Murphy v. Comm'r of Internal Revenue, 10239–03L.

• Citation: 125 T.C. 301,125 T.C. No. 15
• Decision Date: 29 December 2005
• Docket Number: No. 10239–03L.,10239–03L.
• Parties: Edward F. MURPHY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

125 T.C. 301

125 T.C. No. 15

Edward F. MURPHY, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 10239–03L.

United States Tax Court.

Dec. 29, 2005.

P asks us to review a determination by R's settlement officer (SO) that R may proceed with collection by levy of P's unpaid tax liability for 1999. P claims that the SO abused her discretion by (1) rejecting P's offer in compromise, based alternatively on doubt as to collectibility and the promotion of effective tax administration, and (2) improperly and prematurely concluding P's hearing. R objects to P's testimony as to reasons he did not pay his 1992–2001 tax liabilities as they came due and the SO's testimony as to entries in her case activity notes and certain aspects of her handling of the case.

1. Held: P's testimony is excluded.

2. Held, further, SO's testimony is admitted as to meaning of notations and abbreviations in her case activity report; the remainder of her testimony is excluded.

3. Held, further, SO did not err in rejecting offer in compromise based, alternatively, on doubt as to collectibility and effective tax administration.

4. Held, further, SO did not err in concluding hearing following P's failures to meet various due dates, including due date for revised offer in compromise.

5. Held, further, there were no improprieties in SO's actions or hearing procedures.

6. Held, further, SO did not abuse her discretion in determining that R may proceed by levy to collect P's unpaid tax liability for 1999.

Timothy J. Burke, for petitioner.

Nina P. Ching and Maureen T. O'Brien, for respondent.

HALPERN, J.

This case is before the Court to review a determination made by one of respondent's Appeals officers that respondent may proceed to collect by levy unpaid taxes with respect to petitioner's 1999 tax year. We review the determination pursuant to section 6330(d)(1).

Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts have been rounded to the nearest dollar.

FINDINGS OF FACT

Some facts have been stipulated and are so found. The stipulation of facts, with accompanying exhibits, is incorporated herein by this reference.

Petitioner resided in Quincy, Massachusetts, at the time the petition was filed.

On April 15, 2002, respondent issued to petitioner a Final Notice—Notice of Intent to Levy and Notice of Your Right to a Hearing. The notice pertains to petitioner's unpaid Federal income tax for 1999, in the amount of $16,560 (the unpaid tax).

By letter dated April 23, 2002, petitioner's representative, Timothy J. Burke, Esq., submitted an Internal Revenue Service (IRS) Form 12153, Request for a Collection Due Process Hearing, to the IRS on petitioner's behalf. On an attachment to the Form 12153, petitioner asserts: “It is in the best interest of the government and the taxpayer that an Offer in Compromise be entered into.” Petitioner raised no other issue on the Form 12153 or during the subsequent hearing accorded him (the section 6330 hearing or, sometimes, the hearing).

On or about September 13, 2002, an Appeals official, Settlement Officer Lisa Boudreau, was assigned to petitioner's case. On September 16, 2002, Ms. Boudreau sent Mr. Burke a letter scheduling a meeting for September 20, 2002. At Mr. Burke's request, that meeting was rescheduled for October 3, 2002 (the October 3 meeting). Ms. Boudreau and Mr. Burke, but not petitioner, attended the October 3 meeting. At the meeting, Mr. Burke submitted to Ms. Boudreau certain collection information statements that had been requested by her and an IRS Form 656, Offer in Compromise. By the Form 656, petitioner proposed to compromise his unpaid income tax liabilities from 1990 through 2001 (later limited to 1992 through 2001 since the period of limitations on collection for 1990 and 1991 had run). Petitioner's unpaid income tax liabilities for 1992 through 2001 (the 1992–2001 liability) total $275,777. Petitioner offered to pay $10,000 in compromise of the 1992–2001 liability (sometimes, the offer or the offer in compromise), such amount to be paid within 24 months of acceptance of the offer. Petitioner checked boxes on the Form 656 justifying the offer by reason of both “Doubt as to Collectibility” (i.e., he had insufficient assets and income to pay the full liability) and “Effective Tax Administration” (i.e., he had sufficient assets to pay the full liability but, due to his exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair and inequitable). In the portion of the form requesting an explanation of circumstances affecting the taxpayer's ability to fully pay the amount due, petitioner stated: “Please see attached.” No attachment accompanies the copy of the form stipulated by the parties.

During the October 3 meeting, Ms. Boudreau asked Mr. Burke about the exceptional circumstances claimed by petitioner. Mr. Burke responded that petitioner was ill, but he would not disclose the nature of the illness, citing petitioner's wish on that point. Ms. Boudreau advised Mr. Burke that, unless petitioner disclosed the circumstances of his illness, she would be unable to consider the illness. Mr. Burke said that he understood and had told his client that already. Among other things, Mr. Burke did tell Ms. Boudreau that petitioner was an insurance salesman, owed money on credit cards, owed about $90,000 to the Commonwealth of Massachusetts, and was divorced, with his ex-wife receiving residual payments from insurance contracts that petitioner had sold.

Ms. Boudreau concluded the October 3 meeting by requesting that petitioner submit by October 31, 2002, additional information and documents necessary for her to review the offer in compromise. Petitioner missed that due date. Indeed, following the October 3 meeting, and through February 10, 2003, petitioner repeatedly missed due dates that either Ms. Boudreau or Mr. Burke himself had set for submitting information necessary for Ms. Boudreau to review the offer in compromise. On one occasion during that period, due to petitioner's failure to meet submission due dates, Ms. Boudreau closed petitioner's case and concluded that she should sustain the proposed levy action. She decided to reopen the case only after petitioner belatedly complied with a request for certain information.

By letter dated February 10, 2003, petitioner provided to Ms. Boudreau the last of the information necessary for her to review the offer in compromise.

By March 19, 2003, Ms. Boudreau had reviewed the offer in compromise and supporting information submitted by petitioner and had concluded that the offer was too low. By letter dated March 19, 2003 (the March 19 letter), Ms. Boudreau informed Mr. Burke that an acceptable offer in compromise would have to be of at least $97,884. She enclosed copies of the income/expense and asset/equity tables that she used to compute that amount. Based principally on information provided by petitioner, Ms. Boudreau calculated petitioner's total monthly income to be $4,235 ($2,618 of net business income and $1,617 of pension income) and his necessary monthly living expenses to be $3,107, with a difference of $1,128. Ms. Boudreau multiplied the difference times 60 to determine the amount petitioner could pay over 60 months; viz, $67,680. Also based principally on information provided by petitioner, Ms. Boudreau calculated petitioner's net realizable equity to be $30,204. The sum that petitioner could pay over 60 months, $67,680, and his net realizable equity, $30,204, is $97,884 (the amount Ms. Boudreau had identified as an acceptable offer in compromise). Ms. Boudreau invited petitioner to submit an amended offer in compromise in the amount of $97,884 by April 9, 2003.

In response to the March 19 letter, Mr. Burke telephoned Ms. Boudreau on April 1, 2003, and agreed to amend the offer in compromise by April 18, 2003. No amended offer was received by that date. On April 25, 2003, Mr. Burke telephoned Ms. Boudreau and reported that petitioner was in the hospital. He also told Ms. Boudreau that, no later than April 29, 2003, he would submit a copy of petitioner's 2002 Federal income tax return (the 2002 return), which had become due and was necessary to process any offer in compromise.

April 29, 2003, passed without Ms. Boudreau's receiving either the 2002 return or an amended offer in compromise. On Thursday, May 1, 2003, she called Mr. Burke and left a voice message directing him to return her call on Monday, May 5, 2003. Mr. Burke called as requested. He reported that petitioner was out of the hospital, although he remained ill and continued to prohibit Mr. Burke from disclosing the nature of his illness. Mr. Burke also reported that he would meet with petitioner later that week and contact Ms. Boudreau by May 9, 2003.

Neither Mr. Burke nor petitioner contacted Ms. Boudreau by May 9, 2003.

On May 12, 2003, Ms. Boudreau noted in her case activity record that the deadline set for May 9, 2003, as well as previous deadlines, had been missed. She also noted that no viable collection alternative had been proposed and she had decided that respondent's proposed collection action should stand.

On May 14, 2003, Ms. Boudreau submitted an IRS Form 5402–c, Appeals Transmittal and Case Memo, to her supervisor recommending that the proposed collection action stand. In an attachment to the Form 5402–c (the attachment), Ms. Boudreau states that she has verified that all legal and administrative requirements that needed to be satisfied with respect to collection by levy had been satisfied. She describes petitioner's offer to compromise the 1992–2001 liability (“approximately $260,000”) for $10,000. She states that the offer was submitted on the alternative grounds of effective tax administration and doubt as to collectibility. She concludes that, because she is...