248

TOM REED, PETITIONER v. COMMISSIONER OF INTERNAL

REVENUE, RESPONDENT

Docket No. 27604–11L. Filed September 23, 2013. 

P failed to file Federal income tax returns timely for years 

1987 through 2001. P subsequently submitted delinquent 

returns but failed to fully satisfy the outstanding tax liabilities. P submitted two separate offers-in-compromise (OICs) to 

settle the outstanding tax liabilities. R rejected the first OIC. 

R returned the second OIC. R issued a final notice of intent 

to levy. P requested a collection due process hearing (collection hearing). P raised issues during the collection hearing 

regarding R’s handling of the two OICs and requested that 

the returned OIC be reopened. R concluded that he did not 

have the authority to reopen the returned OIC and sustained 

the final notice of intent to levy. P contends that R abused his 

discretion in sustaining the final notice of intent to levy. P 

argues that R abused his discretion by concluding that he 

lacked the authority to reopen an OIC based on doubt as to 

collectibility that R returned to P years before the collection 

hearing commenced. R argues this Court lacks jurisdiction to 

determine whether he abused his discretion because P proposed no new OIC during the collection hearing. R further 

argues that this Court lacks jurisdiction because P has no 

judicial review rights relating to R’s rejecting or returning an 

OIC. Held: This Court has jurisdiction to determine whether 

R abused his discretion in sustaining the final notice of intent 

to levy. Held, further, R cannot be required to reopen an OIC 

based on doubt as to collectibility that R returned to P years 

before the collection hearing commenced. Held, further, R did 

not abuse his discretion in sustaining the final notice of intent 

to levy. 

(248) REED v. COMMISSIONER 249

1 All section references are to the Internal Revenue Code in effect at all 

relevant times. 2This question concerns the interaction of secs. 7122 and 6330 and the 

consequences that flow from the Commissioner’s rejecting an OIC versus 

his returning an OIC. The Court previously addressed a different question 

on similar facts. See Lloyd v. Commissioner, T.C. Memo. 2008–15. The 

Court at first had difficulty deciphering the taxpayer’s exact argument in 

Lloyd. The Court ultimately concluded, however, that the taxpayer in 

Lloyd was arguing that an Appeals officer abused his discretion in failing 

to use the taxpayer’s reasonable collection potential as calculated in connection with an earlier, returned OIC. Petitioner here, on the other hand, 

argues respondent abused his discretion by concluding in the determination notice that he lacked the authority to reopen an OIC based on doubt 

as to collectibility that he had returned to petitioner as unprocessable 

years before the collection hearing commenced. 

George W. Connelly, Jr., Heather M. Pesikoff, and Renesha 

N. Fountain, for petitioner. 

David Baudilio Mora and Gordon P. Sanz, for respondent. 

OPINION 

KROUPA, Judge: This collection review matter is before the 

Court because petitioner challenges a determination notice. 

See sec. 6330(d)(1). 1 Respondent issued the determination 

notice sustaining a final notice of intent to levy (proposed 

levy action). The primary issue we are asked to decide is 

whether respondent abused his discretion in sustaining the 

proposed levy action. We hold he did not. 

Determining whether respondent abused his discretion 

requires us to first consider three questions. Two of these 

questions involve well-trodden areas of law. The remaining 

question involves an issue of first impression. That question 

is: can respondent be required to reopen an offer-in-compromise (OIC) based on doubt as to collectibility that he had 

returned to petitioner as unprocessable years before a collection due process hearing (collection hearing) commenced? 2

We hold that respondent cannot be required to reopen an 

OIC based on doubt as to collectibility that he had returned 

to petitioner as unprocessable years before the collection 

hearing commenced. 

Background 

Some of the facts have been stipulated and are so found. 

The stipulation of facts and its accompanying exhibits are 

250 141 UNITED STATES TAX COURT REPORTS (248) 

3Petitioner and respondent have stipulated that the years giving rise to 

the underlying Federal income tax liabilities span 1987 through 2001. We 

note, however, that each of the OICs petitioner submitted included 1986 

as well. The underlying Federal income tax liabilities are not presently at 

issue. Accordingly, we merely note this discrepancy. 4The contents of the delinquent returns are not presently at issue. 

incorporated by this reference. Petitioner resided in Texas at 

the time he filed the petition. 

Petitioner failed to file Federal income tax returns timely 

for years 1987 through 2001 (years at issue). 3 Petitioner 

eventually filed returns for the years at issue (delinquent 

returns), but did not fully satisfy his liabilities for the taxes, 

penalties and interest arising from the delinquent returns 

(outstanding tax liabilities). 4 Petitioner subsequently submitted two separate OICs to settle his outstanding tax liabilities. 

A. The 2004 Offer 

Petitioner first submitted an OIC in 2004 (2004 offer) to 

respondent’s Houston Offer in Compromise Unit (offer unit). 

Respondent determined the outstanding tax liabilities at the 

time petitioner submitted the 2004 offer to be more than 

$480,000. Petitioner proposed in the 2004 offer to settle his 

outstanding tax liabilities for $22,000 (which was less than 

5% of the outstanding tax liabilities) based on doubt as to 

collectibility. The offer unit concluded respondent could 

reasonably collect more from petitioner than petitioner had 

proposed to pay in the 2004 offer. Accordingly, the offer unit 

proposed that the 2004 offer be rejected. 

Petitioner appealed the proposed rejection to the Internal 

Revenue Service Appeals Office in Houston, Texas (Houston 

Appeals). Houston Appeals determined that petitioner had 

received $258,000 from a real estate sale in 2001. Houston 

Appeals further determined that petitioner used a small portion of the real estate proceeds to pay business expenses and 

lost the remaining proceeds through high-risk day trading in 

the stock market. Houston Appeals therefore found that petitioner had dissipated the real estate proceeds with intentional disregard for his outstanding tax liabilities. Houston 

Appeals included the dissipated real estate proceeds in the 

calculation of an acceptable offer amount and sustained the 

offer unit’s decision to reject the 2004 offer. 

(248) REED v. COMMISSIONER 251

5The distinction between a rejected OIC and a returned OIC is important, as we later explain. Briefly, a taxpayer has the right to administratively appeal the Commissioner’s rejecting an OIC but has no right to appeal the Commissioner’s returning an OIC. 

B. The 2008 Offer 

Petitioner next submitted an OIC to the offer unit in 2008 

(2008 offer). The 2008 offer proposed settling the outstanding 

tax liabilities (which exceeded almost one-half million dollars) for $35,196, based on doubt as to collectibility. The offer 

unit determined that petitioner had failed to demonstrate he 

was in compliance with his Federal income tax obligations at 

the time he submitted the 2008 offer. The offer unit 

returned 5 the 2008 offer to petitioner as unprocessable. Petitioner then exchanged several letters with the offer unit. 

Petitioner attempted through the letter exchange to have the 

offer unit reconsider its returning the 2008 offer. To this end, 

petitioner argued that he was in fact in compliance with his 

Federal income tax obligations at the time he submitted the 

2008 offer. Petitioner also argued in the letter exchange that 

he should be given the opportunity to become compliant if, 

in fact, he was not at the time he submitted the 2008 offer. 

Petitioner continued to make payments during the pendency 

of the letter exchange consistent with the 2008 offer. The 

letter exchange ultimately failed, however, to convince the 

offer unit to alter its decision to return the 2008 offer to petitioner. 

C. The Collection Due Process Hearing 

Respondent subsequently issued a final notice of intent to 

levy (levy notice) for the years at issue. Petitioner timely 

requested a collection hearing. Settlement Officer Liana A. 

White (SO White) at Houston Appeals was assigned to conduct the collection hearing. The relevant issues petitioner 

raised at the collection hearing involved the manner by 

which respondent had handled the 2004 offer and the 2008 

offer. SO White issued the determination notice in late 2011 

sustaining the proposed levy action. Petitioner timely filed 

the petition. 

252 141 UNITED STATES TAX COURT REPORTS (248) 

Discussion 

We must now decide whether respondent abused his 

discretion in sustaining the proposed levy action. We focus on 

the manner by which respondent addressed the issues petitioner raised during the collection hearing. 

Petitioner advances two theories to argue respondent 

abused his discretion. Petitioner first attacks SO White’s 

conclusion that she lacked the authority to reopen the 2008 

offer during the collection hearing. See sec. 6330(c)(2)(A)(iii). 

Petitioner contends that SO White’s conclusion lacks a sound 

basis in fact or law. Petitioner next attacks respondent’s 

rejecting the 2004 offer and returning the 2008 offer. Petitioner makes several related arguments under this theory. 

The thrust of these arguments is that respondent improperly 

rejected the 2004 offer and improperly returned the 2008 

offer. Petitioner argues that respondent abused his discretion 

in sustaining the proposed levy action in light of these 

improprieties. 

We first address the scope of our jurisdiction because 

respondent argues we lack jurisdiction. We next address the 

standard of our review. We then address each of petitioner’s 

theories and its related arguments, in turn. 

A. Scope of Jurisdiction 

We now review the scope of our jurisdiction. The Tax Court 

is a court of limited jurisdiction. Sec. 7442; Naftel v. Commissioner, 85 T.C. 527, 529 (1985). We may exercise jurisdiction 

only to the extent expressly authorized by Congress. Stewart 

v. Commissioner, 127 T.C. 109, 112 (2006). Questions of jurisdiction are fundamental and must be addressed whenever it 

appears this Court may lack jurisdiction. Wheeler’s Peachtree 

Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 179 (1960). We 

have jurisdiction to determine whether we have jurisdiction. 

Stewart v. Commissioner, 127 T.C. at 112. 

Respondent argues this Court lacks jurisdiction because 

petitioner proposed no new OIC during the collection hearing 

and the Court therefore has nothing to consider. Respondent 

also argues this Court lacks jurisdiction because petitioner 

has no right of judicial review of respondent’s rejecting the 

2004 offer or returning the 2008 offer. We are perplexed by 

the arguments that respondent raises as they appear to miss 

(248) REED v. COMMISSIONER 253

the thrust of the theories petitioner advances. Moreover, it is 

fundamental that we have jurisdiction in collection matters 

if the Commissioner issues a determination notice and a taxpayer timely files a petition. See Sego v. Commissioner, 114 

T.C. 604 (2000); Goza v. Commissioner, 114 T.C. 176 (2000). 

Both conditions apply here. Accordingly, we have jurisdiction 

to review the determination SO White made to sustain the 

proposed levy action. Sec. 6330(d); Offiler v. Commissioner, 

114 T.C. 492, 498 (2000). 

B. Standard of Review 

We now focus on the standard we apply in determining 

whether respondent abused his discretion. Petitioner does 

not argue the validity of his outstanding tax liabilities. 

Accordingly, we review the determination sustaining the proposed levy action for abuse of discretion. Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 

181–182. We must therefore decide whether respondent acted 

in a manner that was arbitrary, capricious or without a 

sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 

301, 320 (2005), aff ’d, 469 F.3d 27 (1st Cir. 2006). 

C. Authority To Reopen the 2008 Offer 

We now address petitioner’s contention that SO White had 

the authority to reopen the 2008 offer during the collection 

hearing. SO White proposed, during the collection hearing, a 

collection alternative based on petitioner’s then-current 

financial data. Petitioner rejected the collection alternative 

SO White proposed. Petitioner argued that SO White had to 

instead reopen the 2008 offer and apply the payments petitioner made during the pendency of his letter exchange with 

the offer unit toward the 2008 offer. SO White concluded that 

she lacked authority to reopen the 2008 offer. Petitioner contends SO White’s conclusion has no sound basis in fact or 

law and therefore respondent abused his discretion. Petitioner urges us to so find because reopening the 2008 offer 

would permit respondent to treat petitioner as having met 

his payment obligations under the 2008 offer. And doing so 

would seemingly extinguish his outstanding tax liabilities as 

he paid the amount he offered to pay in the 2008 offer. 

254 141 UNITED STATES TAX COURT REPORTS (248) 

This issue of first impression concerns the interaction of 

sections 7122 and 6330 and the consequences that flow from 

the Commissioner’s rejecting an OIC versus his returning an 

OIC. We begin by reviewing the authority Congress granted 

to the Commissioner to compromise unpaid tax liabilities. 

See sec. 7122. We then turn to whether the Commissioner 

can exercise this compromise authority in the context of a 

collection hearing. See sec. 6330. 

1. Section 7122 

We first look to the Commissioner’s authority to compromise an unpaid tax liability. The Commissioner is 

required to collect all Federal income tax liabilities. Sec. 

6301. The Commissioner has discretion, however, to compromise an unpaid tax liability. Sec. 7122(a). The pertinent 

regulations set forth doubt as to collectibility as one of three 

grounds for compromising an unpaid tax liability. Sec. 

301.7122–1(b)(2), Proced. & Admin. Regs. Doubt as to collectibility exists where a taxpayer’s assets and income are less 

than the taxpayer’s unpaid tax liability. Id. 

2. Section 6330 

We now turn to the Commissioner’s exercise of this compromise authority in the context of a collection hearing. A 

taxpayer has a right to a collection hearing with an Appeals 

officer before the Commissioner can levy on the taxpayer’s 

property. Sec. 6330. The Appeals officer may consider an OIC 

proposed during a collection hearing. Sec. 6330(c)(2)(A)(iii). A 

taxpayer must propose an OIC for it to be considered during 

the collection hearing. See Sullivan v. Commissioner, T.C. 

Memo. 2009–4; Godwin v. Commissioner, T.C. Memo. 2003– 

289, aff ’d, 132 Fed. Appx. 785 (11th Cir. 2005). 

3. Interaction of Sections 7122 and 6330 

We now address whether the Commissioner can be 

required to reopen an OIC based on doubt as to collectibility 

that he returned to a taxpayer years before a collection 

hearing commenced. Petitioner urges us to adopt the theory 

that respondent can be required to do so. See sec. 

6330(c)(2)(A)(iii). We decline to adopt petitioner’s theory for 

two reasons. 

(248) REED v. COMMISSIONER 255

First, adopting the theory petitioner advances would 

impermissibly expand the Commissioner’s authority to compromise an unpaid tax liability. The Commissioner must 

evaluate an OIC proposed during a collection hearing 

according to his authority to compromise an unpaid tax 

liability. See secs. 6330, 7122; Johnson v. Commissioner, 136 

T.C. 475, 484–485 (2011), aff ’d, 502 Fed. Appx. 1 (D.C. Cir. 

2013). Here, petitioner requested in 2011 that respondent 

consider the 2008 offer based on doubt as to collectibility. 

Taxpayers must submit current financial data when proposing an OIC based on doubt as to collectibility. See Sullivan v. Commissioner, T.C. Memo. 2009–4; Godwin v. 

Commissioner, T.C. Memo. 2003–289. The theory petitioner 

advances would impermissibly expand the Commissioner’s 

authority by allowing the Commissioner to evaluate an OIC 

based on doubt as to collectibility using a taxpayer’s past 

financial circumstances. See sec. 7122(d)(1); see, e.g., Internal 

Revenue Manual (IRM) pt. 5.8.5.3(1) (Oct. 22, 2010) (financial data should be no more than six months old); IRM pt. 

5.15.1.1(4) (Oct. 2, 2012) (same). 

Presently, for example, petitioner’s theory would have 

allowed petitioner to effectively propose an OIC based on 

doubt as to collectibility in 2011 using his financial data from 

2008. Respondent, in turn, would be forced to evaluate the 

OIC based on doubt as to collectibility using financial data 

that only by mere chance reflects petitioner’s then-current 

financial circumstances. 

And second, adopting the theory petitioner advances would 

substantially interfere with the statutory scheme Congress 

created. Taxpayers may currently seek administrative review 

of the Commissioner’s rejecting an OIC. Sec. 7122(e). Taxpayers currently have no right, however, to seek review of 

the Commissioner’s returning an OIC. Sec. 301.7122– 

1(f)(5)(ii), Proced. & Admin. Regs. The theory petitioner 

advances would, in effect, create additional layers of administrative and judicial review of the Commissioner’s returning 

an OIC before a collection hearing commences. See sec. 

6330(d). Petitioner’s theory would not create analogous layers 

of review, however, for the Commissioner’s returning an OIC 

after a collection hearing concludes. See id. Whether a taxpayer may access these new layers of review would therefore 

depend on when the Commissioner returns an OIC. PetiVerDate Mar 15 2010 08:35 Feb 03, 2015 Jkt 000000 PO 00000 Frm 00008 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BVACDB~1.141\REED JAMIE
256 141 UNITED STATES TAX COURT REPORTS (248) 

6Moreover, it appears that petitioner may have been precluded from 

even raising this issue at the collection hearing in 2011 because it was 

raised and considered at the administrative hearing on petitioner’s appeal 

of the rejection of the 2004 offer. See sec. 6330(c)(4); Perkins v. Commissioner, 129 T.C. 58, 63 (2007). Respondent does not raise this argument, 

however, and we therefore need not decide this issue. 

tioner offers no, and we can find no, reasonable explanation 

for such disparate treatment based only on when the 

Commissioner returns an OIC. 

D. Rejecting the 2004 Offer 

We now turn to respondent’s rejecting the 2004 offer. Petitioner submitted the 2004 offer based on doubt as to collectibility. An OIC based on doubt as to collectibility is acceptable if it reflects the taxpayer’s reasonable collection potential (RCP). Murphy v. Commissioner, 125 T.C. at 309; Rev. 

Proc. 2003–71, sec. 4.02(2), 2003–2 C.B. 517, 517. An OIC 

will generally be rejected if the RCP meets or exceeds the 

amount offered in the OIC. IRM pt. 5.8.4.3 (May 10, 2013). 

The value of dissipated assets may be included in a taxpayer’s RCP. See Tucker v. Commissioner, T.C. Memo. 2011– 

67, aff ’d, 676 F.3d 1129 (D.C. Cir. 2012); IRM pt. 5.8.5.16 

(Oct. 22, 2010). 

SO White reviewed the account transcripts and other 

information in respondent’s files relating to respondent’s 

rejecting the 2004 offer. SO White determined that Houston 

Appeals had rejected the 2004 offer based on its finding that 

petitioner received and dissipated approximately $258,000 

from the real estate sale in 2001. SO White determined that 

Houston Appeals had properly included the dissipated real 

estate proceeds in the calculation of an acceptable offer 

amount. SO White further determined that respondent’s 

rejecting the 2004 offer was proper based on a reasoned analysis of the facts before her. Accordingly, respondent did not 

abuse his discretion in sustaining the proposed levy action in 

light of his rejecting the 2004 offer. 6

E. Returning the 2008 Offer 

We now turn to respondent’s returning the 2008 offer. The 

Commissioner has an established policy of requiring taxpayers to be in compliance with current filing and estimated 

tax payment requirements to be eligible for collection alterVerDate Mar 15 2010 08:35 Feb 03, 2015 Jkt 000000 PO 00000 Frm 00009 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BVACDB~1.141\REED JAMIE
(248) REED v. COMMISSIONER 257

natives. See Otto’s E–Z Clean Enters., Inc. v. Commissioner, 

T.C. Memo. 2008–54. Accordingly, the Commissioner does not 

abuse his discretion by returning an OIC based on a taxpayer’s failure to meet current tax obligations. 

Scharringhausen v. Commissioner, T.C. Memo. 2008–26 

(citing Christopher Cross, Inc. v. United States, 461 F.3d 610, 

613 (5th Cir. 2006)). 

SO White reviewed the files and transcripts pertaining to 

2007 and 2008. SO White testified, and the record confirms, 

that petitioner was required to pay an addition to tax for 

failure to pay estimated tax for 2007. SO White found this 

addition to tax arose from petitioner’s failure to meet his current estimated tax obligations at the time he submitted the 

2008 offer for consideration. SO White determined that 

respondent’s returning the 2008 offer was proper based on a 

reasoned analysis of the facts before her. Accordingly, 

respondent did not abuse his discretion in sustaining the proposed levy action in light of his returning the 2008 offer. 

F. Conclusion 

Petitioner did not raise any other meritorious challenges to 

SO White’s determination to sustain the proposed collection 

action. Nor did petitioner otherwise introduce any credible 

evidence or persuasive arguments that would convince us 

that SO White acted in a manner that was arbitrary, capricious or without a sound basis in fact or law. 

The record reflects that SO White verified that respondent 

satisfied all applicable legal and administrative requirements, considered all relevant issues petitioner raised, and 

balanced the intrusiveness of the proposed collection actions 

against the need for effective tax collection. See sec. 6330(c). 

We therefore conclude SO White did not abuse her discretion 

by sustaining the proposed collection action. 

We have considered all arguments made in reaching our 

decision, and, to the extent not mentioned, we conclude that 

they are moot, irrelevant, or without merit. 

To reflect the foregoing, 

Decision will be entered for respondent

f 

.