                                T.C. Memo. 2012-100



                          UNITED STATES TAX COURT



            B.M. VANMALI AND BHARI VANMALI, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 4235-09L.                           Filed April 9, 2012.



      Harris Hastings Barnes III, for petitioners.

      John F. Driscoll and John W. Sheffield III, for respondent.



                            MEMORANDUM OPINION


      THORNTON, Judge: This matter is before the Court on respondent’s

motion for summary judgment, filed pursuant to Rule 121.1 The issue for decision

      1
       Unless otherwise indicated, all Rule references are to the Tax Court Rules
of Practice and Procedure, and all section references are to the Internal Revenue
                                                                          (continued...)
                                         -2-

is whether respondent abused his discretion in sustaining a proposed levy to collect

petitioners’ unpaid Federal income taxes for 1993 through 1996. As discussed

below, we shall grant respondent’s motion.

                                     Background

      On June 14, 2004, respondent assessed petitioners’ Federal income tax

liabilities for taxable years 1993 through 1996.2 On July 30, 2007, respondent sent

petitioners a Final Notice--Notice Of Intent To Levy And Notice Of Your Right To

A Hearing for unpaid tax liabilities totaling $599,687 for taxable years 1993 through

1996. In response, petitioners submitted a timely Form 12153, Request for a

Collection Due Process or Equivalent Hearing. The Form 12153 indicated that

petitioners wished to pursue a collection alternative, checking the box for “Offer in

Compromise”.

      On January 11, 2008, petitioners submitted a Form 656, Offer in

Compromise, indicating that they wished to pursue an offer-in-compromise due to




      1
      (...continued)
Code. All monetary amounts have been rounded to the nearest dollar.
      2
        Although the record is inconclusive on this point, it appears that petitioners
filed Federal income tax returns for the years at issue but underpaid the taxes
reported thereon and that respondent subsequently determined a deficiency for each
year at issue.
                                         -3-

doubt as to collectibility.3 Petitioners offered to pay $295,805 in 60 monthly

payments of $4,930 each. In arriving at the amount of their offer, they calculated

their average monthly income to be $8,746.4

      On November 18, 2008, respondent’s settlement officer held a hearing with

petitioners’ representative. According to the settlement officer’s case activity

record, he informed the representative that he had calculated petitioners’ average

monthly income to be $17,105, rather than $8,746, as indicated in the attachment to

their Form 656. The difference between these two amounts was due largely to

differing assumptions about petitioners’ available income from several S

corporations in which they held interests.5 Petitioners’ calculation included a

three-year average of distributions they had actually received from the S

      3
        On the Form 656 petitioners proposed to compromise their individual income
tax liabilities for tax years 1993 through 1996, as well as outstanding liabilities from
Forms 945, Annual Return of Withheld Federal Income Tax, for Vanmali
Construction Co. for tax years 1994 and 1995.
      4
        A spreadsheet attached to the Form 656 detailed petitioners’ calculation of
their offer amount. It indicated that petitioners had $8,746 in monthly income and
$8,672 in monthly necessary living expenses; the $74 difference between income
and expenses was then multiplied by 48 months to arrive at a future income value of
$3,552. This number was added to petitioners’ reported $292,253 of equity in their
assets to arrive at their offer of $295,805.
      5
        According to Forms 1120S, U.S. Income Tax Return for an S Corporation,
filed for tax year 2006, petitioners wholly owned one S corporation, BMV, Inc., and
held partial ownership interests in seven other S corporations.
                                          -4-

corporations. By contrast, the settlement officer’s calculation included petitioners’

pro rata share of income from the S corporations as reported on their 2006 and 2007

Federal income tax returns, without regard to whether they actually received this

income. The settlement officer also determined petitioners’ allowable monthly

living expenses to be $6,729, rather than the $8,672 that they had indicated. As a

result, according to his case activity record, the settlement officer advised

petitioners’ representative that he had calculated their reasonable collection

potential (RCP) to be “in excess of $1.3 million”.6

      On November 25, 2008, petitioners’ representative and the settlement

officer had a followup conference. According to his case activity record, the

settlement officer acknowledged the disagreement about the proper treatment of

petitioners’ S corporation income but indicated that irrespective of this issue he

believed their offer-in-compromise was inadequate because it failed to reflect the

current value of their interests in various S corporations. The settlement officer



      6
        Although the case activity record is unclear on this point, the settlement
officer appears to have arrived at this conclusion by multiplying the $10,376
difference between his calculation of petitioners’ average monthly income and
allowable monthly living expenses by the 112 months remaining in the collection
period of limitations to compute the future value component of petitioners’ RCP.
The settlement officer appears to have then added that component to his calculation
of the present value of petitioners’ various assets to arrive at their RCP.
                                          -5-

indicated that he had determined the net realizable equity (NRE) of the real estate

owned by their wholly owned S corporation, BMV, Inc., to be over $364,000,

which was significantly greater than the amount of their offer. He asked whether

petitioners could increase their offer or propose a different collection alternative.

Petitioners requested more time to consider their options. On January 5, 2009, the

settlement officer noted in his case activity record that no further response or

information had been received from petitioners.

      On January 21, 2009, respondent issued to petitioners a Notice of

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

sustaining the proposed levy. Respondent determined that petitioners’ RCP was

$1,296,531.7 The notice of determination indicated that because petitioners’ RCP

was greater than their offer of $295,805, and there were no indications that special

circumstances existed, petitioners’ offer was rejected and the decision to proceed by

levy was sustained.




      7
       The attachment to the notice of determination sets forth respondent’s
calculation of petitioners’ RCP and includes $17,105 in average monthly income
based on petitioners’ 2006 and 2007 individual Federal income tax returns. The
calculation does not include petitioners’ NRE in each of their various businesses.
                                         -6-

                                      Discussion

      Summary judgment is intended to expedite litigation and avoid unnecessary

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

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

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

Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir.

1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988). The moving party bears

the burden of proving that there is no genuine issue of material fact, and factual

inferences will be read in a manner most favorable to the party opposing summary

judgment. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982). When a motion for summary judgment is

made and properly supported, the adverse party may not rest upon mere allegations

or denials of the pleadings but must set forth specific facts showing that there is a

genuine issue for trial. Rule 121(d). If the adverse party does not so respond, then

a decision may be entered against such party. Id.

      Section 6331(a) provides that if any taxpayer liable to pay any tax neglects

or refuses to pay such tax within 10 days after notice and demand for payment,

then the Secretary is authorized to collect such tax by levy upon the taxpayer’s

property. Section 6330(a) requires the Secretary to send written notice to the
                                         -7-

taxpayer of the taxpayer’s right to request a section 6330 collection due process

(CDP) hearing before a levy is made. If a CDP hearing is requested, the hearing is

conducted by the Commissioner’s Appeals Office. At the hearing, the settlement

officer must verify that the requirements of any applicable law or administrative

procedure have been met. Sec. 6330(b)(1), (c)(1). The taxpayer may raise any

relevant issue relating to the collection of the unpaid tax. Sec. 6330(c)(2)(A). Our

review of the settlement officer’s determination is limited to issues that the taxpayer

raised at the CDP hearing. See Giamelli v. Commissioner, 129 T.C. 107, 115

(2007); sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.

      The only issue petitioners have raised in their objection to respondent’s

motion for summary judgment is the settlement officer’s rejection of their proposed

offer-in-compromise. We review this issue for abuse of discretion. See Sego v.

Commissioner, 114 T.C. 604, 610-612 (2000). Under this standard of review the

question is whether the settlement officer’s rejection of their offer-in-compromise

was arbitrary, capricious, or without sound basis in fact or law. See Woodral v.

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

2004-163. For the reasons discussed below, we conclude that it was not.
                                          -8-

      Section 7122(a) provides that “The Secretary may compromise any civil

* * * case arising under the internal revenue laws”. Whether to accept an offer-in-

compromise is left to the Secretary’s sound exercise of discretion. Fargo v.

Commissioner, 447 F.3d 706, 712 (9th Cir. 2006), aff’g T.C. Memo. 2004-13; sec.

301.7122-1(c)(1), Proced. & Admin. Regs. In general, an offer-in-compromise

based on doubt as to collectibility will be acceptable only if it is for an amount at

least as great as the taxpayer’s RCP. Rev. Proc. 2003-71, sec. 4.02(2), 2003-2

C.B. 517.

      In his motion for summary judgment, without conceding any error by the

settlement officer, respondent asserts that even if one were to assume, solely for

purposes of his motion, the accuracy of “many” of the items reflected in

petitioners’ offer amount, their computation nevertheless contains “clear errors”.

Respondent asserts that correcting these errors would indicate that, consistent with

petitioners’ own assumptions, their offer should have been no less than $349,740,

rather than the $295,805 they actually offered. Petitioners do not dispute this

conclusion; to the contrary, they state that they will “assume Respondent’s

changes are correct”. They observe, however, that “the difference between

$349,740 and Petitioners’ offer of $295,805 is a lot less than the difference

between $1,296,531 [their RCP as determined by the settlement officer] and
                                          -9-

$295,805.” They assert that had the settlement officer determined their RCP to be

$349,740, they would have been “ready, willing, and able to make a counter-offer

in that amount.” Citing Lites v. Commissioner, T.C. Memo. 2005-206, they argue

because the settlement officer’s alleged error was so central to his determination,

he abused his discretion in rejecting their offer.

      Whatever error the settlement officer might have made in calculating

petitioners’ RCP--and respondent does not expressly concede that the settlement

officer made any error--the undisputed fact remains that petitioners could afford to

pay significantly more than they offered. In these circumstances, notwithstanding

alleged errors in the settlement officer’s calculation of petitioners’ RCP, he did not

abuse his discretion in rejecting their offer. See, e.g., Keller v. Commissioner, 568

F.3d 710, 718 (9th Cir. 2009) (finding no abuse of discretion in the

Commissioner’s rejecting a proposed offer-in-compromise where, after allowing

for a computational error in the taxpayers’ RCP as determined by the Appeals

Office, the taxpayer failed to show that the errors affected the Commissioner’s

determination that he could afford to pay more than his offer), aff’g in part,

vacating in part Barnes v. Commissioner, T.C. Memo. 2006-150; Atchison v.

Commissioner, T.C. Memo. 2009-8 (granting summary judgment for the

Commissioner where, even after allowing for certain expenses disallowed by the
                                        - 10 -

Appeals Office in computing the RCP, it was still far greater than the amount of

the taxpayers’ offer); Lloyd v. Commissioner, T.C. Memo. 2008-15 (granting

summary judgment for the Commissioner where, notwithstanding alleged errors in

the settlement officer’s calculation of the taxpayer’s future monthly income, the

RCP still exceeded the taxpayer’s offer).

      Unlike Lites, this is not a case in which respondent has taken a position at

odds with the settlement officer’s determination.8 Respondent’s position, consistent

with the settlement officer’s determination, is that petitioners’ offer-in-compromise

was unacceptable because it was significantly less than they could afford to pay.

      Petitioners assert that they would have counteroffered $349,740 if the

settlement officer had properly advised them that this was the correct amount of

their RCP. But petitioners have effectively conceded that it was their own errors




      8
        In Lites v. Commissioner, T.C. Memo. 2005-206, the Appeals officer had
rejected a proposed installment agreement on grounds that the taxpayers’ monthly
income exceeded the amount they had offered to pay. In the Tax Court, the
Commissioner reversed course and argued that the Appeals officer’s decision should
be upheld for the opposite reason that the taxpayers’ installment agreement proposal
exceeded what they could afford to pay. Finding that the Commissioner had
effectively conceded error in a determination that was “central” to the Appeals
officer’s decision to reject the taxpayers’ proposed collection alternative, we held
that the notice of determination was not justifiable in the light of the facts and
circumstances. Id.
                                         - 11 -

that caused their offer to understate the amount they could afford to pay, even under

their own financial assumptions. The settlement officer did not abuse his discretion

in rejecting their admittedly too low offer.9

      In their opposition to respondent’s motion for summary judgment, petitioners

have not asserted that there is any dispute as to any issue of material fact such that

a decision may not be rendered as a matter of law. Apart from challenging the

rejection of their offer-in-compromise, petitioners’ opposition to respondent’s

motion for summary judgment raises no issue that would suggest that respondent

has otherwise failed to satisfy the requirements of section 6330. We deem

petitioners to have waived or conceded any such issues. Accordingly, we conclude

that respondent is entitled to summary judgment.

      To reflect the foregoing,


                                                        An appropriate order and

                                                  decision will be entered.


      9
        We note that it also seems unlikely that the settlement officer would have
considered an offer of $349,740 to adequately reflect petitioners’ ability to pay.
According to his case activity record, he had determined that the NRE of
petitioners’ wholly owned S corporation exceeded this amount. The record
indicates that although the settlement officer raised this issue with petitioners and
gave them an opportunity to respond, they never did so.
