T.C. M em o . 2 0 1 7 -2 2 8

UNITED STATES TAX COURT
CRAIG K. POTTS AND KRISTEN H. POTTS, Pet i t i o n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 2 1 16 -1 6 L. Fi l edNo vem b er 2 0 , 2 01 7
.

J o h n S. J ag i el a, fo r p et i t i o n ers . Tri s h a S. Farro w an dRach ael J . Zep ed a, fo r res p o n d en t
.

M EM ORANDUM OPINION LAUBER, J u d g e: Inth is co l l ect i o n du e p ro ces s (CDP) cas e p et i t io n ers s eek
rev i ew p urs u an tt o s ect i o n 6 3 3 0 (d )(1 ) 1 o f t h e d et erm i n at i o n s b y th e In t ern al

1 Al l s t atut o ry

referen ces are t o th e In t ern al Rev en u e Co de i n effect atal l rel ev an t t i m es , an d al l Ru l e referen ces are t o the Tax Co urtRu l es o f Pract ice an d Pro cedure. W e ro u n d al l m o n et ary am o u n t s t o th e n eares td ol l ar.- 2
-

[* 2 ] Rev enu e Serv i ce (IRS o r res p o n d en t ) t o up h o l dn o t i ces o f i n t en tt o l ev y wi t h
res p ectt o p et i t i o n ers ’ u np ai dFed eral i n co m e t ax l i ab i l i t i es fo r 2 0 0 5 an d2 0 1 3
. Res po n d en th as m o v edfo r s u m m ary ju d g m en t u n d er Ru l e 1 2 1 , co n t en d i ng th at th ere are n o m at eri al fact s i n d is p u t e an dth ath i s d et erm i n at i o n t o s u s t ai n t h e p ro p o s edco l l ect i o n act i o n was p ro p er as a m at t er o f l aw. W e ag ree an dacco rd i n g l y wi l l g ran tth e m o t i o n . Back gro u n d Th e fo l l o w i n g fact s are b as edo n th e p art i es ’ p l ead i n g s an dm o t i o n p ap ers , i n cl u d i n g th e at t ach edaffi d av it s an dex hi b i t s . See Ru le 1 2 1 (b ). Pet it i on ers res i d

edi n Ari zo n a wh en th ey

fi l edth ei r p et i t io n . OnAu gu s t7 , 2 0 0 7 , p et i t i o n ers fi l eda d el i n qu en t Fed eral i n co m e t ax retu rn fo r 2 0 0 5 . Onth is retu rnth ey rep o rt ed t ax ab l e i n co m e o f $ 3 0 ,7 6 9 ,6 1 2 an d a t ax l i ab i l i ty of $ 2 , 16 6 ,2 2 5 . Th e IRS as s es s edth e t ax l iab i l i ty as rep o rt edp l u s ad d i

t i on s t o t ax u n der s ect i o n s 6 6 5 1 (a)(1 ) an d(2 ) an d6 6 5 4 (a). Th e IRS s el ect edp et i t i o n ers ’ 2 00 5 retu rnfo r ex am in at i o n an d p ro p o s eda
s ub s t an t i al d efi ci en cy . Aft er fi l i n g a p ro t es t , p et i t i o n ers reach eda s et t l em en twi th th e IRS Ap p eal s Offi ce. Pet it i on ers th ereb y ag reedt o a d efi ci en cy o f $ 2 ,9 7 8 ,7 8 9 fo r 2 0 0 5 p lu s an ad di t i o n t o t ax o f $ 50 9 ,1 3 6 u n d er s ect i o n 6 6 5 1 (a)(1 ).- 3
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[* 3 ] Th i s s et tl em en twas m em o ri al i zedo n Fo rm 8 7 0-AD, Offer t o W ai v e Res tri ct i o n s o n As ses s m en tan dCo l l ect io n o f Tax Defi ci en cy an dt o Accep t Ov eras s es s m en t . Pet it i o n ers ’ au th o ri zedrep res en t at i v e s i g n ed th e Fo rm 8 7 0 -AD o n Feb ru ary 1 5 , 2 0 1 3 . AnIRS ap p eal s t eam m an ag er accep tedth e o ffer o n M arch 1 , 2 0 1 3
. By ex ecu t i n g th e Fo rm

8 7 0 -AD p et i t i o n ers ag reedt o “ wai v e t h e res tri ct i o n s p ro v id edi n s ect i o n 6 2 1 3(a) * * * an dt o co n s en t t o th e as ses s m en tan d co l l ect i o n
o f t h e d efi ci en c[y ] an dad d i t i o n[] t o t ax ” as s etfo rth ab o v e. Th e ag reem en tp ro v i d edth at , up o n accep tan ce o f p et it i o n ers ’ o ffer, t h e IRS wo u l dn o t reo p en th e
cas e ab s en tfrau d , m al feas an ce, m is rep res en t at i o n o f a m at eri al fact , o r an i m p o rt an tm i s t ak e i n m at h em at i cal cal cu l at i o n . On Ap ri l 4 , 2 0 1 3, the IRS as s es s edth e ag reed -up o n d efi ci en cy

an dad d i t i o n t o t ax fo r 2 0 05 , t o g ether wi th ap p l i cab l e i n t eres t, fo r a t o tal ad d it i o n al as s es s m en to f $ 4 ,9 2 1,7 0 1
. Pet i t i o ners d i dn o tp ay

an y p o rt i o n o f t h i s as s es s edl i ab il it y . In s t eadth ey
s ub m i t t edt o th e IRS, o n Sep t em b er 2 3 , 2 0 1 3, a Fo rm 6 56 -L, Offer i n Co m p ro m i s e (OIC) (Do ub t as t o Li ab il i ty ). Th e IRS reject edthi s OIC o n J anu ary 3 0 , 2 0 1 4
. Th e IRS d et erm in edth atth ere was n o d o ub tas t o p et i t i o ners ’ l i ab i l i ty fo r 2 0 0 5 , an d h en ce n o b as i s fo r co m p ro m i s i n g th ei r t ax , b ecau s e th ey h adco n s en t edt o a
s et t l em en twi th th e IRS Ap peal s Offi ce an ds i gn eda Fo rm 8 7 0 -AD.- 4
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[* 4 ] Fo r t h ei r 2 0 1 3 t ax ab le y ear p et i t i on ers fi l eda t i m el y return b u td i dn o tp ay th e t ax s h o wnas du e. Th e IRS as s es sedth e t ax fo r t h aty ear p l us ad d i ti o n s t o t ax
u n d er s ect i o n s 6 65 1 (a)(2 ) an d6 6 5 4 (a). Pet i t io n ers s ubs equ en t l y fi ledam en d ed retu rn s fo r 2 0 13
. Onth e b as i s o f t h o s e am en d edretu rn s th e IRS ab at edp arto f p et i t i o n ers ’ 2 0 13 t ax l i ab i l i ty , b u ta s ubs t an t i al b al an ce rem ai n s u np ai d
. As o f J u n e 3 0 , 2 0 1 5, p et i t i o n ers ’ ag g reg at e u np ai dl i ab il i ti es fo r 2 0 05 an d 2 0 1 3 were $ 6 ,0 00 ,7 9 7 an d$ 3 8 1 ,1 3 9 , res p ect i v el y . Inan effo rtt o co l lectth es e l i ab i l i t i es th e IRS s en teach p et i t i o n er a Fi n al No t i ce o f In t en tt o Lev y an d No t i ce o f Yo u r Ri g h tt o a Heari n g . OnJ u l y 1 3 , 2 0 15 , p et it i o n ers t im el y req u es teda CDP h eari n g an dch eck edth e b o x “ Offer i n Co m p ro m i s e.” Th ey

at t ach edt o th ei r h eari n g req u es ta l et t er fro m

thei r at t o rn ey

i n d i cat i n g th ei r i nt en t i o n t o s ub m i tan OIC b as edo n effect i ve t ax ad m in i s trat i on . Th ey al s o ch al l en g edth ei r u n d erl y in g t ax l i ab i l i ty fo r 2 0 0 5
. OnFeb ru ary 2 5 , 2 0 1 6, a s et t l em en t o ffi cer (SO) fro m th e IRS Ap p eal s Offi ce s en t p et i ti o n ers ’ co u n s el a l et t er s ch edu l i n g a t el ep ho n e CDP h eari ng fo r M arch 2 3 , 2 0 1 6 . Th e l et t er ex p l ai nedth at , i n o rd er fo r t h e SO t o co n s i d er an OIC, p et i t i o n ers wo u l d n eedt o s ubm i ta Fo rm 4 3 3 -A, Co l l ect io n In fo rm at i o n St at em en t fo r W ag e Earn ers an dSel f-Em p l o y edIn d i vi dual s , s up po rt i n g fi n an ci al i n fo rm at i on fo r t h e Fo rm

4 3 3 -A, an da Fo rm

6 5 6 , Offer i n Co m

p ro m i s e. Th e SO s et- 5
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[* 5 ] d ead l i n es o f M arch 1 2 , 2 0 1 6 , fo r s ub m i s si o n o f t h e fi n an ci al i n fo rm at i o n an d M arch 1 7 , 2 0 1 6 , fo r s ub m i ss i o n o f t h e OIC p ack ag e. Pet i t i on ers s ub m i t t edn o t h

i n g b y th o s e d ead l i n es . Du ri n g a M arch 2 1 t el ep h o n e cal l p et it i o n ers ’ rep res en t at iv e as k edth atth e CDP h eari n g b e res ch edu ledt o Ap ri l 1 3 , an d t h e SO g ran tedth i s req u es t . Duri n g th e cal l th e SO em

p h as i zed th at , i f p et i t i o n ers wi s hedh er t o co ns i d er an OIC, t h ey
n eed edt o s ub m i t fi nan ci al i n fo rm at i o n . No t i n g t h ats h e h adrecei v edn o th i n g s o far, s h e warn edth at , i f p et i t i on ers fai l edt o s up p ly th e requ es t edi n fo rm at i o n fo r h er rev i ew b efo re t he CDP h eari n g d at e, t h ey wo u l dn o tb e g i v en an y

ad d it i o n al t i m e t o d o s o . Th e CDP h eari n g was h el do n Ap ri l 1 3 . Th e SO ex p lai n edth atp et i ti o n ers
co u ldn o tch al l en g e t h ei r un d erl y i n g t ax l i ab i l i ty fo r 2 0 0 5 , h av i n g wai v edth at ri gh t b y ex ecu ti n g a s et t l em en t wi th Ap p eal s an ds i gn i n g th e Fo rm 8 70 -AD. Duri n g th e h eari n g p et i t i on ers d i dn o tch al l en g e t h ei r s el f-rep ort edl i ab i l i ty fo r 2 0 1 3
. W i th res p ect t o co l l ect i o n al t ern at i v es , th e SO o b s erv ed th atp et i ti o n ers h ad
m ad e n o o ffer an dh ads ub m i t tedn o ne o f t he fo rm s o r fi n an ci al d o cu m en t at i o n s h e h ad req u es t ed . Sh e ex pl ai n edth at s he co u l dn o tco n s i d er a co l l ect i o n al tern at i v e wi th o u tth ati n fo rm at i o n. Pet i ti o n ers ’ rep res en tat i v e rep l i edth at p et i t io n ers d i d
n o ti n t en dt o s ub m i tan y

fi n an ci al i n fo rm at i o n, b el i ev i n g i tt o b e u n n eces s ary i n- 6
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[* 6 ] th e cas e o f an OIC p red i cat edo n effect i ve t ax ad m i n i st rat i o n . He s t at edth at p et i t i o n ers p l an n edt o s ub m i tan o ffer o f t hatty pe b y Ap ri l 2 9 ; th e SO rep l i edth at
s h e wo u l dg ran t n o fu rt h er ex t en s i o n s . Th e SO acco rd i n gl y cl o s edth e cas e an d , o n Ap ri l 3 0 , 2 01 6 , th e IRS i s s u edeach p et i t i o n er a n ot i ce o f d et erm i n at io n
s u s t ai n i n g t h e l ev y . Pet i t i on ers t i m el y

p et it i o n edth i s Co u rts eek i n g rev i ew o f t h e d et erm i n at i on . Inth ei r p et i t i o n th ey al l eg e t hatth ey s ub m i t t edt o the IRS o n M ay 2 , 2 0 1 6 , an OIC b as edo n effect i ve t ax ad m i n i s trat io n , o fferi n g t o co m pro m i s e t h ei r t ax l i ab i l i t i es fo r 2 0 05 , 2 0 0 8 , 2 0 0 9 , 2 0 1 0 , 2 0 1 1 , 2 0 1 2 , an d2 0 13 fo r $ 2 ,0 3 4 , 2 1 6 . Ackn o wl ed g i n g recei p t o f t h i s o ffer, res p on d en ts t at es th atth e IRS reject ed i t b ecau s e p et i t i o n ers refu s edt o s ubm itan y fi n an ci al i n fo rm at i o n. Di s cu ss i o n A. Su m

m ary J u dg m en tSt an d ard Th e p u rp os e o f s u m

m ary ju d g m en t i s t o ex p ed it e l i t i g at i o n an d av o i dco st l y , t i m e-co n s u m i n g , an du n n eces s ary tri al s . Fl a. Peach Co rp . v . Co m m i s si on er, 9 0 T.C. 6 7 8 , 6 8 1 (1 9 8 8 ). Th e Co urtm ay g ran t s umm ary

ju d g m en twh en th ere i s n o g en ui n e d i s p u t e as t o an y m at eri al fact an da d eci s i o n m ay b e ren dered as a m at t er
o f l aw. Ru l e 1 2 1 (b ); Su n d st ran dCo rp . v . Co m m i ss i o n er, 9 8 T.C. 5 1 8 , 5 2 0 (1 9 9 2 ), aff’ d , 1 7 F.3 d9 65 (7 th Ci r. 1 99 4 ). In d eci d i n g wh et h er t o g ran ts u m m ary ju d g -- 7
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[* 7 ] m en t , we co n s tru e fact u al m at eri al s an d i n feren ces drawn fro m th em i n th e l i gh t m o s tfav orab l e t o th e n o n m o v i n g p art y . Su n d st ran d Co rp . , 9 8 T.C. at5 2 0
. Ho wev er, th e n o n m o v in g p arty m ay n o tres tup o n m ere al l eg at i o n s o r d en i al s o f h i s p l ead i n g s b u ti n s t eadm u sts etfo rt h s p eci fi c fact s s h o wi n g th atth ere i s a g en u i n e d is p u t e fo r t ri al . Ru le 1 2 1(d ); s ee Su n d s tran dCo rp ., 9 8 T.C. at5 20
. In th ei r o p po si t i on t o th e s u m m ary ju d g m en tm ot i o n , p et i ti o n ers m ak e n u m ero u s as s ert i o n s co ncern i n g th e IRS ex am in at i o n o f t h ei r 2 0 0 5 retu rn an dth e al

l eg edl o s s o f t hei r o ri g i n al t ax reco rd s . As ex p l ai n edm o re fu l l y b el ow, we co n cl u d e t h atn o ne o f thes e al l eg at i o n s creat es a g enu i n e d i s p u te o f m at eri al fact . W e
acco rd i n g l y

fi n dth is cas e ap pro p ri at e fo r s u m m ary ad ju d i cat io n . B. St an dardo f Rev i ew Sect io n 6 3 3 0 (d )(1 ) d o es n o tp res cri be t he s t an d ard o f rev i ew t h atth is Co u rt
s h o u ldap p l y

i n rev i ewi n g an IRS ad m i n i s trat i v e d et erm i n at i o n i n a CDP cas e. Bu t o u r cas e l aw t el l s u s wh at s t an d ard t o ad o p t
. Wh ere t he v al i d i ty o f t h e t ax p ay ers ’ u n derl y i n g t ax l i ab i l i t i es i s p ro p erl y ati s su e, we rev i ew th e IRS’ d et erm i

n at i o n d e n o v o . Go za v . Co m m i s s i o n er, 1 14 T.C. 1 7 6, 1 8 1 -1 8 2 (2 0 0 0 ). Wh ere th e t ax p ay er’ s u n derl y i n g l i ab i l i t y i s n o t b efo re u s , we rev i ew t h e IRS d eci s i o n fo r ab u se o f d i s cret i o n . Ib i d.- 8
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[* 8 ] C. Un d erl y in g Tax Li ab i l it y Pet i t i o ners s eekt o ch al l en g e t h ei r u n d erl y i n g t ax l i ab il i ty o n l y wi th res p ect t o thei r 2 0 05 t ax ab l e y ear. 2 A t ax p ay er m ay ch al l en g e t h e ex i s t en ce o r am o u n to f h i s u n d erl y i n g l i ab il i ty

i n a CDP p ro ceed i n g o n ly “ i f th e p ers o n d i dn o trecei v e
an y s t atu to ry n o t i ce o f d efi ci en cy fo r s u ch l i ab i l it y

o r d i dn o to th erwi s e h av e an
o p p o rtu ni ty

t o d is p ut e” i t . Sec. 6 3 3 0 (c)(2 )(B). Res p o n d en tco n ten d s th atp et i t i o n ers can n o tch al l en g e th ei r u n d erl y in g l iab i l i ty fo r 2 00 5 b ecau s e t h ey

h ada p ri o r
o p p o rtu ni ty

t o d is p ut e t hatl i ab i l i ty

i n th i s Co u rtb u t wai v edth ei r ri g h tt o d o s o b y
s i gn i n g Fo rm

8 7 0 -AD. Onthi s p o i n twe ag ree wi th res p on d en t
. Ord i n ari l y , i f t h e IRS m ak es an ad ju s t m en t t o a t ax p ay er’ s retu rn an d i s s u es
a n o t i ce o f d efi ci en cy

s et t i n g fo rt h th atad

ju s t m en t, th e t ax pay er h as 9 0 d ay s t o fi l e a p et i t io n fo r red et erm i n at i o n wi th th i s Co u rt . See s ec. 6 2 1 3 (a). If a t ax p ay er fi l es a t im el y p et i ti o n , th ere can b e n o as ses s m en to f t he d efi ci en cy b efo re t h e Co u rth as

2 Pet i t i on ers d i dn otd i s p u t e t h ei r 2 0 1 3 l i ab i l i ty du ri n g th e CDP h eari n g o r i n th ei r p et i t i o n t o th i s Co u rt , an dth ati s s u e i s th u s d eem edwai v ed . See Ru l e 3 3 1 (b )(4 ) (“ An y

i s su e n o trai s edi n th e as s i g n m en t s o f erro r s hal l b e d eem edt o b e co n ced ed .”); Th o m

p s o n v . Co m

m i s si o ner, 1 4 0 T.C. 1 73 , 1 7 8 (2 0 13 ) (n o t i n g th ata t ax p ay er “ i s p recl u dedfro m d i s p u t i n g th e u n d erl y i n g l i ab i l i ty i f i t was n o t p ro p erl y rai s edi n th e CDP h eari n g ”). Pet i t i o n ers h av e ad v i sedth e Co u rt thatth ey are wo rk i n g wi th t h e IRS t o res o l v e t h ei r 2 0 1 3 t ax l i ab i l i ty o u ts i d e o f t h i s CDP cas e. Th i s h as n o effect o n o u r ju ri s di ct i o n t o co n s i d er t h e p ro p ri et y o f th e IRS co l l ect i on act i o n u n d er rev i ew. See, e.g ., Ah m ad v . Co m m is s i o n er, T.C. M em o . 2 0 1 1
- 2 6 9
.- 9
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[* 9 ] ren d ereda d eci s i o n . See s ecs . 6 2 1 5 (a), 7 4 8 5(a). Bu t t ax p ay ers m ay el ectt o wai v e t h e res tri ct io ns o n as s es s m en ts et fo rt h i n s ect i o n 6 2 1 3 (a). Sect i o n 6 2 1 3 (d ) p ro v id es th at“ [t ] h e t ax p ay er s hal l atan y t i m e (wh ether o r n ota n o t i ce o f d efi ci en cy h as b een i ss u ed ) h av e t h e ri g h t , b y a s i g n ed n o t i ce i n wri t i ng fi l edwi th th e Secret ary , t o wai v e t h e res tri ct i o n s p ro vi d ed i n s ub s ect io n (a) o n th e as s es s m en tan d
co l l ect i o n o f t h e wh o l e o r an y p arto f t he d efi ci en cy .” On e way a t ax pay er can wai v e the res tri ct i on s o n as s es s m en ti s b y ex ecu t i n g a Fo rm 8 7 0 -AD up o n reach i ng a s et t l em en twi th th e IRS Ap p eal s Offi ce. Th i s fo rm s t at es : Un d er th e p ro vi si o ns o f s ect i o n 6 2 1 3 (d ) * * * the u n ders i gn edo ffers t o wai v e t h e res tri ct i o n s p ro v i d edi n s ect i o n 6 2 1 3 (a) * * * an d t o co n s en tt o th e as s es s m en tan dco ll ect i o n o f t h e fo l l o wi ng d efi ci en ci es an dad d it i o n s t o t ax , i f an y , wi th i n t eres t as p ro v i d edb y l aw. Atth e ex am in at i o n l ev el t ax p ay ers can effect an equ i v al en twai v er b y ex ecu t i n g Fo rm 8 7 0 , W ai v er o f Res tri ct i o n s o n As s es s m en tan dCo l lect i o n o f Defi ci en cy i n Tax an dAccep t an ce o f Ov eras s es s m en t . Th atfo rm s i m i larl y s t at es : “ I co ns en tt o th e i m m ed i at e as s es s m en t an d co l l ect i o n o f an y d efi ci en ci es * * * . I u n d ers t an d th atb y s i g n i n g t h i s wai v er, I wi l l n o tb e ab l e t o co n t es t th es e y ears i n t h e Un i t ed St at es Tax Co u rt .”- 1 0 -

[* 1 0 ] Th i s Co u rth as co n s i s t en t l y h el d t hatt ax p ay ers wh o ex ecu t e Fo rm 8 7 0 o r 8 7 0 -AD can n o t th ereaft er co nt es ti n a CDP p ro ceed i n g the l iab i l i t i es co v eredb y th o s e ag reem en ts . As we ex p l ai n edi n Es t at e o f Dees e v . Co m m i ss i o n er, T.C. M em o. 2 0 0 7 -3 6 2 , 9 4 T.C.M . (CCH) 5 4 6, 5 4 7: “ [B] y s ub m i t t i n g th e Fo rm

8 7 0
- AD, co n s en t i n g t o th e i m m ed i at e as ses s m en t an d co l l ect i o n o f t h ei r d efi ci en ci es , * * * [t h e t ax p ay ers ] wai v edth ei r ri g h tt o a n o ti ce o f d efi ci en cy an dg av e up an y ri gh t t o ch al l en g e t h ei r u n d erl y i n g l i ab i l i t i es i n a co l l ect i on p ro ceed i n g . ” W e h av e s im i l arl y

ru l edth at“ [t ] ax p ay ers wh o ex ecu t e a Fo rm 8 7 0 * * * wai v e th ei r ri gh t t o recei ve a n o ti ce o f d efi ci en cy an d , h en ce, th e ri g h t t o co n t es tth e u n d erl y i n g l i ab i l i ty

i n a s ubs equ en tco l l ect i o n act i o n .” Lan ce v . Co m m i s si on er, T.C. M em o. 2 0 0 9 -1 2 9 , 9 7 T.C.M . (CCH) 1 6 70 , 1 67 1 ; s ee Ri vera v . Co m m i s s io n er, T.C. M em o . 2 00 3 -3 5 , 8 5 T.C.M . (CCH) 8 3 2, 8 3 5 (“ By s i g n i n g Fo rm

8 7 0 , p et i

t i on er wai v edh i s ri g h tt o a n o t i ce o f d efi ci en cy an dex h au s tedh i s o pp o rtun i ty t o
co n tes tth e t ax l i ab i l it y .”), aff’ d, 1 0 2 F. Ap p ’ x 5 9 4 (9 th Ci r. 2 0 0 4). Pet i t i o ners ’ au tho ri zedrep res en t at i v e ex ecu t ed a v al i d Fo rm 8 7 0-AD o n th ei r b eh al f, an dth e IRS accep t edi to n M arch 1 , 2 0 1 3. By th is ag reem en t p et i

t i on ers co n s en t ed t o th e i m m ed i at e as s es s m en t o f t h e ag reed -up o n l i ab i l i ty an d wai v ed thei r ri g htt o recei v e a n o t i ce o f d efi ci en cy , wh i ch wo u l dh av e en t i t l ed th em t o co n t es tth ei r 2 0 05 l i ab il i t y i n thi s Co u rt . Becau s e p et i t i o n ers h ad , b u t- 1 1 -

[* 1 1 ] el ect edt o fo rg o , a p ri o r o p p o rtu n i ty t o ch al l en g e t hatl i ab i l i ty , th ey were fo recl o s ed fro m

d is p ut i n g i t du ri n g th e CDP p ro ceed i n g . See s ec. 6 33 0 (c)(2 )(B). As we n o t edi n Ag u i rre v . Co m m i s s i o n er, 1 1 7 T.C. 3 2 4 , 3 2 7 (2 00 1 ): “ Th e fact th ats ect i o n 6 3 3 0 n o wp ro v i d es an o p p o rtu n i ty t o co n t es tt ax l i ab i l it y fo r t ax p ay ers wh o d i dn o trecei ve a n o t i ce o f d efi ci en cy * * * p ro v id es n o co n s ol at i o n t o p et it i on ers wh o th em sel v es m ad e t h e ch o i ce n ott o recei v e s u ch n o t i ce.” Pet i t i o ners co n t en dth atth e Fo rm 8 7 0-AD ag reem en ts h o ul d n otb i n dth em , b ecau s e o f al l eg ederro rs b y th e IRS an d/ o r t he U.S. Dep art m en to f J u s t i ce (J u s t i ce Dep art m en t ). Pet it io n ers al l eg e th atth e acco u n t an twh o p rep ared th ei r 2 00 5 retu rn p ro v i d edth ei r o ri g in al t ax reco rd s t o th e IRS i n co nn ect i o n wi th i t s ex am i n at i o n o f t h atretu rn . Th e IRS fo rward eds o m e o r al l o f t h o s e reco rd s t o th e Tax Di v is i o n o f t h e J u st i ce Dep art m en t, an d p et i t i o n ers ’ rep res en t at i v es i n Au g u s t 2 0 1 0 req u es t edth o se d o cu m en t s b ack
. In No v em

b er 2 0 1 0 t h e J us t i ce Dep art m en t retu rn edt o p et i t i o n ers “ a b i n d er
co n tai n i n g th e d o cu m en t s th at th e Go v ern m en trecei v ed ” fro m th ei r acco u n t an t. Bu t p et i t i o n ers i n s i s t th at th ere were o th er reco rd s , n o tco n t ai n edi n the b i n d er, wh i ch were n ev er ret u rn edt o th em an dare n o w l o s t. Th e l o s s o f t h o s e reco rd s , p et i t i o n ers co n t en d , co m

p l i cat edth ei r t as ko f reco n s tru ct i n g th ei r co s tb as es i n cert ai n s to ckth ey s ol ddu ri n g 2 0 0 5
.- 1 2 -

[* 1 2 ] Pet i t i o ners as s ertth atex ecu t io n o f t h e Fo rm 8 70 -AD d o es n o t b ar t h em fro m d i s p u t i ng th ei r 2 0 0 5 t ax l iab i l i ty “b ecau s e t h e IRS fai l edt o d is cl os e an dco n ceal edm at eri al fact s .” Bu tp et i t i o n ers h av e fai l edt o i d en t i fy an y fact s t h atth e IRS
co u ldb e t h o u g h tt o h av e co n ceal edo r n eg lect edt o d i s cl o se. If an y o f p et i t i o n ers ’
reco rd s were l os t , p et i t i o n ers an dth ei r at t o rn ey s were fu l l y aware o f t hatfactn o l at er t h an No v em

b er 2 01 0 , wh en th e J u s t i ce Dep art m en tretu rn edt o th em wh ati t d es cri b edas “ a b i n der co n t ai n i n g th e d o cu m en t s th atth e Go v ern m en trecei v ed ” fro m th ei r acco un tan t
. No twi th s t an d i n g th i s kn o wl ed g e, p et i t i o n ers p ro s ecu teda p ro t es tt o t h e IRS Ap p eal s Offi ce, n eg o t i at edwi th Ap p eal s co ncern i n g thei r 2 0 0 5 t ax l i ab i l i ty , an d
s et t l edth e cas e wi th Ap p eal s b y ex ecu t i n g a Fo rm

8 7 0-AD i n Feb ru ary 2 0 1 3 . If p et i t i o n ers b el iev edth ey

were h an d i cap p edb y th e al l eg edl o s s o f reco rd s , th ey were free t o d em an d(an d m ay h av e d em an d ed ) co rres p o n di n g co n ces s i o n s fro m Ap p eal s. Or they

co u l dh av e d ecl in eda s et t l em en t an dt ak en th ei r ch an ces i n
co u rt . Th ey

el ect edi n st eadt o s et t l e t he cas e o n th e b as i s o f h azard s o f l i ti g at i o n b y ex ecu t i n g a Fo rm

8 70 -AD. Fo r t h es e reas on s we co ncl u d e t h atp et i t io n ers h av e al l eg edn o fact s s u ffi

ci en t t o creat e a m at eri al d is p u t e o f fact co n cern in g th e v al i d i ty o f t he Fo rm- 1 3 -

[* 1 3 ] 8 7 0 -AD. As ex p l ai n edp rev i ou s l y , th ei r ex ecu t i o n o f t h atag reem en tfo recl o s es th em

fro m d i s p u ti n g i n th i s CDP cas e th ei r u n d erl y i n g t ax l i ab i l i ty fo r 2 0 0 5
. 3 D. Ab u se o f Di s cret i on Wh ere a t ax pay er’ s u n d erl y i n g l i ab il i ty i s n o t p ro p erl y b efo re u s , we rev i ew th e IRS’ d et erm in at i o ns fo r ab us e o f d i s cret i o n o n l y . See Go za, 1 1 4 T.C. at1 8 2
. Ab u s e o f d i s cret i o n ex i s ts wh en a d et erm i n at i o n i s arb i trary , cap ri ci o us , o r wi t h o u t
s o u n d b as i s i n facto r l aw. M u rp h y v . Co m m i s s i o n er, 1 2 5 T.C. 3 0 1 , 3 2 0 (2 0 0 5 ), aff’ d , 4 6 9 F.3 d2 7 (1 s tCi r. 2 0 0 6 ); s ee al s o Kel l er v . Co m m i s s i o n er, 5 6 8 F.3 d7 1 0 , 7 1 6 (9 th Ci r. 2 0 09 ), aff’ g i n p artT.C. M em o . 2 0 0 6-1 6 6
. In d eci d i ng wh et her t h e SO ab u s edh er d is cret i o n i n s u s t ai ni n g th e co l l ect i on act i o n s , we co n si d er wh et her s h e: (1 ) p ro p erl y v eri fi edth atth e requ irem en t s
o f an y ap p l i cab l e l aw o r ad m i n i s trat i v e p ro cedu re h adb een m et ; 4 (2 ) co n s i d ered

3 Pet i t i on ers ci t e cas es ho l d i n g th atex ecu ti on o f a Fo rm 8 7 0 -AD d o es n o t n eces s ari l y

p rev en t a t ax p ay er fro m

l at er fi l i n g a refu n d s u i t . See, e.g ., Wh i tn ey v . Un i ted St at es , 8 2 6 F.2 d8 96 (9 th Ci r. 1 9 8 7 ). Bu tth e qu es t i o n i n t h i s CDP cas e i s n o twh et h er t h e Fo rm

8 7 0 -AD b o u n dp et i ti o n ers fo r al l p u rp o ses , b u t wh eth er b y ex ecu t i n g th at ag reem en tth ey wai v eda p ri o r o pp o rtu n i ty t o d i s p u t e t h ei r 2 0 0 5 l i ab i l i ty in th is Co u rt . Th e an s wer t o th atqu es t i on i s cl earl y “ y es .”
4 Sect i o n 6 7 5 1 (b )(1 ) p ro v i d es th at“ [n ] o p en al ty u n der t h i s t it l e s hal l b e as s es s edu n l es s th e i n i ti al d et erm i n at i o n o f s u ch as s es s m en t ” recei v es s uperv i s o ry ap p ro v al . Th i s p ro vi s io n d oes n o tap p l y t o “ an y ad di t i o n t o t ax u nd er s ect i o n

(co n ti n u ed ...)- 1 4 -

[* 1 4 ] an y rel ev an ti s s u es p et it i o n ers rai s ed ; an d (3 ) d et erm i n edwh et h er “ an y p ro p os edco l l ect i o n act i o n b al an ces th e n eedfo r th e effi ci en t co l l ect i o n o f t ax es wi th th e l eg i t i m at e co n cern o f * * * [p et i t i o n ers ] th atan y co l lect i o n act io n b e n o
m o re i n tru s i v e t h ann eces sary .” See s ec. 6 3 3 0 (c)(3 ). W e co ncl u d e t h at th e SO s at i s fi edal l o f th es e req u i rem en t s . Pet i t i o n ers ex p res s edi n t eres ti n an OIC. Bu tth ey fai l edt o s ub m i tb y

th e SO’ s d ead l i n e ei th er
an actu al o ffer o n Fo rm

6 56 o r t h e fi n an ci al i n fo rm at i on (i n cl u d i n g Fo rm 4 3 3 -A) req u i redfo r co n s i d erat i o n o f a co l l ect i on al t ern at i v e. Th e SO warn edp et i t i o n ers ’ rep res en t at i v e du ri n g th ei r M arch 2 1 t el ep h on e cal l th at , i f p et i t i o ners fai l edt o
s up p ly th e req u i redi nfo rm at io n fo r h er rev i ew b efo re t h e CDP h eari n g d at e, t h ey
wo u l dn o tb e g i v en an y ad d i ti o n al t i m e t o d o s o . Pet i t i o ners s up p l i edn o n e o f t h e req u i redfi nan ci al i n fo rm at i on b efo re t h e CDP h eari n g o n Ap ri l 1 3. In deed , p et i t i o n ers ’ rep res en t at i v e i n fo rm edth e SO du ri n g th ath eari n g th at p et i t i o ners wo u l d n o ts ubm i t an y fi n an ci al i nfo rm at i o n , as s ert i n g th ati twas u n n eces saryb ecau s e t h ei r i n t en d edOIC wo ul db e b as edo n effect i v e t ax ad m i n i s trat i o n . Th atas s ert io n was i n co rrect : Th e In t ern al Rev en u e

4 (...co n t in u ed ) 6 6 5 1 , 6 6 5 4 , o r 6 6 55 .” Sec. 6 7 5 1 (b )(2 )(A). Acco rd i n g l y , the SO was n o treq u i red t o v eri fy th atth e $ 5 0 9 , 1 3 6 ad di t i o n t o t ax as s es s ed ag ai ns tp et i t i o n ers fo r 2 0 0 5 u n d er s ect i o n 6 6 5 1 (a)(1 ) h adb een ap p ro v edb y a s up erv i s o r.- 1 5 -

[* 1 5 ] M an u al (IRM ) req u i res Ap p eal s o ffi cers t o co n du ct , fo r an OIC b as edo n effect i v e t ax ad m i n i s trat i o n , th e s am e fi nan ci al an al y s i s as fo r an OIC b as edo n d o ub tas t o co ll ect i b il i ty , th u s en ab l i n g th e IRS t o d et erm i n e th e t ax pay er’ s
reas on ab l e co l lect i o n p o t en t i al an dan accep t ab le o ffer am ou n t . See IRM p t
. 5 .8
. 11 .4 .2 (Au g . 5 , 2 0 1 5 ); i d
. p t . 5 .8 .1 1 .1 (6 ) (“ Th e t ax p ay er m u s ti n cl u d e t h e Co l lect i on In fo rm at i o n St at em en t(CIS) (Fo rm 4 3 3 -A (OIC)) * * * wh en
s ub m i t t i n g an o ffer req u es t in g co n s i d erat i on u n d er ETA.”). AnAp p eal s o ffi cer d o es no tab u s e h er d i s cret io n wh en fo l l o wi n g IRM g u i del i nes i n ev al u at i n g
co l l ect i o n al t ern at i v es . Lem an n v . Co m m i s s io n er, T.C. M em o . 2 0 0 6 -3 7 , 9 1 T.C.M . (CCH) 8 4 6 , 8 5 1
. W e h av e co n s is t en t l y

h el dth ati ti s n o tan ab u se o f d i s cret i o n fo r an Ap
p eal s o ffi cer t o rejectco l l ect i o n al t ern at i v es an ds u s tai n the p ro p o s edco l l ect i o n act i on wh ere t ax p ay ers h av e fai l edt o p u ta s p eci fi c o ffer o n th e t ab le an d h av e fai l ed , aft er b ei n g g i v en s u ffi ci en to p p o rtu ni t i es , t o s up p l y th e SO wi th th e requ i redfo rm s an ds up p ort in g fi n an ci al i n fo rm at i o n . See Hu n tres s v . Co m m i s s i o n er, T.C. M em o . 2 0 09 -1 6 1; Prat er v . Co m m i s s i o n er, T.C. M em o . 2 0 0 7 -2 4 1; Ro m an
v . Co m m i s s i o n er, T.C. M em o . 2 0 0 4 -2 0 . Pet i t i o n ers h adm o re t han two m o n th s t o
s ub m i tth e fi n an ci al i n fo rm at io n th e SO h adreq u es ted . Wh en th ey s ub m i t t edn o n e- 1 6 -

[* 1 6 ] an d t o l d t h e SO t h atth ey d i dn o ti n t en dt o s ub m i tan y , s h e d i dn o tab u s e h er d i s cret i o n b y

cl o s i n g th e cas e. Fi n d i n g n o ab u s e o f d i s cret i o n i n th i s o r i n an y o th er res p ect , we wi l l g ran t
res p o n d en t’ s m o t i o n fo r s umm ary ju d g m en tan daffi rm

th e p ro p o s edco l l ect i o n act i on as t o 2 0 05 an d2 0 1 3 . Pet i t io n ers are ad v i s edth atth ey are free t o s ub m i tt o th e IRS, fo r i t s co n s i derat i o n an dp o s s ib l e accep tan ce, an OIC o n Fo rm 6 5 6 s up p o rt edb y th e n eces s ary

fi n an ci al i nfo rm at i o n. 5 To refl ectthe fo reg o i n g , Anap p ro p ri at e o rd er an dd eci s i o n wi l l b e en t ered
.

5 Befo re an daft er t h e CDP p ro ceed i n g , p et it i o n ers s ub m i t t edn o fewer t h an s i x OICs s eek in g t o co m

p ro m i s e t hei r o ut st an d in g t ax l i ab i li t ies . Th e SO d i dn o t co n si d er an y

o f t h es e o ffers , an dth ey

are i rrel ev an tt o o u r d et erm in at i o n i n th i s cas e.