls in place with

respect to the management of the trust; and (8) whether, in the
                                 - 18 -

case of a trust, trust assets were used to pay the taxpayer’s

personal expenses.    E.g., Holman v. Commissioner, supra at 1065

n.1; Spotts v. United States, supra at 253 n.2; Loving Saviour

Church v. United States, 728 F.2d 1085, 1086 (8th Cir. 1984);

May v. A Parcel of Land, supra at 1338; United States v. Dawes,

344 F. Supp. 2d 715, 721 (D. Kan. 2004), affd. 161 Fed. Appx. 742

(10th Cir. 2005); United States v. Krause, supra at 831.      In

examining the delineated factors, the overarching issue is

whether and to what degree the person generally exercises control

over the nominee and assets held thereby.     E.g., May v. A Parcel

of Land, supra at 1338 (and cases cited thereat).     As phrased in

one recent case:     “The ultimate inquiry is whether the * * *

[person] has engaged in a legal fiction by placing legal title to

property in the hands of a third party while actually retaining

some or all of the benefits of true ownership.”     Holman v. United

States, supra at 1065.

     With respect to the first inquiry, i.e., the State law

question, recent cases have clarified the centrality of finding a

State law interest as a condition precedent.     Holman v.

Commissioner, supra at 1067, 1070 (vacating and remanding a case

seeking to enforce a nominee tax lien for the IRS first to

establish that the person held a beneficial interest in the

property under State law); Spotts v. United States, supra at 251,

253-254 (vacating and remanding a grant of summary judgment for
                               - 19 -

the IRS in a case seeking removal of a nominee lien because the

lower court did not first consider whether the person had a

beneficial interest under State law); May v. A Parcel of Land,

supra at 1334-1335; United States v. Krause, supra at 831.     In

that connection, various theories have been used to support the

existence of an interest under State law, depending upon the

jurisdiction and particular facts involved.   Examples include

resulting trust doctrines, constructive trust principles,

fraudulent conveyance standards, and concepts drawn from State

jurisprudence on piercing the corporate veil.   See, e.g., Holman

v. Commissioner, supra at 1068 (and cases cited thereat); Spotts

v. United States, supra at 252-253; Criner v. Commissioner, T.C.

Memo. 2003-328; United States v. Evseroff, 92 AFTR 2d 2003-6987

(E.D.N.Y. 2003) (and cases cited therein); United States v.

Krause, supra at 831 (and cases cited thereat).

II.   Analysis

      Petitioners have not at any time throughout the

administrative or judicial proceedings attempted to challenge

their underlying tax liabilities; i.e., the trust fund recovery

penalties.   Accordingly, we decide respondent’s motion for summary

judgment on the basis of whether respondent, as the

moving party, has proved that respondent’s Office of Appeals did

not abuse its discretion in determining to proceed with collection
                               - 20 -

and failing to accept petitioners’ offer-in-compromise because it

did not take into account a nominee interest allegedly

held by petitioners.   Action constitutes an abuse of discretion

where the action is arbitrary, capricious, or without sound basis

in fact or law.   Olsen v. United States, 414 F.3d 144, 150 (1st

Cir. 2005); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

Thus, resolution of the instant motion will turn on whether, as a

matter of law, respondent has proved that respondent’s Office of

Appeals did not abuse its discretion in determining that

petitioners held a nominee interest in the J & J Trust and in

determining that the value of the Poland property must be

incorporated in any offer-in-compromise.   Before turning to that

question, however, the Court will briefly address two preliminary

matters raised by the parties’ submissions.

     First, although those submissions are not well developed on

the point, the parties appear to advance conflicting views with

respect to the contours of the proper record for review and which

party is attempting to exceed the bounds of the record.    The basis

for the Court’s ruling below, however, renders it unnecessary to

probe any such claims at this juncture.

     Similarly, in the instant motion, respondent asserts two

alternative grounds for determining that any offer-in-compromise

would need to incorporate the value of the Poland property.

Respondent advances the nominee theory at some length, then
                               - 21 -

briefly resurrects the lien tracing theory.    Nonetheless, the

record of the hearing in respondent’s Office of Appeals, however

construed, would seem to suggest that the alternative lien tracing

theory was not pursued by respondent’s Office of Appeals and did

not form a basis for the discretion exercised in upholding the

collection action.   Entries in respondent’s Office of Appeals case

activity records chronicle the deliberative process transpiring

after receipt of the advisory opinion from the IRS Office of Chief

Counsel and note that after review of the opinion and “independent

review of the facts”, the reviewing officer “would concur that

there is a nominee issue”.   The notes then go on to discuss the

nominee factors and the manner in which the officer’s conclusions

on the nominee issue were communicated to petitioners’

representative.   In stark contrast stands the situation with

respect to the lien tracing theory.     The advisory opinion stated,

concerning the lien tracing approach, that a transferee lien would

exist against the real estate “to the extent of the mortgage

payments and other expenses paid by the Taxpayers.”    Yet the

record is devoid of any indication that respondent’s Office of

Appeals attempted to quantify those payments or the resultant

equity as a basis for deeming $10,000 an insufficient offer, as

well as any meaningful analysis of other legal requirements for

the lien tracing approach.   The notices of determination and

attachments are similarly silent as to any lien tracing theory but
                               - 22 -

state that “thorough, independent analysis of the facts and

circumstances as presented reveals that there is a nominee

relationship that exists and that the equity in said real estate

needs to be considered”, with the discussions following that

statement highlighting the nominee factors.   Consequently, on the

present record, respondent’s Office of Appeals would seem never to

have carried out the requisite analysis that would support

application of lien tracing and may have exercised any discretion

in that connection to decline pursuit of the tracing approach.

Regardless, however, of what transpired administratively, it is

sufficient for the purposes of the instant motion to note that the

facts pertaining to the lien tracing theory have not been

developed to a point where we could grant summary judgment for

respondent in that respect.   Accordingly, we return to our

discussion of the nominee issue.

     In moving for summary judgment respondent argues that the

administrative record “not only completely discloses all of the

factors that * * * [respondent’s Office of Appeals] considered in

making * * * [its] determination but also confirms that * * * [it]

did not omit any relevant factor required to make such

determination.”   Respondent then sets forth the factors derived

from Federal caselaw for evaluating nominee status and summarizes

the findings of respondent’s Office of Appeals with respect to

those criteria.   The underlying record of the hearing at
                                - 23 -

respondent’s Office of Appeals supports that respondent’s

determinations were based on application of the Federal nominee

factors.

       While we do not disagree with respondent’s premise that the

Federal inquiry is a critical component in a nominee analysis, we

are unable to agree with respondent’s determinations because it

appears that respondent failed to make the State law inquiry.

There is no indication in the record that respondent’s Office of

Appeals made any attempt to assess the preliminary requisite that

petitioners have an interest in the Poland property under State

law.    Maine law is nowhere mentioned in the determinations by

respondent’s Appeals officer.

       Hence, we are unable to conclude, on the basis of the instant

record, that respondent’s Office of Appeals committed no

abuse of discretion in determining that petitioners held an

interest in the Maine property reachable by respondent under a

nominee theory.    In general, courts hold that an abuse of

discretion occurs if a decisionmaker’s ruling is based on an

erroneous view of the law.    See, e.g., Cooter & Gell v. Hartmarx

Corp., 496 U.S. 384, 402 (1990); Abrams v. Interco, Inc., 719

F.2d 23, 28 (2d Cir. 1983); Freije v. Commissioner, 125 T.C. 14,

36-37 (2005); Kendricks v. Commissioner, 124 T.C. 69, 75 (2005);

Swanson v. Commissioner, 121 T.C. 111, 119 (2003).    As previously

observed by this Court in the section 6330 context:    “Whether
                                 - 24 -

characterized as a review for abuse of discretion or as a

consideration ‘de novo’ (of a question of law), we must reject

erroneous views of the law.”     Kendricks v. Commissioner, supra

at 75.

     With respect to the instant motion, the record fails to

establish that respondent’s Office of Appeals applied or even

considered the correct standard in evaluating petitioners’

interest in the Maine property.    We are unable to conclude, on the

basis of the instant record, whether respondent made the requisite

State law inquiry in order to reach respondent’s determinations

that petitioners held a nominee interest in the Poland property.

     On the basis of the foregoing, respondent’s motion for

summary judgment will be denied.    We will remand the instant case

to respondent’s Office of Appeals in order for that office to

create a proper record as to whether asserting an interest in the

Poland property is proper, taking into account both a State law

inquiry and a Federal factors analysis.

     To reflect the foregoing,


                                           An appropriate order

                                      denying respondent’s motion and

                                      remanding the case will be

                                      issued.
