                                 T.C. Memo. 2016-54



                           UNITED STATES TAX COURT



      RICHARD R. REHN AND DEBORAH S. WHEELER, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 4805-11L.                            Filed March 24, 2016.


      Maris Baltins, for petitioners.

      Catherine Lee Campbell, for respondent.



                             MEMORANDUM OPINION


      PUGH, Judge: Petitioners, while residing in Arizona, petitioned the Court

for review of respondent’s two Notices of Determination Concerning Collection

Action(s) Under 6320 and/or 6330,1 sustaining the Notice of Intent to Levy and


      1
          Unless otherwise indicated all section references are the Internal Revenue
                                                                         (continued...)
                                        -2-

[*2] the filing of a Notice of Federal Tax Lien with respect to petitioners’

outstanding Federal income tax liabilities for 2007 and 2008. Currently, this case

is before the Court on respondent’s Motion for Summary Judgment under Rule

121(a), filed August 7, 2014. The Court ordered petitioners to respond to the

motion, and they did so; and a hearing on the motion was held on March 16, 2015.

The issue for decision is whether respondent may proceed with the collection

action identified in the notices of determination.

                                    Background

      The following facts are based on the parties’ pleadings and respondent’s

motion, including the attached affidavits and exhibits. On March 31, 2009,

respondent issued a Notice of Federal Tax Lien Filing and Your Right to a

Hearing Under IRC 6320 (lien notice) to petitioners with respect to their

outstanding 2007 Federal income tax liability. On April 21, 2009, respondent

issued a Final Notice of Intent to Levy and Notice of Your Right to a Hearing

(levy notice) to petitioners with respect to their outstanding 2007 Federal income

tax liability. In response, on May 12, 2009, petitioners mailed to respondent Form

12153, Request for a Collection Due Process or Equivalent Hearing, for the 2007

      1
        (...continued)
Code of 1986, as amended and in effect at all relevant times. Rule references are
to the Tax Court Rules of Practice and Procedure.
                                       -3-

[*3] tax year. In an attachment to Form 12153 petitioners wrote: “[T]he filing of

a [F]ederal tax lien will cause an economic hardship to the taxpayers”.2 On

December 17, 2009, respondent issued a lien notice to petitioners for their 2008

tax year. In response, Mr. Rehn mailed to respondent Form 12153 for that year.

      In letters dated March 9, 2010, Settlement Officer Carleen Powers (SO

Powers) informed Mr. Rehn that the Appeals Office had received his request for

an administrative hearing and scheduled a telephonic equivalent hearing for tax

year 2007 and a telephonic administrative hearing for tax year 2008 for March 30,

2010. On March 9, 2010, SO Powers informed Ms. Wheeler of her telephonic

administrative hearing for tax year 2007 for March 30, 2010.3 The letters stated

that the telephonic hearing would be the primary opportunity to discuss the

collection action. On March 24, 2010, petitioners submitted Form 656, Offer in



      2
        Because petitioners’ hearing request as to the 2007 lien notice was not
timely, they received an equivalent hearing only. Sec. 301.6330-1(c)(2), Q&A-
C7, (i)(1), Proced. & Admin. Regs. We do not have jurisdiction to review
respondent’s decision letter regarding that lien notice, see Severo v.
Commissioner, 129 T.C. 160, 163 (2007), aff’d, 586 F.3d 1213 (9th Cir. 2009),
nor did petitioners seek review in their petition. We discuss it here because the
hearings on the lien notice and the levy notice were combined before Appeals and
therefore the administrative record addresses both.
      3
        On May 3, 2011, respondent filed a Motion to Dismiss for Lack of
Jurisdiction and to Strike as to Deborah S. Wheeler for the 2008 taxable year. On
May 23, 2011, we granted respondent’s motion.
                                        -4-

[*4] Compromise (OIC), with respect to their 2003, 2004, 2007, and 2008

outstanding Federal income tax liabilities, citing as grounds both “Doubt as to

Collectibility” and “Effective Tax Administration”. Petitioners also submitted

Form 433-A, Collection Information Statement for Wage Earners and Self-

Employed Individuals. On Form 433-A, petitioners listed zero income and over

$19,000 in monthly expenses as well as two different addresses for real property

owned, rented, or leased. Petitioners also submitted Form 433-B, Collection

Information Statement for Businesses.

      During the March 30, 2010, telephonic hearing, SO Powers informed

petitioners that they were not current with their estimated tax payments for 2009

and that in the event their 2009 return showed a deficiency, their OIC would be

rejected. SO Powers also informed petitioners that their expenses exceeded the

allowable amounts for vehicle, housing, utilities, and out-of-pocket medical

expenses. SO Powers requested Forms 433-A for both households, stating she

needed to know which children lived with which parent. As to the 2009 tax

liability, petitioners’ counsel stated that no tax would be owed for 2009 and

therefore estimated tax payments were not required.

      The administrative record does not show a response to SO Powers’ request.

Petitioners’ case then was transferred to Settlement Officer Laura Lisanti (SO
                                        -5-

[*5] Lisanti). SO Lisanti’s notes in the case activity report record included her

initial conclusion that expenses for maintenance for two households were not

necessary absent a special circumstance. On August 3, 2010, SO Lisanti left a

voice mail with petitioners’ counsel advising him that petitioners had 10 days to

pay estimated tax for 2009 and 2010 or their OIC would be rejected.

      A December 15, 2010, letter from SO Lisanti informed petitioners that the

Appeals Office had received their request for an administrative hearing and

scheduled a telephonic hearing for the 2007 levy and the 2008 lien notice for

January 11, 2011. The letter also requested Form 433-A from petitioners along

with recent Federal income tax returns and proof of estimated tax payments for

2010. A second “demand” letter with that same date also indicated that petitioners

had an outstanding 2009 Federal income tax liability and were not current with

their 2010 estimated Federal income tax payments, which caused respondent to

reject petitioners’ OIC. SO Lisanti advised petitioners that the Appeals Office

would sustain the rejection of the OIC unless petitioners made payments to bring

themselves into compliance with respect to their 2009 income tax liability and

2010 estimated tax liability (totaling $30,456.16) by December 31, 2010.

      By voice mail December 31, 2010, and followup letter and telephone

conversation on January 3, 2011, petitioners’ counsel asked SO Lisanti to transfer
                                        -6-

[*6] the case to Seattle, Washington, for a face-to-face hearing. SO Lisanti

discussed the request with her supervisor, and her supervisor recommended

against transfer because it appeared to be more for the convenience of petitioners’

counsel than for petitioners. Petitioners did not provide any other written response

to the December 15, 2010, letters.

      In the second telephonic administrative hearing ultimately held on January

13, 2011, SO Lisanti informed petitioners’ counsel that petitioners were behind in

their estimated tax payments and did not qualify for a face-to-face hearing. She

asked whether petitioners had any issues to discuss other than their request for a

transfer and a face-to-face hearing, and petitioners’ counsel said they did not.

      On January 26, 2011, the determination notices sustaining the disputed

collection actions were issued. On November 27, 2012, the Court remanded the

case to clarify what constituted the administrative record. On March 26, 2013,

respondent issued a Supplemental Notice of Determination Concerning Collection

Action(s) Under 6320 and/or 6330, after a hearing with petitioners’ counsel on

March 12, 2013, on the administrative record. The parties agreed at the hearing

before the Court on March 16, 2015, that the administrative record before us is the

complete record.
                                         -7-

[*7]                                 Discussion

I. Summary Judgment

       Where the material facts are not in dispute, a party may move for summary

judgment to expedite the litigation and avoid an unnecessary (and potentially

expensive) trial. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).

Summary judgment may be granted where there is no genuine dispute of material

fact, and a decision may be rendered as a matter of law. Rule 121(a) and (b); see

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965

(7th Cir. 1994).

       We have reviewed respondent’s motion and the documents submitted in

support, and we have considered petitioners’ response and the arguments of the

parties at the March 16, 2015, hearing. While petitioners vigorously sought a trial,

they agreed at the hearing that our review is limited to the administrative record.

See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g T.C. Memo.

2006-166, and aff’g and vacating decisions in related cases. They also agreed that

the administrative record before us is complete and did not identify any material

factual disputes about the administrative record for trial.4 We are satisfied,

       4
         Petitioners sought, alternatively, to cross-examine the settlement officers
or to strike portions of the administrative record relating to the actions of the
                                                                         (continued...)
                                         -8-

[*8] therefore, that we may decide this case on summary judgment and that for the

reasons summarized below, respondent is entitled to a decision as a matter of law

with respect to the collection actions here.




      4
        (...continued)
settlement officers. Because Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir.
2009), aff’g T.C. Memo. 2006-166, and aff’g and vacating decisions in related
cases, limits our review to the administrative record generally, we sought to clarify
petitioners’ position at the March 16, 2015, hearing. Petitioners argued that cross-
examination was necessary to illustrate that the settlement officers did not
consider petitioners’ economic hardship and without that the administrative record
would be misleading. But petitioners also claimed that everything they submitted
on economic hardship was included in the administrative record, and a careful
review would show that the settlement officers did not consider that information.
       We are bound by the administrative record, and petitioners have not claimed
that there are misstatements (save an immaterial one about whether counsel asked
for or demanded a transfer of the case). Therefore, we are not convinced that the
testimony would be relevant or appropriate here, and we also do not believe it
would be appropriate to strike portions of the administrative record. Indeed, as we
explained at the hearing, petitioners’ argument is that the administrative record
will show that their economic hardship was not considered. Therefore we will
deny petitioners’ Motion to Compel Respondent to Disclose Address, filed
February 27, 2015, and petitioners’ Motion to Strike, filed March 6, 2015. Our
findings on what the administrative record shows about what was submitted and
what was done with the submitted information appear below.
       Finally, as to petitioners’ Motion in Limine, filed March 6, 2015, to exclude
the transcripts for years after the ones involved in the notice of determination
(namely the transcripts for petitioners’ 2010, 2011, 2012, and 2013 tax years), we
agree those should be excluded, as they include information not part of the
administrative record, and therefore will grant petitioners’ motion.
                                        -9-

[*9] II. Analysis

      Where (as here) there is no dispute as to the taxpayer’s underlying

liabilities, we review the Appeals Office’s determination for abuse of discretion.

Goza v. Commissioner, 114 T.C. 176, 182 (2000); see also Sego v. Commissioner,

114 T.C. 604, 609-610 (2000). An abuse of discretion exists when a

determination is 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). A decision on the basis of an erroneous view of the law or a clearly

erroneous assessment of facts would constitute an abuse of discretion. Keller v.

Commissioner, 568 F.3d at 716.

      A. Failure To Be Current

      According to petitioners, at the time the OIC was submitted there was no

indication that they were not in compliance with their Federal income tax

obligations and, therefore, sustaining the rejection of the OIC was an abuse of

discretion. It is not an abuse of discretion for an Appeals Office to consider a

taxpayer ineligible for an OIC because of failure to be current on estimated tax

payments. Secs. 301.6320-1(d)(2), Q&A-D8, 301.6330-1(d)(2), Q&A-D8,

Proced. & Admin. Regs. (“[T]he IRS [Internal Revenue Service] does not consider

offers to compromise from taxpayers who have not filed required returns or have
                                        - 10 -

[*10] not made certain required deposits of tax[.]”); see Giamelli v.

Commissioner, 129 T.C. 107, 111-112 (2007) (holding that reliance on a failure to

pay current taxes in rejecting a collection alternative does not constitute an abuse

of discretion); Friedman v. Commissioner, T.C. Memo. 2013-44, at *8 (holding

that the settlement officer did not abuse his discretion by refusing the taxpayers’

collection alternative when they failed to make their estimated tax payments).

      There is no dispute that at the time that petitioners’ OIC was rejected, they

had an outstanding 2009 Federal income tax liability and were not current with

their 2010 estimated Federal income tax payments. The administrative record

establishes that petitioners were informed multiple times before their offer was

rejected that they needed to be in compliance and later that they were not current

with their 2009 and 2010 tax obligations.

      The fact that petitioners might have been in compliance at the time they

filed their OIC (in that their Federal income tax return for 2009 was not yet due,

and they claimed at the time that no tax would be due for 2009 so no estimated tax

payments were required) has no bearing on our determination of whether rejection

of their OIC was an abuse of discretion, because they did not remain in

compliance and had not come back into compliance at the time of Appeals’

consideration and ultimate rejection of their collection alternative. Our opinions
                                        - 11 -

[*11] have consistently held that rejecting a collection alternative is not an abuse

of discretion if the taxpayer is not in compliance at the time of Appeals

consideration. See, e.g., Scharringhausen v. Commissioner, T.C. Memo. 2008-26

(holding that rejecting a taxpayer’s OIC was not an abuse of discretion when he

was not current with his tax payments). As was explained in Orum v.

Commissioner, 412 F.3d 819, 821 (7th Cir. 2005), aff’g 123 T.C. 1 (2004):

             It would not do the Treasury any good if taxpayers used the
      money owed for 2004 to pay taxes due for 1998, the money owed for
      2005 to pay taxes for 1999, and so on. That would spawn more
      collection cycles yet leave a substantial unpaid balance. The
      Service’s * * * [IRS] goal is to reduce and ultimately eliminate the
      entire tax debt, which can be done only if current taxes are paid while
      old tax debts are retired. * * *

      Indeed, as the record before us demonstrates, a failure to be in compliance

before Appeals consideration is not fatal; the IRS gives a taxpayer an opportunity

to come into compliance (and sometimes, as here, more than one opportunity)

before rejecting a collection alternative for noncompliance. Petitioners seem to

object that the settlement officer rejected their offer because they were not in

compliance, but they were warned repeatedly of the consequences. Therefore, we

conclude that the settlement officer did not abuse her discretion in sustaining the

collection actions on the basis of petitioners’ failure to be in compliance with their

tax obligations.
                                        - 12 -

[*12] B. Face-to-Face Hearing

      Petitioners also argue that the settlement officer abused her discretion by not

granting petitioners’ request for a face-to-face hearing. A face-to-face hearing is

not a requirement under section 6330. See Katz v. Commissioner, 115 T.C. 329,

337-338 (2000) (holding that a hearing by telephone or by correspondence is

sufficient to satisfy the requirements under section 6330); secs. 301.6320-1(d)(2),

Q&A-D6, Q&A-D7, 301.6330-1(d)(2), Q&A-D6, Q&A-D7, Proced. & Admin.

Regs. We also have held that a taxpayer must provide required returns or make

required deposits of tax to be eligible for a face-to-face hearing. See Campbell v.

Commissioner, T.C. Memo. 2013-57, at *17 (holding that it is not an abuse of

discretion for a settlement officer to deny a taxpayer’s request for a face-to-face

hearing when a taxpayer fails to supply proof of estimated tax payments); see also

sec. 301.6330-1(d)(2), Q&A-D8, Proced. & Admin. Regs. Petitioners were not

current with their tax payments, and therefore the settlement officer did not abuse

her discretion in denying a face-to-face hearing.

      C. Economic Hardship

      Petitioners also assert that the settlement officer ignored their claim of

economic hardship and that this constitutes an abuse of discretion. Section

6343(a)(1)(D) directs the Commissioner to release a levy upon all, or part of, a
                                        - 13 -

[*13] taxpayer’s property if he determines that a levy would cause economic

hardship to the taxpayer. A levy causes economic hardship when the taxpayer

would be unable to pay reasonable basic living expenses. Sec. 301.6343-

1(b)(4)(i), Proced. & Admin. Regs. When reviewing a claim of economic

hardship, the settlement officer considers relevant circumstances such as the

taxpayer’s age, ability to earn an income, number of dependents, and status as a

dependent. Id. subdiv. (ii)(A). Reasonable basic living expenses are based on the

taxpayer’s circumstances but do not include amounts needed to maintain a

luxurious standard of living. Id. subdiv. (i). For the settlement officer to consider

economic hardship taxpayers cannot just claim they would suffer economic

hardship; taxpayers must submit complete and current financial information. See

Picchiottino v. Commissioner, T.C. Memo. 2004-231, 2004 WL 2284376, at *5,

*6.

       At the hearing before the Court on March 16, 2015, petitioners stated that

respondent “didn’t want to talk about * * * [economic hardship].” Petitioners also

stated that during the telephonic hearings they “asked respondent to consider all

the documents submitted” and that petitioners “discussed economic hardship * * *

all along.”
                                        - 14 -

[*14] The administrative record shows petitioners claimed economic hardship in

their written correspondence. In an attachment to Form 12153, petitioners state:

“[T]he filing of a Federal tax lien will cause an economic hardship to the

taxpayers, destroying their ability to continue operation of their business which in

turn will result in these taxpayers being unable to pay their reasonable basic living

expenses”. Petitioners also submitted Forms 433-A and 433-B and a number of

financial documents in support.

      The administrative record also shows that neither SO Powers nor SO Lisanti

ignored the financial information petitioners submitted. On March 30, 2010, SO

Powers informed petitioners during the telephonic hearing that their expenses

exceeded the allowable amounts for vehicle, housing, utilities, and out-of-pocket

medical expenses and requested Form 433-A for petitioners’ two households,

stating that she needed to know which children lived with which parent. The

forms were not submitted. At an administrative hearing a taxpayer is expected to

provide relevant information required by the Appeals Office for its consideration

of the facts and issues involved in the hearing. Sec. 301.6330-1(e)(1), Proced. &

Admin. Regs.

      The administrative record also shows that SO Lisanti noted that expenses

for the maintenance of two households were not necessary expenses absent a
                                        - 15 -

[*15] special circumstance. Her December 15, 2010, letter regarding the January

2011 administrative hearing also requested Form 433-A from petitioners. As of

January 11, 2011, petitioners had failed to submit a new Form 433-A or other

documentation responding to the questions raised regarding the level of expenses

for the two households. Finally, the case activity report notes that SO Lisanti

asked petitioners’ counsel in their last January 13, 2011, telephonic conference

whether there were any issues other than the request that petitioners be granted a

face-to-face hearing in Seattle, Washington. He indicated there were not.

      We therefore conclude that petitioners put forward financial information

regarding economic hardship and that the settlement officers reviewed the

available financial information. Petitioners disagree with the decision reached by

the settlement officers and seem frustrated that the settlement officers sought more

information and that they would not agree to another hearing, this time face to face

in a different city, in which petitioners apparently planned to discuss their

economic hardship. But we cannot conclude that the request for additional

information was an abuse of discretion. We do not conduct an independent review

and substitute our judgment for that of the settlement officer. Murphy v.

Commissioner, 125 T.C. at 320. While petitioners claim they were not given a

chance to discuss economic hardship, the record shows that they had two
                                        - 16 -

[*16] telephonic hearings and were afforded opportunities to submit additional

information. We accept petitioners’ response that the settlement officer would not

discuss economic hardship in the final conversation with petitioners’ counsel, but

that petitioners’ failure to provide additional requested financial information,

including, for example, an explanation for the large amounts of their household

expenses, meant that the settlement officer could not determine whether their

living expenses were reasonable. See sec. 301.6343-1(b)(4), Proced. & Admin.

Regs. Although the notice of determination does not address economic hardship

(citing instead failure to provide updated financial information), we cannot

conclude on this record that the decision to uphold the proposed collection actions

was based on an erroneous view of the law or a clearly erroneous assessment of

facts under Keller v. Commissioner, 568 F.3d at 716.

      D. Meaningful Administrative Hearing

      Petitioners argue that they did not receive a “meaningful * * *

[administrative] hearing”. In determining whether a settlement officer abused her

discretion the Court considers whether the taxpayer’s concerns have been properly

addressed in an administrative hearing. Lewis v. Commissioner, T.C. Memo.

2012-138, 2012 WL 1727625. For example, in Lewis, the taxpayer requested a

face-to-face administrative hearing in response to a levy notice because of the
                                        - 17 -

[*17] complex nature of his case. After submitting his financial documents, the

taxpayer was assigned a nearby settlement officer for a face-to-face hearing. Id.,

2012 WL 1727625, at *2. The settlement officer did not afford the taxpayer even

a telephonic hearing but rather had one 10.5-minute telephone conversation to

discuss the taxpayer’s request for a face-to-face hearing, during which the officer

requested more documents. Id. The taxpayer testified that he mailed an

assortment of financial documents to the settlement officer. Id. at *3. The

settlement officer never received them and never followed up. Id. After 103 days,

the settlement officer still had not received the additional documents. He issued a

notice of determination sustaining the proposed levy based solely on the

taxpayer’s failure to provide the requested information. Id. The Court recognized

that each individual defect standing alone might be insufficient to find an abuse of

discretion, but that “the cumulative effect of such defects demonstrate[d] that * * *

[the settlement officer] acted both arbitrarily and capriciously in rendering his

determination.” Id. at *5.

      The facts before us are not similar to the facts in Lewis. SO Powell

indicated that the telephonic conferences constituted the administrative hearing.

Letters dated March 9 and December 15, 2010, stated that the scheduled

telephonic conferences were petitioners’ primary opportunities to discuss the
                                       - 18 -

[*18] collection action. Petitioners’ original telephonic administrative hearing

took place on March 30, 2010, with an additional telephonic hearing on January

13, 2011. In both hearings petitioners were represented by counsel. As we

discuss above, the administrative record shows that the settlement officers

considered financial information petitioners submitted and requested more

information that petitioners did not provide.

      Petitioners argue that they wanted a face-to-face hearing in Seattle,

Washington, to accommodate them. The administrative record shows that SO

Lisanti discussed with her supervisor transferring the case to Seattle, Washington.

The supervisor advised SO Lisanti to decline the transfer because it appeared to be

more for the convenience of petitioners’ counsel than of petitioners. SO Lisanti

informed petitioners that a transfer to Seattle would be declined because they did

not qualify for the collection alternative they were seeking. SO Lisanti also asked

petitioners’ counsel whether he wished to discuss issues other than the request for

a face-to-face hearing, but he did not. Petitioners also were advised repeatedly of

the consequence of failure to be in compliance with current tax obligations. On

the record before us, we cannot conclude that the settlement officer abused her

discretion and denied petitioners a meaningful hearing.
                                        - 19 -

[*19] Finally we note that at the March 16, 2015, hearing on respondent’s Motion

for Summary Judgment counsel for petitioners indicated that their financial

condition had improved and sought to negotiate a resolution. While we sustain

respondent’s notice of determination, petitioners are still free to negotiate a

resolution with respondent that may not be subject to judicial review as to the

years before us.

      We also have considered petitioners’ argument that respondent’s motion

was barred by our prior order denying summary judgment. Petitioners incorrectly

read a denial of a motion “not appropriate at this time” to be a denial for all time.

We do not believe the phrase “not appropriate at this time” can be so construed

and in any event will grant respondent’s motion for the reasons stated above. We

have considered all arguments made in reaching our decision and, to the extent not

discussed above, we conclude that they are moot, irrelevant, or without merit.

                                     Conclusion

      On the basis of our review of the administrative record and notice of

determination, the Court concludes that the settlement officers satisfied the

verification requirements of section 6330, that there is no genuine dispute as to

any material fact, and that a decision may be rendered as a matter of law.
                                    - 20 -

[*20]   To reflect the foregoing,


                                                   An order and decision will be

                                             entered for respondent.
