SCOTUS Reports

Tag: Abuse of Discretion

  • Hinerfeld v. Commissioner, 139 T.C. 277 (2012): Ex Parte Communications and Abuse of Discretion in Offer-in-Compromise Decisions

    Hinerfeld v. Commissioner, 139 T. C. 277 (2012)

    In Hinerfeld v. Commissioner, the U. S. Tax Court ruled that communications between the IRS Appeals Office and Area Counsel regarding a taxpayer’s offer-in-compromise (OIC) were not prohibited ex parte communications. The court also upheld the IRS’s rejection of the taxpayer’s OIC, finding no abuse of discretion. This decision clarifies the scope of permissible communications within the IRS and the standards for reviewing OICs, impacting how taxpayers and their counsel approach settlement negotiations with the IRS.

    Parties

    Norman Hinerfeld, the petitioner, sought review of the IRS’s determination to proceed with a levy action. The respondent was the Commissioner of Internal Revenue.

    Facts

    Norman Hinerfeld was assessed trust fund recovery penalties totaling $471,696 for unpaid employment taxes of Thermacon Industries, Inc. , where he was a responsible person. After receiving a Final Notice of Intent to Levy, Hinerfeld requested a Collection Due Process (CDP) hearing and submitted an offer-in-compromise (OIC) of $10,000, later amended to $74,857. The settlement officer recommended acceptance of the amended OIC, but Area Counsel, upon review, discovered a pending lawsuit (Multi-Glass Atlantic, Inc. v. Alnor Assocs. , LLC) alleging fraudulent conveyance of Thermacon’s assets by Hinerfeld. Area Counsel recommended rejection of the OIC, and the Appeals Team Manager agreed, rejecting the OIC and proceeding with the levy.

    Procedural History

    The IRS issued a Final Notice of Intent to Levy to Hinerfeld, who requested a CDP hearing and submitted an OIC. The settlement officer recommended acceptance, but after Area Counsel’s review and recommendation to reject, the Appeals Team Manager rejected the OIC. Hinerfeld filed a timely petition with the U. S. Tax Court, which reviewed the case for abuse of discretion, considering the communications between Appeals and Area Counsel for the first time in posttrial briefs.

    Issue(s)

    Whether communications between the IRS Office of Appeals and Area Counsel regarding Hinerfeld’s amended OIC constituted prohibited ex parte communications?

    Whether the IRS Office of Appeals abused its discretion in rejecting Hinerfeld’s amended OIC and proceeding with the proposed levy?

    Rule(s) of Law

    The Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998) directed the Commissioner to develop a plan to restrict ex parte communications between Appeals employees and other IRS employees to ensure Appeals’ independence. Revenue Procedure 2000-43 provides guidelines on permissible and prohibited ex parte communications. Section 7122(b) of the Internal Revenue Code mandates that the General Counsel or his delegate review compromises of tax liabilities over $50,000. The Internal Revenue Manual (IRM) provides that Counsel must determine whether fraudulent conveyance issues have been properly resolved when reviewing OICs based on doubt as to collectibility.

    Holding

    The U. S. Tax Court held that communications between the IRS Office of Appeals and Area Counsel regarding Hinerfeld’s amended OIC were not prohibited ex parte communications under RRA 1998 and Revenue Procedure 2000-43. The court also held that the IRS Office of Appeals did not abuse its discretion in rejecting Hinerfeld’s amended OIC and proceeding with the proposed levy.

    Reasoning

    The court reasoned that the communications between Appeals and Area Counsel were necessary to comply with the statutory requirement of Section 7122(b) for General Counsel review of compromises over $50,000. The court found that the communications did not fall within the limitations prescribed by Revenue Procedure 2000-43, as Area Counsel had not previously advised the employees who made the determination under review, and the Appeals Team Manager, not the settlement officer, made the final decision after exercising independent judgment. The court also noted that the IRM specifically allows Counsel to reexamine facts related to fraudulent conveyance issues in OICs based on doubt as to collectibility. The court rejected Hinerfeld’s argument that Area Counsel’s factual investigation constituted prohibited ex parte communications, finding that such investigations are contemplated by the IRM. Regarding abuse of discretion, the court found that the Appeals Team Manager’s decision to reject the OIC was supported by substantial evidence of a possible fraudulent conveyance and Hinerfeld’s inconsistent representations, and was not an abuse of discretion given the statutory time constraints and the taxpayer’s rejection of the alternative of placing his account in currently not collectible status.

    Disposition

    The U. S. Tax Court entered a decision for the respondent, upholding the IRS’s rejection of Hinerfeld’s amended OIC and the decision to proceed with the proposed levy.

    Significance/Impact

    This case clarifies that communications between the IRS Office of Appeals and Area Counsel necessary for compliance with statutory review requirements are not prohibited ex parte communications. It also underscores the importance of Counsel’s review of fraudulent conveyance issues in OICs based on doubt as to collectibility, and the deference given to the IRS’s exercise of discretion in such cases. The decision impacts how taxpayers and their counsel approach settlement negotiations with the IRS, particularly in cases involving large liabilities and potential fraudulent conveyances.

  • Kreit Mechanical Associates, Inc. v. Commissioner of Internal Revenue, 137 T.C. 123 (2011): Abuse of Discretion in Rejecting Offer-in-Compromise

    Kreit Mechanical Associates, Inc. v. Commissioner of Internal Revenue, 137 T. C. 123 (2011)

    In Kreit Mechanical Associates, Inc. v. Commissioner, the U. S. Tax Court upheld the IRS’s rejection of an offer-in-compromise for unpaid employment taxes, ruling that the IRS did not abuse its discretion. The taxpayer, a plumbing subcontractor, argued that its accounts receivable should be heavily discounted, but the court found the IRS’s valuation reasonable given the company’s financial growth and failure to provide complete documentation, affirming the IRS’s decision to proceed with collection actions.

    Parties

    Kreit Mechanical Associates, Inc. (Petitioner) v. Commissioner of Internal Revenue (Respondent). Kreit Mechanical Associates, Inc. was the plaintiff at the trial level in the U. S. Tax Court. The Commissioner of Internal Revenue was the defendant at the trial level and respondent on appeal.

    Facts

    Kreit Mechanical Associates, Inc. , a commercial plumbing subcontractor, owed employment taxes, penalties, and interest for the third quarter of 2005 and all four quarters of 2006. After receiving a Final Notice and Notice of Intent to Levy from the IRS on May 29, 2007, Kreit requested a collection due process (CDP) hearing and proposed an offer-in-compromise (OIC) based on doubt as to collectibility. The OIC offered $369,192. 27 payable over 120 months. Kreit listed its accounts receivable at $250,000, a significant discount from their face value of $1,065,408, arguing that the receivables were subject to industry-standard adjustments and joint check payments to suppliers. The IRS, represented by Settlement Officer Alicia A. Flores, reviewed Kreit’s financial information, including its profit and loss statements, which showed net income of $412,218 in 2008. Officer Flores rejected the OIC, citing Kreit’s failure to provide complete financial information, its net income, and the value of its accounts receivable at face value, which suggested more could be collected than the OIC amount. Kreit subsequently filed a petition with the U. S. Tax Court challenging the IRS’s determination.

    Procedural History

    After receiving the Final Notice and Notice of Intent to Levy on May 29, 2007, Kreit Mechanical Associates, Inc. requested a CDP hearing on June 26, 2007, and proposed an OIC. The IRS Appeals Office received the OIC on September 4, 2007, and after several requests for additional information, rejected the OIC on April 1, 2009. On May 22, 2009, the Appeals Office issued a Notice of Determination Concerning Collection Action(s), upholding the decision to proceed with the levy. Kreit timely filed a petition with the U. S. Tax Court on June 16, 2009. The Tax Court denied the IRS’s motion for summary judgment and motion in limine to exclude expert testimony, and after a trial on June 16, 2010, upheld the IRS’s determination on October 3, 2011.

    Issue(s)

    Whether the IRS Appeals Officer abused her discretion in rejecting Kreit Mechanical Associates, Inc. ‘s offer-in-compromise and determining that the proposed collection action was appropriate?

    Rule(s) of Law

    The court applies an abuse of discretion standard when reviewing an IRS determination to reject an offer-in-compromise. See Murphy v. Commissioner, 125 T. C. 301, 320 (2005), aff’d, 469 F. 3d 27 (1st Cir. 2006). An abuse of discretion occurs if the decision is arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner, 112 T. C. 19, 23 (1999). The IRS may compromise a tax liability on the basis of doubt as to collectibility if the liability exceeds the taxpayer’s reasonable collection potential. See Murphy v. Commissioner, 125 T. C. 301, 309-310 (2005).

    Holding

    The U. S. Tax Court held that the IRS Appeals Officer did not abuse her discretion in rejecting Kreit Mechanical Associates, Inc. ‘s offer-in-compromise and determining that the proposed collection action was appropriate, given the taxpayer’s financial information, net income, and the valuation of its accounts receivable.

    Reasoning

    The court reasoned that the IRS’s rejection of Kreit’s OIC was not an abuse of discretion. The court found that Officer Flores considered all relevant financial information provided by Kreit, including its net income of $412,218 in 2008, which indicated that more than the OIC amount could be collected. The court also noted that Kreit failed to provide complete documentation, such as bank statements and personal financial information, which could have affected the valuation of its assets. Regarding the valuation of accounts receivable, the court observed that Kreit’s own billing methodology already accounted for adjustments like change orders and retention, and Officer Flores’s decision to value the receivables at face value was not arbitrary or capricious. The court further emphasized that the IRS has no binding duty to negotiate with a taxpayer before rejecting an OIC. The court concluded that Officer Flores’s determination was based on a reasonable evaluation of Kreit’s financial situation and did not constitute an abuse of discretion.

    Disposition

    The U. S. Tax Court entered a decision for the respondent, affirming the IRS’s determination to proceed with the proposed levy.

    Significance/Impact

    The Kreit Mechanical Associates, Inc. v. Commissioner case underscores the deference given to IRS determinations in rejecting offers-in-compromise under an abuse of discretion standard. It highlights the importance of taxpayers providing complete and accurate financial information to support their OIC proposals. The case also clarifies that the IRS’s valuation of a taxpayer’s assets, including accounts receivable, will be upheld if it has a sound basis in fact and law, even if the taxpayer disagrees with the valuation methodology. This decision has implications for tax practitioners advising clients on OIC submissions and underscores the need for thorough documentation and justification of proposed asset valuations. Subsequent cases have cited Kreit for its application of the abuse of discretion standard and its guidance on the IRS’s discretion in evaluating OICs.

  • Pough v. Comm’r, 135 T.C. 344 (2010): Abuse of Discretion in Tax Collection Actions

    Pough v. Commissioner of Internal Revenue, 135 T. C. 344 (2010)

    In Pough v. Comm’r, the U. S. Tax Court upheld the IRS’s decision to sustain a tax lien and proposed levy against Robert Fitzgerald Pough for unpaid taxes and penalties. Pough failed to challenge his liabilities or provide necessary documentation within the deadlines set by the IRS Appeals officer. The court ruled that the Appeals officer did not abuse her discretion, emphasizing the importance of timely compliance with IRS requests in collection proceedings. This decision underscores the stringent requirements taxpayers must meet when contesting IRS collection actions.

    Parties

    Robert Fitzgerald Pough, the petitioner, represented himself pro se in this case. The respondent was the Commissioner of Internal Revenue, represented by Anne M. Craig.

    Facts

    Robert Fitzgerald Pough was the president of 911 Direct, Inc. , a company selling, installing, and servicing equipment for police and fire dispatchers. 911 Direct was delinquent in paying trust fund taxes for the quarters ending March 31, June 30, and September 30, 2006. Pough met with an IRS revenue officer on December 6, 2006, and subsequently agreed to assessments against him of section 6672 penalties for the unpaid trust fund taxes of 911 Direct by signing Form 2751. Pough also filed delinquent income tax returns for 2002 through 2005, each showing a balance due. The IRS issued notices of intent to levy and notices of federal tax lien filing for these liabilities. Pough requested hearings, which were conducted by an IRS Appeals officer. Pough failed to submit amended income tax returns, failed to provide verification of compliance with federal tax deposit obligations, and missed multiple deadlines set by the Appeals officer for providing requested documentation.

    Procedural History

    The IRS issued notices of intent to levy and notices of federal tax lien filing for Pough’s 2002 through 2005 income tax liabilities and for the trust fund recovery penalties (TFRPs) for 911 Direct’s unpaid trust fund taxes for the quarters ending March 31, June 30, and September 30, 2006. Pough timely requested hearings in response to these notices. An IRS Appeals officer conducted the hearings and determined that Pough had not challenged the underlying liabilities, nor had he complied with the deadlines for submitting requested documentation. The Appeals officer issued a notice of determination on August 23, 2007, sustaining the proposed levy and notices of federal tax lien. Pough timely filed a petition with the U. S. Tax Court under sections 6320(c) and 6330(d) seeking review of the collection action. The Tax Court, applying an abuse of discretion standard of review, held a trial on March 8 and 9, 2010.

    Issue(s)

    Whether the IRS Appeals officer abused her discretion in determining to sustain the tax lien and the proposed levy against Robert Fitzgerald Pough?

    Rule(s) of Law

    The court applied sections 6321, 6322, 6320, and 6330 of the Internal Revenue Code, which govern the imposition of federal tax liens, the procedures for filing notices of lien, and the requirements for hearings on collection actions. Under section 6330(c)(2)(B), a taxpayer may challenge the existence or amount of the underlying tax liability if the taxpayer did not receive a notice of deficiency or otherwise have an opportunity to dispute such tax liability. The standard of review for the Commissioner’s determination, when the underlying tax liability is not in dispute, is abuse of discretion. The court relied on precedents such as Giamelli v. Commissioner, 129 T. C. 107 (2007), which established that the taxpayer must prove the Commissioner’s decision was arbitrary, capricious, or without sound basis in fact or law to establish an abuse of discretion.

    Holding

    The U. S. Tax Court held that the IRS Appeals officer did not abuse her discretion in sustaining the tax lien and the proposed levy against Robert Fitzgerald Pough. The court found that Pough had not properly challenged his underlying tax liabilities and had failed to comply with the deadlines set by the Appeals officer for submitting requested documentation.

    Reasoning

    The court’s reasoning focused on the fact that Pough had previously agreed to the assessments of section 6672 penalties and had not timely challenged his income tax liabilities by filing amended returns. The court noted that Pough had been given adequate time by the Appeals officer to submit requested items, such as amended income tax returns and verification of compliance with federal tax deposit obligations, but had failed to do so. The court also considered Pough’s failure to meet multiple deadlines and his inability to provide concrete proposals for collection alternatives, such as an installment agreement or an offer-in-compromise. The court applied the abuse of discretion standard of review, as established in Giamelli v. Commissioner, and found that Pough had not met his burden of proving that the Appeals officer’s decision was arbitrary, capricious, or without sound basis in fact or law. The court emphasized the importance of timely compliance with IRS requests in collection proceedings and found that the Appeals officer had appropriately balanced the need for efficient collection of taxes with the taxpayer’s concerns.

    Disposition

    The U. S. Tax Court entered a decision in favor of the respondent, the Commissioner of Internal Revenue, sustaining the tax lien and the proposed levy against Robert Fitzgerald Pough.

    Significance/Impact

    Pough v. Comm’r underscores the importance of timely compliance with IRS requests in collection proceedings. The case illustrates that taxpayers must challenge underlying tax liabilities and provide requested documentation within the deadlines set by the IRS Appeals officer to avoid sustaining tax liens and levies. The decision reinforces the abuse of discretion standard of review in tax collection cases and highlights the limited opportunities for taxpayers to contest IRS collection actions after missing deadlines. This case has been cited in subsequent Tax Court decisions involving similar issues of abuse of discretion in tax collection proceedings.

  • Dawson v. Commissioner, 133 T.C. 47 (2009): Abuse of Discretion in IRS Levy Decisions under Economic Hardship Conditions

    Dawson v. Commissioner, 133 T. C. 47 (U. S. Tax Ct. 2009)

    In Dawson v. Commissioner, the U. S. Tax Court ruled that the IRS abused its discretion by proceeding with a levy against a taxpayer facing economic hardship due to terminal illness and financial constraints. The court emphasized that a levy creating economic hardship must be released under IRC Section 6343(a)(1)(D), and the IRS’s refusal to consider collection alternatives due to unfiled returns was unreasonable under such circumstances. This decision underscores the balance between tax collection and taxpayer rights, particularly in cases of genuine hardship.

    Parties

    Plaintiff (Petitioner): Dawson, residing in Tennessee, filed a petition in the U. S. Tax Court challenging the IRS’s decision to proceed with a levy. Defendant (Respondent): Commissioner of Internal Revenue, represented the IRS in the appeal of the decision to proceed with collection by levy.

    Facts

    Dawson, a Tennessee resident, faced a levy on her wages and assets by the IRS for unpaid taxes from 2002. She suffered from pulmonary fibrosis, which limited her to part-time work. Dawson’s monthly income was $800, with expenses matching her income. She owned a 1996 Toyota Corolla valued at $300 and had $14 in cash. Dawson had not filed her 2005 and 2007 tax returns due to issues with obtaining necessary tax documents. During a collection hearing, she provided financial data on Form 433-A, indicating that a levy would result in economic hardship as she could not afford basic living expenses. The settlement officer acknowledged this hardship but rejected collection alternatives due to Dawson’s non-compliance with filing requirements.

    Procedural History

    The IRS sent Dawson a Final Notice of Intent to Levy on September 13, 2007. Dawson requested a hearing on September 24, 2007, which was conducted through correspondence and telephone. After reviewing Dawson’s financial situation, the settlement officer determined that a levy would create an economic hardship but proceeded with the levy due to unfiled tax returns. The Appeals Office upheld this decision in a Notice of Determination dated June 2, 2008. Dawson appealed to the U. S. Tax Court, which reviewed the case under an abuse of discretion standard. The IRS filed a motion for summary judgment, which the court ultimately denied.

    Issue(s)

    Whether the IRS abused its discretion by proceeding with a levy against Dawson despite acknowledging that the levy would create an economic hardship, as defined by IRC Section 6343(a)(1)(D) and related regulations?

    Rule(s) of Law

    IRC Section 6343(a)(1)(D) requires the IRS to release a levy if it creates an economic hardship due to the financial condition of the taxpayer. Treasury Regulation Section 301. 6343-1(b)(4) specifies that a levy must be released if it would render the taxpayer unable to pay reasonable basic living expenses. In reviewing IRS determinations under IRC Section 6330, the Tax Court applies an abuse of discretion standard, which is found if the IRS’s action is arbitrary, capricious, or without sound basis in fact or law.

    Holding

    The U. S. Tax Court held that the IRS abused its discretion by proceeding with a levy against Dawson. The court determined that the settlement officer’s decision to reject collection alternatives due to unfiled returns was unreasonable given the acknowledged economic hardship, as the levy would be subject to immediate release under IRC Section 6343(a)(1)(D).

    Reasoning

    The court’s reasoning centered on the statutory and regulatory requirements for releasing levies that cause economic hardship. The court noted that neither IRC Section 6343 nor its regulations condition the release of a levy on the taxpayer’s compliance with filing requirements when an economic hardship is established. The settlement officer’s log explicitly recognized Dawson’s economic hardship, yet the decision to proceed with the levy was upheld by the Appeals Office solely due to non-filing of certain returns. The court found this decision arbitrary and unreasonable, as it would lead to an immediate release of the levy under the law, undermining the purpose of IRC Section 6330 to afford taxpayers a meaningful hearing before property deprivation. The court distinguished this case from others where taxpayers had sufficient assets or income to mitigate hardship, emphasizing Dawson’s dire financial and health situation. The court also considered policy implications, stressing the need for fair administration of tax laws, particularly in hardship cases.

    Disposition

    The U. S. Tax Court denied the IRS’s motion for summary judgment, finding that the IRS abused its discretion in deciding to proceed with the levy against Dawson.

    Significance/Impact

    Dawson v. Commissioner reinforces the principle that IRS collection actions must balance the need for tax collection with the taxpayer’s right to avoid undue hardship. The decision clarifies that in cases where a levy would create an economic hardship, the IRS must consider alternatives regardless of non-compliance with filing requirements. This ruling has implications for IRS policies and procedures, particularly in how economic hardship is evaluated and addressed. It underscores the Tax Court’s role in protecting taxpayer rights and ensuring the fair application of tax laws, potentially influencing future cases involving similar issues of hardship and collection alternatives.

  • Michael v. Comm’r, 133 T.C. 237 (2009): IRS Levy Authority and Settlement Agreements

    Michael v. Comm’r, 133 T. C. 237 (U. S. Tax Court 2009)

    In Michael v. Comm’r, the U. S. Tax Court ruled on the IRS’s authority to enforce tax penalties through levy when a settlement agreement exists. The court found that while the IRS abused its discretion by sustaining a levy for 1989 due to an overpayment under the settlement terms, it did not abuse its discretion for 1990 and 1991. This decision underscores the IRS’s ability to use statutory collection methods even after a settlement, emphasizing the necessity of clear settlement terms and the IRS’s discretion in collection actions.

    Parties

    Anthony G. Michael, the petitioner, challenged the Commissioner of Internal Revenue, the respondent, over the imposition of tax preparer penalties under section 6694 of the Internal Revenue Code for the taxable years 1989, 1990, and 1991. Michael was the plaintiff in a prior refund suit against the Commissioner in the U. S. District Court for the Eastern District of Michigan, where the Commissioner was also the defendant and had filed a counterclaim for the unpaid penalties.

    Facts

    In June 1995, the IRS assessed return preparer penalties totaling $35,000 against Anthony G. Michael under section 6694(b) of the Internal Revenue Code for recklessly or intentionally disregarding rules and regulations with respect to 35 returns for the taxable years 1989, 1990, and 1991. Michael paid 15% of the assessed penalties, amounting to $5,250, to file a refund claim, which the IRS credited $1,000 toward 1989 and $4,250 toward 1990, leaving 1991 uncredited. After the IRS denied Michael’s refund claim, he filed a refund suit in the U. S. District Court for the Eastern District of Michigan. In August 1997, the parties reached a settlement agreement, reducing Michael’s liability to $15,500, minus the $5,250 already paid. Michael did not fulfill the payment terms of the settlement, leading the IRS to issue a notice of intent to levy in April 2005 based on the original assessments. Michael requested a collection due process (CDP) hearing, during which the settlement officer determined that Michael was entitled to a reduction in accordance with the settlement terms. On August 22, 2007, the IRS issued a notice of determination upholding the levy for the taxable years 1989, 1990, and 1991, prompting Michael to challenge the IRS’s authority to levy based on the settlement agreement.

    Procedural History

    Following the IRS’s assessment of penalties in June 1995, Michael paid part of the penalties and filed a refund claim, which was denied. He then filed a refund suit in the U. S. District Court for the Eastern District of Michigan. The parties reached a settlement in August 1997, and the District Court dismissed the case with prejudice, retaining jurisdiction for 60 days to enforce the settlement. Michael did not pay the settled amount, leading the IRS to issue a notice of intent to levy in April 2005. Michael requested and received a CDP hearing, where the settlement officer determined that Michael was entitled to a reduction in the assessed penalties in accordance with the settlement agreement. On August 22, 2007, the IRS issued a notice of determination upholding the levy for the taxable years 1989, 1990, and 1991. Michael filed a petition with the U. S. Tax Court, challenging the IRS’s determination. The Commissioner filed a motion for summary judgment, which the Tax Court granted in part and denied in part, finding that the IRS abused its discretion in sustaining the levy for 1989 but not for 1990 and 1991.

    Issue(s)

    Whether the IRS abused its discretion in sustaining a levy to collect tax preparer penalties under section 6694 for the taxable years 1989, 1990, and 1991, given the existence of a settlement agreement reducing Michael’s liability?

    Rule(s) of Law

    The IRS is authorized to collect unpaid tax liabilities by levy under section 6331 of the Internal Revenue Code. Section 6330 grants taxpayers the right to a CDP hearing before an impartial officer, where they may raise issues regarding the collection action. The Tax Court reviews the IRS’s determination for abuse of discretion if the underlying liability is not properly at issue. Section 6404 authorizes the IRS to abate the unpaid portion of an assessment if it is excessive. The settlement agreement between the parties is not invalidated by the original assessment, and the IRS may still pursue statutory collection remedies.

    Holding

    The Tax Court held that the IRS abused its discretion in sustaining the levy for 1989 because Michael had overpaid his tax liability for that year based on the settlement agreement. However, the IRS did not abuse its discretion in sustaining the levy for the taxable years 1990 and 1991, and the IRS was entitled to summary judgment for those years as a matter of law.

    Reasoning

    The Tax Court’s reasoning focused on several key points. First, the court found that it had jurisdiction to review the IRS’s determination to sustain the levy, as the statutory collection remedies are separate from the Government’s right to counterclaim in a refund action. The court rejected Michael’s argument that the settlement agreement invalidated the original assessments, holding that an assessment is not void because the liability is reduced by settlement. The court also rejected Michael’s argument that the IRS failed to issue a notice and demand for payment based on the settlement agreement, as there is no requirement for a second notice and demand. The court found that the IRS satisfied the assessment and notice and demand requirements based on the original assessments. The court also held that the IRS’s failure to provide the entire administrative file did not create a genuine issue of material fact for trial. The court’s analysis of the settlement agreement terms led to the conclusion that Michael overpaid his tax liability for 1989, resulting in an abuse of discretion by the IRS in sustaining the levy for that year. For 1990 and 1991, the court found no abuse of discretion, as the IRS’s determination was based on the settlement agreement terms and was not arbitrary or capricious.

    Disposition

    The Tax Court denied the Commissioner’s motion for summary judgment for the taxable year 1989 and granted summary judgment in Michael’s favor for that year. The court granted the Commissioner’s motion for summary judgment for the taxable years 1990 and 1991.

    Significance/Impact

    Michael v. Comm’r clarifies the IRS’s authority to enforce tax penalties through levy even after a settlement agreement has been reached. The decision emphasizes the importance of clear settlement terms and the IRS’s discretion in collection actions. The case highlights the need for taxpayers to fulfill their obligations under settlement agreements to avoid statutory collection remedies. The decision also underscores the Tax Court’s role in reviewing the IRS’s determinations for abuse of discretion, particularly when the underlying tax liability is not at issue. The case’s doctrinal significance lies in its affirmation of the IRS’s ability to adjust assessments and pursue collection based on settlement terms, while also protecting taxpayers from overpayment and abuse of discretion by the IRS.

  • Estate of Roski v. Commissioner, 128 T.C. 280 (2007): Judicial Review of IRS Discretion in Estate Tax Installment Elections

    Estate of Roski v. Commissioner, 128 T. C. 280 (U. S. Tax Ct. 2007)

    The U. S. Tax Court held that it has jurisdiction to review the IRS’s denial of an estate’s election to pay federal estate tax in installments under section 6166, and ruled that the IRS abused its discretion by mandating a bond or special lien for all such elections. This decision reaffirms judicial oversight over IRS discretion and supports the legislative intent to protect estates with closely held business interests from forced liquidation.

    Parties

    The petitioner is the Estate of Edward P. Roski (the estate), with Edward P. Roski, Jr. as the executor, appealing the determination of the Commissioner of Internal Revenue (respondent) at the U. S. Tax Court.

    Facts

    Edward P. Roski died on October 6, 2000, a resident of Los Angeles, California. The estate filed a timely Form 706 on January 4, 2002, reporting an estate tax liability and electing to pay the tax in installments under section 6166 of the Internal Revenue Code. The estate’s assets primarily consisted of interests in a well-established family-owned business, managed by decedent’s son, Edward P. Roski, Jr. The IRS notified the estate in September 2003 of the election and required either a bond or a special lien under section 6324A. The estate requested a waiver of these requirements, citing the prohibitive cost of a bond and the potential negative impact of a special lien on the business’s operations. Despite these arguments, the IRS issued a notice of determination on December 28, 2004, denying the estate’s section 6166 election due to the estate’s failure to provide a bond or special lien.

    Procedural History

    The estate filed a petition for a declaratory judgment under section 7479 in the U. S. Tax Court on March 23, 2005, challenging the IRS’s denial of the section 6166 election. The IRS moved for summary judgment, arguing that the Tax Court lacked jurisdiction to review the denial based on the estate’s failure to provide security. The estate cross-moved for summary judgment, asserting that the IRS’s requirement of a bond or special lien in every case was an abuse of discretion.

    Issue(s)

    1. Whether the U. S. Tax Court’s jurisdiction under section 7479 includes reviewing the IRS’s determination that an election may not be made under section 6166 when based on the estate’s failure to provide a bond or special lien?
    2. Whether the IRS abused its discretion by imposing a bright-line requirement of a bond or special lien for every estate election under section 6166(a)(1)?

    Rule(s) of Law

    Section 6166 of the Internal Revenue Code allows an executor to elect to pay federal estate tax in installments where the estate consists largely of interests in a closely held business. Section 6165 provides that the IRS “may” require a bond when granting an extension of time to pay tax, indicating a discretionary power. Section 7479 grants the Tax Court jurisdiction to review IRS determinations regarding the eligibility for section 6166 elections. The court’s review of agency action is governed by the standard that such action is unlawful if it is arbitrary, capricious, or an abuse of discretion.

    Holding

    The U. S. Tax Court held that it has jurisdiction under section 7479 to review the IRS’s determination denying the estate’s election under section 6166 based on the estate’s failure to provide a bond or special lien. The court further held that the IRS abused its discretion by imposing a mandatory bond or special lien requirement for all section 6166 elections without exercising its discretion on a case-by-case basis.

    Reasoning

    The court reasoned that section 7479 authorizes judicial review of any determination by the IRS regarding an estate’s eligibility for a section 6166 election, including those based on the provision of security. The court rejected the IRS’s argument that its discretion to require a bond under section 6165 was unreviewable, citing precedent that the “committed to agency discretion” exception is narrow and does not preclude judicial oversight of arbitrary or capricious actions.
    The court criticized the IRS’s fluctuating positions on the bond requirement over the years, noting that less deference is owed to an agency’s interpretation when it has been inconsistent. The court found that the IRS’s imposition of a bright-line rule requiring security in every case without exercising discretion was contrary to the discretionary nature of section 6165 and the legislative intent behind section 6166 to protect estates with closely held businesses from forced liquidation.
    The court emphasized that the IRS’s failure to consider the specific facts of each case, such as the estate’s financial stability and the nature of its business assets, constituted an abuse of discretion. The court highlighted the legislative history of section 6166, which aimed to alleviate liquidity problems faced by estates with closely held businesses, suggesting that a mandatory bond requirement would undermine this purpose.
    The court also noted that the IRS’s reliance on administrative convenience and revenue collection concerns, as mentioned in the TIGTA report, did not justify a blanket policy that precluded the exercise of discretion in individual cases.

    Disposition

    The U. S. Tax Court denied the IRS’s motion for summary judgment and also denied the estate’s cross-motion for summary judgment to the extent it sought a final disposition of the matter. The court found that the record lacked sufficient facts to decide the merits of the estate’s assertion that furnishing security was not necessary in this case.

    Significance/Impact

    This decision reinforces the principle that IRS discretionary actions are subject to judicial review, particularly when such actions appear arbitrary or capricious. It clarifies that the IRS must exercise its discretion on a case-by-case basis when determining the necessity of a bond or special lien for section 6166 elections, rather than applying a blanket policy. The ruling supports the legislative intent behind section 6166 to protect estates with closely held businesses from forced liquidation, ensuring that such estates have access to judicial review without having to pay the full tax liability upfront. Subsequent courts and legal practitioners may cite this case when challenging IRS determinations that appear to overstep the agency’s discretionary authority.

  • Cox v. Comm’r, 126 T.C. 237 (2006): IRS Collection Due Process Hearings and Appeals Officer Impartiality

    Cox v. Comm’r, 126 T. C. 237 (2006)

    In Cox v. Comm’r, the U. S. Tax Court upheld IRS collection actions against taxpayers Louis and Christine Cox for tax years 2000, 2001, and 2002. The court found that the administrative record was adequate for judicial review and that the Appeals officer’s involvement in prior years did not disqualify him from handling subsequent years. The decision underscores the importance of current tax compliance and the need for taxpayers to substantiate claims for collection alternatives, reinforcing the IRS’s discretion in collection matters.

    Parties

    Louis A. Cox and Christine Cox, Petitioners, were the taxpayers challenging the IRS’s proposed collection actions. The Commissioner of Internal Revenue, Respondent, represented the IRS in these consolidated cases.

    Facts

    Louis A. Cox operated a consulting engineering and software development business as a sole proprietorship and through Cox Associates, Inc. , an S corporation. The Coxes filed late tax returns for 1999, 2000, 2001, and 2002, and did not pay the assessed taxes. The IRS issued notices of intent to levy for these years, prompting the Coxes to request hearings. The Appeals officer, Bruce H. Skidmore, conducted simultaneous equivalent hearings for 1999 and collection hearings for 2000, and later handled hearings for 2001 and 2002. The Coxes sought collection alternatives, including installment agreements and offers in compromise, but were unable to provide sufficient financial information to support their requests. Skidmore determined that the Coxes had not established current tax compliance or financial hardship justifying alternatives to levy.

    Procedural History

    The IRS issued notices of determination sustaining the proposed levy actions for 1999, 2000, 2001, and 2002. The Coxes filed petitions with the U. S. Tax Court challenging these determinations. The cases were consolidated and submitted fully stipulated. The court reviewed the administrative record, which included extensive notes and correspondence from Skidmore, and upheld the IRS’s determinations, except as modified by settlements between the parties regarding certain tax additions.

    Issue(s)

    Whether the administrative record and notices of determination were sufficient to support meaningful judicial review?

    Whether the Appeals officer was disqualified from conducting the collection hearing for 2001 and 2002 due to prior involvement in the 1999 and 2000 hearings?

    Whether the IRS’s determinations to proceed with collection actions for tax years 2000, 2001, and 2002 constituted an abuse of discretion?

    Rule(s) of Law

    Under Section 6320 and Section 6330 of the Internal Revenue Code, taxpayers are entitled to a collection due process (CDP) hearing before an impartial Appeals officer. The officer must verify that the IRS complied with applicable legal and administrative requirements and consider any issues raised by the taxpayer, including collection alternatives. The Tax Court reviews the IRS’s determination for abuse of discretion unless the underlying tax liability is at issue, in which case it conducts a de novo review.

    Holding

    The Tax Court held that the administrative record and notices of determination were sufficient to support meaningful judicial review. The Appeals officer was not disqualified from conducting the collection hearing for 2001 and 2002 due to prior involvement in the 1999 and 2000 hearings, as his prior consideration of later years was incidental. The court also held that the IRS’s determinations to proceed with collection actions for tax years 2000, 2001, and 2002 did not constitute an abuse of discretion, except as modified by settlements between the parties.

    Reasoning

    The court reasoned that the administrative record, consisting of extensive notes and correspondence, provided a clear portrayal of the administrative process, supporting judicial review. The court distinguished prior involvement in earlier collection proceedings from disqualifying involvement under Section 6320 and Section 6330, noting that Skidmore’s involvement with 2001 and 2002 during the 2000 hearing was not disqualifying. The court found no evidence of bias or prejudice in Skidmore’s handling of the cases. Regarding the abuse of discretion, the court found that the Coxes failed to establish current tax compliance or substantiate their claims for collection alternatives. The court emphasized the importance of current compliance and the need for taxpayers to provide sufficient financial information to support their claims.

    Disposition

    The Tax Court sustained the IRS’s determinations to proceed with collection actions for tax years 2000, 2001, and 2002, except as modified by settlements between the parties.

    Significance/Impact

    Cox v. Comm’r clarifies the standards for judicial review of IRS collection due process hearings and the scope of prior involvement that may disqualify an Appeals officer. The case reinforces the IRS’s discretion in evaluating collection alternatives and the importance of taxpayers providing sufficient evidence to support their claims. It also highlights the need for current tax compliance as a prerequisite for collection alternatives, emphasizing the policy against pyramiding tax liabilities. Subsequent courts have cited Cox in upholding IRS collection actions and evaluating the impartiality of Appeals officers.

  • Murphy v. Commissioner, 125 T.C. 301 (2005): Review of IRS Collection Actions and Offers in Compromise

    Murphy v. Commissioner, 125 T. C. 301 (U. S. Tax Court 2005)

    The U. S. Tax Court upheld the IRS’s decision to reject Edward F. Murphy’s offer to compromise his tax liability and proceed with collection by levy. Murphy, unable to pay his full tax debt, offered $10,000 to settle a $275,777 liability, claiming doubt as to collectibility and effective tax administration. The court found the IRS settlement officer did not abuse her discretion in rejecting the offer, as it was substantially less than the calculated reasonable collection potential. The ruling reinforces the IRS’s authority in evaluating and rejecting offers in compromise under Section 6330 hearings, emphasizing the importance of timely submission of required information and the discretion afforded to IRS officers in such determinations.

    Parties

    Edward F. Murphy, as the Petitioner, sought review of the IRS’s determination to proceed with collection by levy. The Respondent was the Commissioner of Internal Revenue. Murphy was represented by Timothy J. Burke throughout the proceedings, while the Commissioner was represented by Nina P. Ching and Maureen T. O’Brien.

    Facts

    Edward F. Murphy, a resident of Quincy, Massachusetts, owed unpaid federal income taxes for the 1999 tax year amounting to $16,560. In response to a Final Notice of Intent to Levy issued on April 15, 2002, Murphy’s representative, Timothy J. Burke, requested a collection due process hearing under Section 6330, arguing that an offer in compromise would be in the best interest of both parties. On September 13, 2002, Settlement Officer Lisa Boudreau was assigned to Murphy’s case. During a meeting on October 3, 2002, Burke submitted an IRS Form 656 proposing to compromise Murphy’s tax liabilities from 1992 through 2001, totaling $275,777, for a payment of $10,000. The offer was based on both doubt as to collectibility and effective tax administration. Boudreau requested additional information to review the offer, which Murphy failed to provide in a timely manner, leading to multiple missed deadlines and eventual case closure by Boudreau on May 12, 2003. Boudreau calculated that Murphy could afford to pay $82,164 over time, rejecting his $10,000 offer as insufficient.

    Procedural History

    Murphy’s case began with a request for a collection due process hearing following the IRS’s notice of intent to levy. Settlement Officer Lisa Boudreau conducted the hearing and rejected Murphy’s offer in compromise, determining that the IRS could proceed with collection by levy. This decision was upheld by Boudreau’s supervisor on May 19, 2003. Murphy then timely petitioned the U. S. Tax Court for review of the IRS’s determination under Section 6330(d)(1). The Tax Court reviewed the case for abuse of discretion, the standard applicable when the underlying tax liability is not in dispute.

    Issue(s)

    Whether the IRS Settlement Officer abused her discretion in rejecting Murphy’s offer in compromise based on doubt as to collectibility and effective tax administration?

    Whether the IRS Settlement Officer improperly and prematurely concluded the Section 6330 hearing?

    Rule(s) of Law

    The IRS has the authority to collect unpaid taxes by levy under Section 6331(a). Section 6330 provides taxpayers the right to a hearing before such collection action, where they can propose alternatives like offers in compromise. Offers in compromise can be accepted on grounds of doubt as to liability, doubt as to collectibility, or to promote effective tax administration, as outlined in Section 7122 and its implementing regulations. The IRS’s decision to reject an offer in compromise is reviewed for abuse of discretion under Section 6330(d)(1) when the underlying tax liability is not at issue.

    Holding

    The Tax Court held that the IRS Settlement Officer did not abuse her discretion in rejecting Murphy’s offer in compromise and determining that the IRS could proceed with collection by levy. The court also found that the hearing was not improperly or prematurely concluded by the Settlement Officer.

    Reasoning

    The court reasoned that the Settlement Officer’s rejection of the offer in compromise was justified because the amount offered ($10,000) was significantly less than the calculated reasonable collection potential ($82,164). The court emphasized that an offer in compromise based on doubt as to collectibility must reflect the taxpayer’s ability to pay over time, which Murphy’s offer did not. For effective tax administration, the court noted that full collection potential must be possible, which was not the case for Murphy. The court also rejected Murphy’s claim that the hearing was improperly concluded, noting the Settlement Officer’s patience with multiple missed deadlines and her invitation for a revised offer. The court further dismissed claims of bias, bad faith, or procedural irregularities, stating that the process followed IRS procedures and regulations, and that Murphy’s late disclosure of health issues did not justify reopening the case. The court’s analysis highlighted the discretion afforded to IRS officers in evaluating offers in compromise and conducting Section 6330 hearings, as well as the importance of timely cooperation from taxpayers.

    Disposition

    The Tax Court affirmed the IRS’s determination to proceed with collection by levy, upholding the rejection of Murphy’s offer in compromise.

    Significance/Impact

    The decision reinforces the IRS’s broad discretion in evaluating and rejecting offers in compromise under Section 6330 hearings. It emphasizes the importance of taxpayers providing timely and complete information during such hearings and the consequences of failing to do so. The case also clarifies that the IRS is not required to negotiate offers in compromise but may do so at its discretion. The ruling has implications for taxpayers seeking to compromise tax liabilities, underscoring the need for realistic offers based on actual ability to pay and the IRS’s authority to enforce collection when such offers are deemed inadequate. Subsequent court decisions have continued to uphold this standard of review for IRS determinations in similar cases.

  • Drake v. Commissioner, 123 T.C. 320 (2004): Ex Parte Communications and Abuse of Discretion in IRS Appeals

    Drake v. Commissioner, 123 T. C. 320 (U. S. Tax Court 2004)

    In Drake v. Commissioner, the U. S. Tax Court ruled that ex parte communications between IRS Appeals officers and other IRS employees, which compromised the independence of the Appeals function, constituted an abuse of discretion. The court remanded the case for a new hearing, emphasizing the importance of an independent and impartial review process in IRS collection due process hearings. This decision underscores the need for procedural integrity in administrative tax proceedings.

    Parties

    Petitioner: Gregory Drake, residing in South Yarmouth, Massachusetts. Respondent: Commissioner of Internal Revenue, represented by the IRS.

    Facts

    Gregory Drake and Barbara Drake filed a joint bankruptcy petition under Chapter 13 in 1997, during which they sold three properties subject to federal tax liens. The proceeds were distributed to them upon dismissal of the bankruptcy case. Subsequently, the IRS sent a notice of intent to levy on their tax liabilities for several years. The Drakes requested a Collection Due Process (CDP) hearing under section 6330 of the Internal Revenue Code. During the administrative review, an ex parte communication occurred between Settlement Officer O’Shea and Advisor Gordon, where Advisor Gordon questioned the credibility of the Drakes’ bankruptcy counsel. This communication was not disclosed to the Drakes. The Appeals Officer Kaplan later closed the case without receiving requested documentation from the Drakes.

    Procedural History

    The IRS Appeals Office determined that the proposed levy should be sustained against Gregory Drake. Drake timely filed a petition for review of the determination in the U. S. Tax Court, which reviewed the determination for abuse of discretion. The court considered the ex parte communication and its impact on the independence of the Appeals function.

    Issue(s)

    Whether the ex parte communication between the IRS Appeals officer and another IRS employee, which questioned the credibility of the taxpayer’s representative, constituted an abuse of discretion under section 6330 of the Internal Revenue Code?

    Rule(s) of Law

    Section 6330 of the Internal Revenue Code requires the IRS to provide taxpayers with a notice of intent to levy and the opportunity for a hearing before the IRS Office of Appeals. The Appeals officer must conduct the hearing independently and impartially, as mandated by the Internal Revenue Service Restructuring and Reform Act of 1998. Revenue Procedure 2000-43 prohibits ex parte communications between Appeals officers and other IRS employees to the extent that such communications appear to compromise the independence of the Appeals function.

    Holding

    The U. S. Tax Court held that the ex parte communication between Settlement Officer O’Shea and Advisor Gordon, which questioned the credibility of the taxpayer’s representative, constituted an abuse of discretion. The court remanded the case to the IRS Appeals Office for a new section 6330 hearing before an independent Appeals officer.

    Reasoning

    The court’s reasoning focused on the necessity of an independent and impartial Appeals function, as required by the Internal Revenue Service Restructuring and Reform Act of 1998. The court noted that the ex parte communication between Settlement Officer O’Shea and Advisor Gordon, which involved questioning the credibility of the taxpayer’s representative, was not ministerial, administrative, or procedural in nature. This communication violated Revenue Procedure 2000-43, which prohibits such ex parte communications to ensure the independence of the Appeals function. The court emphasized that the taxpayer was not given an opportunity to participate in this communication, which may have damaged the taxpayer’s credibility in the administrative proceedings. The court’s decision to remand the case for a new hearing was based on the need to ensure that the Appeals officer could conduct an impartial review without being influenced by prior communications questioning the taxpayer’s credibility.

    Disposition

    The U. S. Tax Court remanded the case to the IRS Appeals Office for a new section 6330 hearing before an independent Appeals officer who has received no communication relating to the credibility of the petitioner or petitioner’s representative.

    Significance/Impact

    The Drake v. Commissioner decision underscores the importance of procedural integrity in IRS collection due process hearings. It reinforces the prohibition on ex parte communications between Appeals officers and other IRS employees, emphasizing the need for an independent and impartial review process. This ruling has significant implications for the administration of tax collection procedures, ensuring that taxpayers receive fair treatment and the opportunity to present their case without bias. Subsequent cases have cited Drake to support the principle that the independence of the Appeals function is crucial to the fairness of IRS proceedings.

  • Robinette v. Comm’r, 123 T.C. 85 (2004): Abuse of Discretion in Collection Actions Under I.R.C. § 6330

    James M. Robinette v. Commissioner of Internal Revenue, 123 T. C. 85 (2004) (U. S. Tax Court, 2004)

    In Robinette v. Comm’r, the U. S. Tax Court ruled that the IRS abused its discretion in declaring a taxpayer’s offer-in-compromise in default and proceeding with collection, despite the taxpayer’s late filing of a tax return. This decision emphasizes the importance of considering all relevant circumstances before defaulting an offer-in-compromise and highlights the court’s broad discretion to review evidence not included in the administrative record. The case is significant for its impact on IRS collection procedures and taxpayer rights in offer-in-compromise agreements.

    Parties

    James M. Robinette (Petitioner) filed a petition against the Commissioner of Internal Revenue (Respondent) in the United States Tax Court. The procedural designations of the parties remained consistent throughout the litigation, with Robinette as the petitioner and the Commissioner as the respondent.

    Facts

    On October 31, 1995, James M. Robinette entered into an offer-in-compromise with the IRS, agreeing to pay $100,000 to settle tax liabilities and penalties totaling $989,475 for the years 1983 through 1991. The agreement required Robinette to file all required tax returns timely for five years following its acceptance. On October 15, 1999, the due date for his 1998 tax return, Robinette’s accountant, Douglas W. Coy, prepared the return and obtained Robinette’s signature. Coy then used a private postage meter to mail the return, depositing it in a U. S. Postal Service mailbox before midnight. However, the IRS did not receive the 1998 return, and after several requests for the missing return went unanswered, the IRS declared Robinette’s offer-in-compromise in default on July 13, 2000. Robinette filed a Form 12153 requesting a Collection Due Process Hearing, arguing that he had complied with the offer-in-compromise terms. The Appeals Officer, after reviewing the administrative file and conducting a telephone hearing with Coy, determined to proceed with collection, asserting that the offer-in-compromise was properly defaulted due to non-compliance.

    Procedural History

    Robinette filed a petition with the U. S. Tax Court challenging the IRS’s determination to proceed with collection under I. R. C. § 6330. The IRS moved to strike all evidence not part of the administrative record. The Tax Court reviewed the case under an abuse of discretion standard, allowing evidence presented at trial that was not included in the administrative record. The court ultimately held that the IRS abused its discretion in determining to proceed with collection.

    Issue(s)

    Whether the IRS abused its discretion in determining to proceed with collection of Robinette’s tax liabilities after declaring his offer-in-compromise in default for failure to timely file his 1998 tax return?

    Rule(s) of Law

    The court reviews IRS determinations under I. R. C. § 6330 for abuse of discretion, which occurs when the determination is “arbitrary, capricious, clearly unlawful, or without sound basis in fact or law. ” Ewing v. Commissioner, 122 T. C. 32, 39 (2004). The court may consider evidence presented at trial that was not included in the administrative record. Ewing v. Commissioner, 122 T. C. at 44. An offer-in-compromise is governed by general principles of contract law. Dutton v. Commissioner, 122 T. C. 133, 138 (2004).

    Holding

    The U. S. Tax Court held that the IRS abused its discretion in determining to proceed with collection of Robinette’s tax liabilities, as the breach of the offer-in-compromise by Robinette’s late filing of his 1998 tax return was not material under contract law principles, and the Appeals Officer failed to consider relevant evidence and circumstances before making the determination.

    Reasoning

    The court reasoned that the Appeals Officer’s determination to proceed with collection was an abuse of discretion because it was arbitrary and without sound basis in law. The court analyzed the materiality of Robinette’s breach of the offer-in-compromise using contract law principles, finding that the breach was not material given the circumstances. The court considered the extent to which the IRS was deprived of its expected benefit, the adequacy of compensation for any loss, the forfeiture Robinette would suffer, the likelihood of curing the breach, and Robinette’s good faith efforts to comply. The court noted that Robinette had substantially performed under the agreement, had a pattern of timely filing, and had acted in good faith. Additionally, the court criticized the Appeals Officer for failing to consider relevant evidence, such as Robinette’s pattern of filing and the circumstances surrounding the mailing of the 1998 return, and for not seeking guidance from the National Office on reinstating the offer-in-compromise. The court also addressed the IRS’s motion to strike evidence not in the administrative record, holding that such evidence was admissible and relevant to the issue of abuse of discretion.

    Disposition

    The U. S. Tax Court reversed the IRS’s determination to proceed with collection and instructed the IRS to reinstate Robinette’s offer-in-compromise.

    Significance/Impact

    This case is significant for its clarification of the Tax Court’s authority to review evidence outside the administrative record in I. R. C. § 6330 cases and for its application of contract law principles to offers-in-compromise. It emphasizes the importance of considering all relevant circumstances before declaring an offer-in-compromise in default and highlights the potential for IRS abuse of discretion in collection actions. The decision impacts IRS procedures and taxpayer rights by reinforcing the need for a thorough and fair evaluation of compliance with offer-in-compromise terms.