T.C. Summary Opinion 2007-32

UNITED STATES TAX COURT

ANTHONY EDWARD AND S.F. O’CONNOR, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8378-06S. Filed March 5, 2007. 

Anthony Edward and S.F. O’Connor, pro sese.

Jeffrey S. Luechtefeld, for respondent.

PANUTHOS, Chief Special Trial Judge: This case was heard

pursuant to the provisions of sections 6330(d) and 7463 of the

Internal Revenue Code in effect when the petition was filed. The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority. Unless otherwise

indicated, all subsequent section references are to the Internal

Revenue Code in effect at relevant times. 
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This proceeding arises from a petition for judicial review

filed in response to a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 (notice of

determination) issued to petitioners on April 5, 2006. Pursuant

to sections 6320(c) and 6330(d), petitioners seek review of

respondent’s determination sustaining the filing of a notice of

Federal tax lien against them. The issue for decision is whether

respondent abused his discretion in rejecting an offer-incompromise (OIC) that petitioners submitted for the taxable years

2000 and 2001. 

Background

The record consists of the declaration of respondent’s

settlement officer, a copy of respondent’s administrative file,

and the testimony of petitioner Anthony O’Connor. At the time

the petition was filed, petitioners resided in Citrus Springs,

Florida. Petitioners have a daughter who was 9 years old at the

time of trial. 

Respondent made assessments against petitioners for the

taxable years 2000 and 2001 for tax and related interest. 

Respondent also assessed an accuracy-related penalty for the

taxable year 2000. Respondent filed a notice of Federal tax lien

and sent petitioners a Notice of Federal Tax Lien Filing and Your

Right to a Hearing Under IRC 6320. 
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Petitioners timely submitted a Form 12153, Request for a

Collection Due Process Hearing. They also submitted an OIC in

which they made a cash offer of $9,500 to compromise their 2000

and 2001 tax liabilities. The OIC was based on effective tax

administration. Petitioners stated that Mr. O’Connor had been in

a serious car accident that resulted in 9 weeks of

hospitalization, including 5 weeks spent in a coma, and rendered

him unable to work. 

Petitioners provided respondent with financial information

in support of the OIC. Petitioners indicated they owned a

residence with a fair market value of $85,000 that was subject to

a $55,225 mortgage. Petitioners also indicated they owned a

building with a fair market value of $149,000 that was

unencumbered. Petitioners rented a portion of the building to an

unrelated party and used the remainder for Mr. O’Connor’s

computer and television repair business. After Mr. O’Connor was

injured, however, the repair business generated little or no

income. 

Petitioners’ case was assigned to a settlement officer, who

conducted an administrative hearing. Petitioners did not seek to

challenge the underlying tax liabilities during the hearing or

offer collection alternatives aside from the OIC. 

After the hearing was concluded, respondent issued the

notice of determination sustaining the lien filing and rejecting
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petitioners’ OIC. Respondent determined that petitioners did not

meet the requirements for effective tax administration. The

notice states: (1) Although petitioners were each unemployed,

Mrs. O’Connor could work if necessary and Mr. O’Connor was only

temporarily disabled; (2) petitioners’ residence and the building

had fair market values of $120,500 and $192,128, respectively,

providing enough equity to pay the tax liabilities in full; and

(3) the rent petitioners received from the building allowed them

to meet their monthly living expenses. Respondent did agree,

however, to abate the assessment of the accuracy-related penalty

for 2000. Respondent also indicated that respondent would take

no further collection action unless petitioners failed to file or

pay future income taxes or their income increased substantially. 

Discussion

Section 6321 imposes a lien in favor of the United States on

all property and rights to property of a person when a demand for

the payment of the person’s liability for taxes has been made and

the person fails to pay those taxes. Such a lien arises when an

assessment is made. Sec. 6322. Section 6323(a) requires the

Secretary to file a notice of Federal tax lien if the lien is to

be valid against any purchaser, holder of a security interest,

mechanic’s lienor, or judgment lien creditor. Lindsay v.

Commissioner, T.C. Memo. 2001-285, affd. 56 Fed. Appx. 800 (9th

Cir. 2003).
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Section 6320 provides that a taxpayer shall be notified in

writing by the Secretary of the filing of a notice of Federal tax

lien and provided with an opportunity for an administrative

hearing. An administrative hearing under section 6320 is

conducted in accordance with the procedural requirements of

section 6330. Sec. 6320(c). At the administrative hearing, a

taxpayer is entitled to raise any relevant issue relating to the

unpaid tax, including a spousal defense or collection

alternatives such as an offer-in-compromise or an installment

agreement. Sec. 6330(b) and (c)(2)(A); sec. 301.6320-1(e)(1),

Proced. & Admin. Regs. A taxpayer also may challenge the

existence or amount of the underlying tax liability, including a

liability reported on the taxpayer’s original return, if the

taxpayer “did not receive any statutory notice of deficiency for

such tax liability or did not otherwise have an opportunity to

dispute such tax liability.” Sec. 6330(c)(2)(B); see also Urbano

v. Commissioner, 122 T.C. 384, 389-390 (2004); Montgomery v.

Commissioner, 122 T.C. 1, 9-10 (2004). 

At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection, taking into

account, among other things, collection alternatives proposed by

the taxpayer and whether any proposed collection action balances

the need for the efficient collection of taxes with the 
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legitimate concern of the taxpayer that the collection action be

no more intrusive than necessary. See sec. 6330(c)(3). 

Section 6330(d) provides for judicial review of the

administrative determination in the Tax Court or a Federal

District Court, as may be appropriate. Where the validity of the

underlying tax liability is properly at issue, the Court will

review the matter de novo. However, where the validity of the

underlying tax liability is not properly at issue, the Court will

review the Commissioner’s administrative determination for abuse

of discretion. Goza v. Commissioner, 114 T.C. 176, 181-182

(2000). 

Petitioners do not seek to challenge their underlying tax

liabilities. We therefore review respondent’s determination for

abuse of discretion. See Lunsford v. Commissioner, 117 T.C. 183,

185 (2001); Goza v. Commissioner, supra. 

The sole collection alternative petitioners proposed was an

OIC. Section 7122(a) authorizes the Secretary to compromise any

civil case arising under the internal revenue laws. The

Secretary may compromise a liability on the ground of effective

tax administration when, inter alia, although collection in full

could be achieved, collection of the full liability will create

economic hardship. Speltz v. Commissioner, 124 T.C. 165, 172-174

(2005), affd. 454 F.3d 782 (8th Cir. 2006); sec.

301.7122-1(b)(3)(i), Proced. & Admin. Regs. Factors supporting
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(but not conclusive of) a determination that collection would

cause economic hardship include, but are not limited to: 

(A) Taxpayer is incapable of earning a living

because of a long term illness, medical condition, or

disability, and it is reasonably foreseeable that

taxpayer’s financial resources will be exhausted

providing for care and support during the course of the

condition;

(B) Although taxpayer has certain monthly income,

that income is exhausted each month in providing for

the care of dependents with no other means of support;

and

(C) Although taxpayer has certain assets, the

taxpayer is unable to borrow against the equity in

those assets and liquidation of those assets to pay

outstanding tax liabilities would render the taxpayer

unable to meet basic living expenses.

Sec. 301.7122-1(c)(3)(i), Proced. & Admin. Regs.

Petitioners contend that Mr. O’Connor’s injuries rendered

him permanently disabled. Although Mrs. O’Connor is able to

work, petitioners contend any income she earned likely would be

offset by the cost of childcare for their daughter. Petitioners

therefore assert that the rent from the building is their only

source of income. 

Mr. O’Connor testified that he had attempted to borrow

against the equity in petitioners’ properties but was unable to

do so. Mr. O’Connor believes lenders view him as a credit risk

because of his inability to work. Selling the building to pay

the tax liabilities, he believes, would prevent petitioners from

meeting necessary living expenses. 
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At trial, respondent did not dispute Mr. O’Connor’s

testimony. Respondent contends, however, that petitioners will

not be forced to sell the building. Respondent maintains that

petitioners’ account will be placed in currently not collectible

status as long as petitioners comply with Federal tax laws and

their income does not increase substantially. 

We note that this is an action to review a notice of lien

and not a levy. A lien is a security device that assures the

Government of its priority over other creditors. Elliott,

Federal Tax Collections, Liens, and Levies, par. 9.05 (2d ed.

2005). Unlike a levy, a lien does not deprive a taxpayer of

property. Id.; see also United States v. Whiting Pools, Inc.,

462 U.S. 198, 210-211 (1983). 

Petitioners do not dispute that the rent from the building

allows them to meet their monthly living expenses. The notice of

lien will not deprive petitioners of the building, the rental

income therefrom, or any other property. While a notice of lien

may adversely affect a taxpayer in other ways, petitioners have

not demonstrated that it will cause them an economic hardship

within the meaning of the regulations.

We also note that if respondent were to remove the currently

not collectible designation from petitioners’ account and begin

further collection activity, any levy that respondent proposed

would require notice and an opportunity to be heard under section
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6320 or 6330. See Speltz v. Commissioner, supra at 180. 

Accordingly, we need not and do not decide whether petitioners

would suffer an economic hardship if respondent pursued a levy

action. 

On the basis of our review of the record, we conclude that

respondent satisfied the requirements of section 6330(c) and did

not abuse his discretion by rejecting petitioners’ OIC and

sustaining the notice of Federal tax lien filed against

petitioners. Respondent’s determination therefore is sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

for respondent.