T.C. Mem o. 2 01 5- 21 5

UNITED STAT ES TAX COURT

ERIC EDWA RD CHANDLER, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 68 66 -1 2L. Fi le d No ve m be r 4, 2 01 5.

Eric EdwardCh an dl er, p ro se. In gaC. Plu ci ns ki -Ho lb ro okan d C ha rle s B . Burne tt , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION LAUBER, Ju dg e: In thi s co ll ect io n due pro ces s (C DP) cas e, pe ti ti on er se ek s re vi ew pu rs ua ntto sec ti on s 6 32 0( c) an d 6 33 0( d) (1 ) of th e d et erm in at io n b y th e In te rn al Rev enue Serv ic e (IR S o r res po nd en t) t o uph ol d ano ti ce o f Fed eral tax- 2 -

[* 2] li en(NFTL) fil in g. The s ol e que st io n fo r de ci si on is whet he r th e IRS 1 se tt le m en t o ffi cer ( SO) ab us edhe r di sc ret io n i n re jecti ng pe ti ti on er’s o ffer -in co m pr om is e (OIC) . W e h ol d t ha t s he di d n ot . FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s an d t he att ach edex hi bi ts are i nc or po rat edby thi s re fere nc e. Pet it io ne r res id edinUtah when he fil edhi s p et it io n. Pet it io ne r ha s b eena freque ntvi si to r to th is Co urt. Thi s ca se in vo lv es hi s 2 Fed eral in co m e ta x l iabi li ti es for19 88 , 19 89 , 19 90 , 19 91 , 20 05 , and20 08 . In Aug us t 1 99 4 p et it io ne r fi le d d el in qu en t re tu rn s fo r 19 88 -1 99 1. He d idno t p ay th e fu ll am ou nt s o f ta x s ho wn as du e o n t ho se returns , andth e IRS ass es se d t he tax li ab il it ie s tha t p et it io ne r ha d re po rte d. Aft er p et it io ne r fai le d t o p ay th es e li ab il it ie s o n n ot ic e an d d em an d, the IRS at te m pt edto co ll ectth e li ab il it ie s b y All st atut ory

refe ren ces are t o t he Int ern al Rev enue Co de ineffe ctat a ll 1 rel ev an t t im es . W e ro un d a ll do ll ar am ou nt s t o t he ne ares t d ol lar. See, e.g ., Cha nd le r v. C ommis si on er, T.C. Dkt . No. 6 15 9- 83 (Mar . 26 , 2 20 13 ) (s us ta in in g t ax de fic ie nc ie s ag ai ns t p et it io ne r fo r 19 79 an d 1 98 0) ; Ch an dl er v. Co m m is si on er, T.C. Dkt . No. 1 18 31 -8 4 (M ar. 2 6, 2 01 3) (su st ai ni ng tax de fic ie nc ie s ag ai ns t p et it io ne r fo r 19 81 ); C ha nd le r v. C omm is si on er, T.C. Dkt . No. 22 59 9- 86 (Mar . 26 , 20 13 ) (s us ta in in g t ax de fic ie nc ie s ag ai ns t p et it io ne r fo r 19 82 ); Ch an dl er v . Comm is si on er, T.C. Mem o. 1 99 1- 42 5 (s us ta in in g t ax de fic ie nc ie s an d pe na lt ie s ag ai ns t p et it io ne r fo r 19 84 , 19 85 , and19 86 ).- 3 -

[* 3] le vy. In20 08 we su st ai ne d t ha t l ev y , andou r de ci si on was a ffi rm edby the U.S. Cou rt o f App eal s fo r th e Ten th Cir cu it . Cha nd le r v. C omm is si on er, T.C. Dkt . No. 7 25 2- 07 L (Apri l 3 , 20 08 ) (b en chop in io n) , aff’d, 3 27 F. App ’x 76 3 (1 0t h C ir. 20 09 ). Pet it io ne r li ke wis e fi le d d el in qu en t re turn s fo r 20 05 an d 2 00 8. He d idno t pa y th e fu ll am ou nt s o f ta x s ho wn as du e o n t ho se returns , andth e IRS ass es se d th e ta x l iabi li ti es th atpe ti ti on er h adrep orte d. InJu ly 201 0, i n a n e ffo rt t o c ol le ct pe ti ti on er’s unp ai d t ax li ab il it ie s fo r 20 05 an d 2 00 8, an d i n afurth er ef fo rt t o co ll ecthi s u np ai d t ax li ab il it ie s fo r 19 88 -1 99 1, the IRS s en t h im a Lett er 3 17 2, Not ic e o f Fed eral Tax Li enFil in g a ndYou r Ri gh t t o aHeari ng . Peti ti on er t im el y subm it te d aFo rm

12 15 3, Re qu es t fo r a Co ll ect io n Du e Pro ces s o r Equ iv al en t Heari ng . Sh ortl y aft er re qu es ti ng th e CDP h eari ng pe ti ti on er s ub m it te d aFo rm 65 6, Offer i n C om

pr om is e, st at in g t ha t h is off er was ba se d o n “ do ub t as to co ll ect ib il ity.” At tha t t im e h is unpa idFed eral in co m e ta x l iabi li ti es ex ceed ed$6 00 ,00 0. In hi s OIC he off

eredto pa y

$1 22 pe r m on th for

24 m on th s, fo r a t ot al of $ 2,9 38 . He st at edth athi s i nd iv idua l m on th ly inc om e was th en$4 ,26 2; th atto ta l h ou se ho ld m on th ly inc om e (i nc lu di ng hi s wi fe’s earni ng s) was $ 7,9 29 ; an d tha t h is m on th ly ex pe ns es were $ 4,1 16 .- 4 -

[* 4] InJan uary

20 11 th e IRS reject edth is OIC, ex pr es si ng it s b el ie f th atpe ti ti on er h adsubm it te d t he off er s ol el y forth e p ur

po se of d el ay in g IR S co ll ect io n act io n. Pe ti ti on er re pl ie d b y reque st in g “ th e Fo rm (s ) ne ces sa ry to ap pe al th is de ci si on ,” whi chth e IRS tre at edas areque stfor a CDP h eari ng . Thatreque stwas fo rward edto th e IRS App eal s Off ic e whi ch , onJu ly 21, 2 01 1, o ffer edpe ti ti on er a co m bi ne d C DP he ari ng co ve rin g b ot h t he NFTL fil in g a ndth e reject io n o f hi s OIC. Tha t h eari ng was s ch edul edto be he ldby tele ph on e o n Au gu st11 , 20 11 . The IRS l et te r in fo rm edpe ti ti on er tha t the SO wou ldne edfurth er i nf orm ati onab ou t h ow h e h adsp en t fund s tha t h e h adwithd rawnfro m hi s re ti rem en t acco un ts du rin g 2 00 6, 2 00 7, an d 2 00 8. Pe ti ti on er wi th dr ew m or e th an$4 00 ,00 0 fro m th es e acc ou nt s dur in g t ho se y ears . He fail edto pa y tax on th es e wit hd rawal s, an d h e d idno t u se an y

of the pro ceed s t o p ay

do wn h is ou ts tand in g F ed eral in co m e ta x l iabi li ti es . On Au gu st8, thr ee d ay s b efo re the sch edul edhe ari ng , pet it io ne r cal le d t he SO an d re qu es te d a dd it io na l t im e to pre pa re. Sh e ag reedto po stpo ne th e CDP he ari ng to Sep te m

be r 8. Durin g t he he ari ng he ldon th atda te pe ti ti on er d idno t co nt es t h is un de rlyin g t ax li ab il ity foran y of t he y ears at i ss ue bu t re qu es te d a co ll ect io n a lt ern at iv e. The S O in fo rm edhi m th athe was i ne li gi bl e, in li gh t o f hi s in co m e, to ha ve hi s ac co un t p la cedincurren tl y no t co ll ect ib le (CNC) s ta tu s. Sh e- 5 -

[* 5] in fo rm edhi m

th athi s OIC was u na ccep tabl e b ecau se he wou ldbe tre at edas ha vi ng di ss ip at ed , andth us as c on ti nu in g t o o wn fo r OIC p ur po se s, the ass et s h e ha d wi th dr awnfro m

hi s re ti rem en t ac co un ts du rin g 2 00 6- 20 08 . Peti ti on er was ev as iv e whe n a sk edho w he h adsp en t thi s $ 40 0,0 00 . Whi le reject in g p et it io ne r’s OIC, th e SO in di cat edth ata “pa rti al pay ” in st al lm en t ag reem en t m ig htbe acce pt ab le to th e IRS . On Sep te m be r 13 , 20 11 , sh e se ntpe ti ti on er a draftin st al lm en t ag reem en t o n F orm 43 3- D, Ins ta ll m en t Ag reem en t. The SO th ereb y

pro po se d t ha t p et it io ne r m ak e m on th ly paym en ts of $ 87 4 fo r th e fi rs t year an d m on th ly paym en ts of $ 1,7 32 th erea fte r. Whe n p et it io ne r fai le d t o a ccep t thi s ag reem en t o r ot he rwis e res po nd , th e SO de ci de d t ha t the cas e sh ou ldbe clo se d. Sh e d et erm in edth atpe ti ti on er’s OIC ha d t o b e reject edbe cau se hi s re as on ab le co ll ect io n p ot en ti al (RCP ), in cl ud in g h is di ss ip at edret ire m en t ac co un t as se ts , was $ 51 8,5 79 , inco nt ras t t o h is off er o f $2 ,93 8. Th e SO d et erm in edth atpe ti ti on er h ad$1 ,73 2 i n d is po sabl e in co m e p er m on th (aft er al lo cat in g apo rti onof t he ho us eh ol d e xp en se s t o h is wife ’s in co m e) an d t ha t h e wou ldacco rd in gl y qu al ify for a “ sh ort t erm

de ferr edpa ym en t o ffer ” o f $1 03 ,92 0 (6 0 m on th ly ins ta ll m en ts of $ 1,7 32 ). Bu t s in ce p et it io ne r ha d d ecl in ed to acce ptth is off

er, the IRS s en t h im , onFeb ru ary 14 , 20 12 , a Not ic e o f Det erm i-- 6 -

[* 6] na ti on Co nc ern in g C ol le ct io n Act io n t ha t re jecte d h is OIC an d s us ta in edth e NFTL fil in g. Pet it io ne r ti m el y

pe ti ti on edth is Co urt fo r rev ie w of tha t d et erm in at io n. Tria l o f th is cas e was po stpo ne d s ev eral ti m es aft er p et it io ne r in fo rm edth e Co urt th athe ha d b eendi ag no se d wi th , andwas b ei ng tre at edfor , can cer. Tri al was u lt im at el y he ldon Ju ne 1, 2 01 5. Whenqu es ti on edat tria l ab ou t h is ret ire m en t acco un t wi th dr awal s, p et it io ne r te st ifi edth athi s l awy er h adadvi se d h im to withd raw the m on ey

an d “ jus t g o s pe ndit .” He tes ti fie d tha t h e sp en t thi s m on ey

“ on an yth in g a ndev erythi ng ”; th athe ha d n o re co rd s o f wha t h e sp en t the m on ey on ; an d tha t h e si m

pl y “ ha d ago odti m e.” He te st ifi edth athi s m on th ly m ed ic al ex pe ns es ha d i nc reas edfro m $1 44 at t he ti m e o f th e CDP h eari ng to $3 10 cu rren tl y on acco un t o f hi s ca nc er treat m en ts . OPINION Whe re (a s h ere) th e ta xp ay er d idno t o r can no t d is pu te hi s u nd erl y in g t ax li ab il ity at the CDP h eari ng , th e Co urt re vi ews th e IRS ’ de te rm in at io n fo r ab us e o f di sc ret io n. Go za v . Comm is si on er, 1 14 T.C. 17 6, 1 81 -1 82 (20 00 ); Th om ps on v. Co m m is si on er, 1 40 T.C. 17 3, 1 78 (20 13 ) (“ A tax pa y er i s p recl ud edfro m di sp ut in g th e und erl y in g l iabi li ty if itwas n otpro pe rly rais edinth e CDP h eari ng .”); sec . 30 1.6 33 0- 1( f)(2 ), Q&A-F3 , Pro ced . & Adm in . Reg s. Ab us e o f di sc ret io n e xi st s- 7 -

[* 7] when a de te rm in at io n i s arbi tra ry , cap ric io us , or wi th ou t s ou ndba si s i n fa ctor law. See Mu rp hy v. Co m mis si on er, 1 25 T.C. 30 1, 3 20 (20 05 ), aff’d, 4 69 F.3d27 (1 stCir . 20 06 ). Inde ci di ng whethe r th e SO ab us edhe r di sc ret io n i n s us ta in in g t he NFTL fil in g, we co ns id er wh ethe r sh e: (1) pro pe rly veri fie d t ha t the requi rem en ts of a ny ap pl ic ab le law o r adm in is tra ti ve pro cedur e h av e b eenm et ; (2 ) co ns id eredany rel eva ntis su es pe ti ti on er ra is ed ; an d (3 ) de te rm in edwhet he r “ an y pro po se d c ol le ct io n act io n b al an ces th e n eedforth e eff ic ie ntco ll ect io n o f ta xe s wi th th e le gi ti m at e co nc ernof * * * [pe ti ti on er] th atan y co ll ect io n a ct io n b e n o m or e in tru si ve th an ne ces sa ry .” See s ec. 6 33 0( c)(3 ). Ourrev ie w of the reco rdest ab li sh es th atth e SO an al yzedth e tr an sc rip t o f pe ti ti on er’s acc ou nt , det erm in edth atth e ta x l iabi li ti es at i ss ue were p ro pe rly asse ss ed , andde te rm in edth atall ot he r requi rem en ts of app li cab le law an d a dm in is tra ti ve pro cedur e were f

ol lo wed . The o nl y

is su e is whet he r pe ti ti on er ra is edan y le gi ti m at e que st io n c on cern in g h is en ti tl em en t t o aco ll ect io n a lt ern at iv e. Sect io n 7 12 2( a) au th or iz es th e IRS to co m pr om is e anou ts tand in g t ax li abi li ty. The re gu la ti on s s etforth th ree g ro un ds forsu chco m pr om is e: (1) do ub t as to li ab il ity ; (2 ) do ub t as to co ll ect ib il ity ; o r (3 ) pr om ot io n o f effe ct iv e ta x a dm in is tra ti on . Sec. 3 01 .71 22 -1 (b ), Pro ced . & Adm in . Reg s. Th e Sec ret ary m ay co m pr o-- 8 -

[* 8] m is e a t ax li ab il ity

ba se d o n d oubtas t o c ol le ct ib il ity --the gro un d p et it io ne r al le ge d i n h is OIC--wh ere t he tax pay er’s as se ts an d i nc om e ren de r fu ll co ll ect io n un li ke ly. Id. s ub pa ra. (2 ). Co nv ers el y th e IRS m ay

rejectanOIC whe re the tax pa y er’s RCP is gre at er tha n t he am ou nthe pro po se s t o p ay . See J oh ns on v. Co m m is si on er, 1 36 T.C. 47 5, 4 86 (20 11 ), aff’d, 5 02 F. App ’x 1 (D.C. Ci r. 20 13 ). App eal s o ffi cers are g en eral ly dire ct edto rejectoff ers subs tant ia ll y

be lo w th e ta xp ay er’s RCP wher e th e o fferis pre m is ed , as i t was he re, o n d oubtas t o co ll ect ib il ity . See Re v. Pr oc . 20 03 -7 1, 2 00 3- 2 C .B. 51 7. Thi s C ou rt d oe s n otin de pe nd en tl y rev ie w th e rea so nabl en es s o f th e ta xpa y er’s p ro po se d c ol le ct io n a lt ern at iv e. Our re vi ew is li m it edto asc ert ai ni ng wheth er the SO’s dec is io n t o re ject t ha t o fferwas arb itrary, capri ci ou s, o r witho ut so un d b as is inlaw o r fac t. Murp hy, 125 T.C. at 3 20 . W e d o n otsubs ti tu te ou r jud gm en t fo r th atof the SO as t o t he acce pt ab il ity of apa rti cu lar of

fer. See , e.g., Jo hn so n, 1 36 T.C. at 4 88 . The SO reject edpe ti ti on er’s OIC p rimaril y be cau se of h er d et erm in at io n th athi s re ti rem en t ac co un t wi th dr awal s dur in g 2 00 6- 20 08 , whi chex ceed ed $4 00 ,00 0, co ns ti tu te d “ di ss ip at edass et s” th atha d t o b e in cl ud edinasc ert ai ni ng hi s R CP. Thi s yield edanRCP o f $5 18 ,57 9, wh ic h v as tl y ex ceed edhi s o fferof $2 ,93 8. “ Dis si pa te d a ss et s” are tho se ass et s tha t h av e b eenso ld , trans ferr ed , or- 9 -

[* 9] sp en t o n n onpr io rit y it em s i n d is reg ardof a n o ut st an di ng tax li ab il ity . Tag gart v . Comm is si on er, T.C. Mem o. 2 01 3- 11 3; see Jo hn so n, 1 36 T.C. at 4 87 . The Int ern al Rev enue Man ua l (I RM) in st ru ct s s et tl em en t o ffi cers to de te rm in e whe th er a t ax pa y er h as di ss ip at edass et s s uc h tha t the y are n o l on ge r av ai labl e to pa y hi s t ax li ab il ity . See IRM pt . 5.8 .5.1 6( 2) (Oct . 22 , 20 10 ). The d et erm in at io n whe th er d is si pa te d a ss et s s ho ul d b e in cl ud edinth e ta xp ay er’s RCP de pe nd s o n t he se tt le m en t o ffi cer’s ev al ua ti on of the fact s an d c irc um st an ces of t he tax pa y er’s cas e. Id . pt . 5.8 .5.1 6( 1) . Set tl em en t o ffi cers are co un se le d tha t t axpa y ers sh ou ldbe “ affo rd edth e op po rtu ni ty to ex pl ai n o r ve rif y th e d is po si ti on ” o f tr an sf erre d a ss et s. IRM pt . 5.8 .5.1 6( 8) . “ If the tax pa y er d oe s n otpro vi de in fo rm at io n s ho win g the di sp os it io n of fun ds fro m

tra ns ferr edass et s” su cham ou nt s s ho ul d b e in cl ud edinhi s R CP. Id . pt . 5.8 .5.1 6( 5) , (8) . Con ve rs el y , “ [w]henitcanbe sh own th ro ug h i nt ern al res earc h orsubs tant ia ti on pro vi de d b y th e ta xp ay er tha t the fun ds were n eed edto pro vi de fo r ne ces sa ry

li vi ng ex pe ns es , th es e am ou nt s s ho ul d n otbe in cl ud edinth e RCP cal cu la ti on .” Id . pt . 5.8 .5.1 6( 5) ; s ee Layton v. Co m m is si on er, T.C. Mem o. 2 01 1- 19 4. The SO ga ve pe ti ti on er m ul ti pl e o pp ortuni ti es to ex pl ai n h ow h e d is po se d of th e fu nd s h e wit hd rew fro m hi s re ti rem en t ac co un ts du rin g 2 00 6- 20 08 , bu t h e- 10 -

[* 10 ] m ad e n o e ffo rt t o d o s o. Hi s t es ti m on y at t ria l tha t h e “ ha d ago odti m e” sp en di ng th e fu nd s o n “ an yth in g a ndev erythi ng ” wou ldno t s up po rt t he co nc lu si onth atth e as se ts inqu es ti on were ex pe nd edforess en ti al li vi ng ex pe ns es . W e fin d t ha t the SO di d n otab us e h er d is cret io n b y tre at in g p et it io ne r’s ret ire m en t acco un t wi th dr awal s as “ di ss ip at edass et s” an d re jecti ng hi s OIC for

th atreas on . 3 Pet it io ne r’s fin al arg um en t i s tha t we s ho ul d re m an d t hi s ca se to th e App eal s Offi ce i n l ig htof a n a ll eg ed“ m at eri al ch an ge incir cu m st an ces ,” na m el y , pet it io ner’s i nc reas edm on th ly m ed ic al ex pe ns es owi ng to hi s ca nc er treatm en ts . Whi le we ha ve au th or ity

to rem an d aCDP cas e fo r co ns id erat io n o f ch an ge d c irc um st an ces when rem an d wo ul d b e “ he lp fu l, n eces sa ry , or p ro du ct iv e,” s ee Ch ur ch il l, T.C. Mem o. 2 01 1- 18 2, 1 02 T.C.M. (CCH) 1 16 , 11 9, p et it io ne r ha s n otsh ownth at th is cas e m eet s tho se cri te ria . Reg ard le ss of t he all eg ed$1 66 in crea se inhi s m on th ly m ed ic al ex pe ns es , pet it io ne r’s RCP wi ll be sev eral hu nd redth ou sa nd do ll ars ab ov e h is off

er o f $2 ,93 8, an off

er tha t we d o n otbe li ev e was m ad e in go odfai th . Peti ti on er h as be enco nn iv in g fo r a v ery lo ng ti m e to av oi d p aym en t o f hi s Fe de ral in co m e ta x l iabi li ti es , anditis ti m e to bri ng th es e d el ay tac ti cs to an Eve n i f th e SO h adex cl ud edpe ti ti on er’s d is si pa te d a ss et s fr om hi s R CP, 3 sh e wou ldno t h av e ab us edhe r di sc ret io n i n re jecti ng hi s OIC be cau se hi s an nu al di sp os ab le in co m e o f $2 0,7 84 (12 × $1 ,73 2) si gn ifi can tl y ex ceed edhi s t ot al off

er of $2 ,93 8. Th e SO d et erm in edth atpe ti ti on er h ad , witho utreg ardto di ss ip at ed as se ts , “ fu tu re i nc om e” o f $1 03 ,92 0 a va il ab le to pa y hi s t ax li ab il it ie s.- 11 -

[* 11 ] en d. Pe ti ti on er i s fr ee t o s ub m itan ot he r OIC i f hi s ci rcum st an ces le gi ti m at el y

so warran t. Fi nd in g n o abu se of d is cret io n i n a ny resp ect , we wil l s us ta in th e SO’s reject io n o f pe ti ti on er’s OIC an d t he pro po se d c ol le ct io n a ct io n. To refl ectth e fo reg oi ng , Deci si on wil l b e en te redfor res po nd en t.