T.C. M em o . 2 0 1 7 -9 1

UNITED STATES TAX COURT

J OSEPH CHIARELLI, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 1 9 51 -1 2 L. Fi l edM ay 2 5 , 2 0 1 7
.

J o s ep h Ch i arel l i , p ro s e. Lu an n e S. Di M au ro , fo r res p o n d en t.

M EM ORANDUM FINDINGS OF FACT AND OPINION KERRIGAN, J u dg e: Th e p et it i o n i n th i s cas e was fi l edi n res po n s e t o a No t ice o f Det erm i n at i o n Co n cern i ng Co l l ect i o n Act i o n (s ) Un der Sect i o n 6 3 2 0
an d/o r 6 3 3 0 (n o t i ce o f d et erm in at i o n ) d at edAp ri l 1 0 , 2 0 1 2 . Th e n ot i ce o f d et erm i n at i o n s us t ai n eda p ro p o s edl ev y reg ard i n g p et i t i o n er’ s u np ai di n co m e t ax l i ab i l i ty fo r t ax y ear 2 0 0 9.- 2
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[* 2 ] Th e i s s u e fo r co ns i d erat io n i s wh et her res p on d en t ’ s d et erm i n at i o n t o p ro ceed w i t h th e co l l ect io n act i o n reg ard i ng p et i ti o ner’ s u np ai d t ax l i ab i l i t y fo r 2 0 0 9 was p ro p er. Al l s ect i o n referen ces are t o th e In t ern al Rev en u e Co d e i n effect atal l rel ev an t ti m es . W e ro u n dal l m o n et ary am o u nt s t o th e n eares td o l l ar. FINDINGS OF FACT Pet i t i o ner res i dedi n Co nn ect i cu twh en h e t im el y fi l edh i s p et it i o n . OnM arch 1 4 , 2 0 1 1 , res po n d en ts en t p et i t io n er a Let t er 1 0 5 8 , Fi nal 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 htt o a Heari n g , reg ard i n g t ax y ear 2 0 0 9
. Pet i t io n er m ai l eda Fo rm

1 2 1 5 3 , Requ es t fo r a Co ll ect i o n Du e Pro ces s o r Equ iv al en tHeari n g . Onth e Fo rm 1 2 1 5 3 h e ch eck edth e b o x es fo r i n s t al l m en t ag reem en tan do ffer-i n-co m p ro m i se. Pet i t io n er fi l ed an i n co m pl et e Fo rm

4 3 3 -A, Co l lect i on In fo rm at i o n St at em en tfo r W ag e Earn ers an d Sel f-Em p l o y ed In d i v i du al s . Th e Fo rm

4 3 3 -A s h o wedn o o wn ers hi p i n t eres ti n real es t at e. Pet i t io n er wro te o n t h i s fo rm th atth e o n l y

as s et s th ath e h adtran s ferred i n t h e p ri o r 1 0 y ears were “ ch ari t ab le co n t ri bu t io n s ”. OnAp ri l 1 0 , 2 0 1 2, res p o n d en ti s s u eda n o t i ce o f d et erm i n at i o n s u s t ai n i n g th e p ro p o s edl ev y . Th e s et tl em en to ffi cer co n cl u d edth atp et i t i o n er d i d n o t p ro v id e en o ug h fi n an ci al i n fo rm at i o n t o en ab l e h er t o d et erm i ne wh et h er h i s i n co m e t ax l i ab i l i t y

was n o tco l l ect i bl e o r wh et h er h e qu al ifi edfo r an i n s tal l m en t- 3
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[* 3 ] ag reem en to r an o ffer-i n -co m pro m i s e. Pet i t i o ner’ s p et i ti o n co nt en d s t h ata l ev y wo ul dres ul ti n a fi n an ci al h ard s hi p . A p art i al tri al o f t h i s m at t er was h el d o n M ay 1 9 , 2 0 1 4 . OnM ay

2 0 , 2 0 1 4 , th e Co u rtrem an d edth i s cas e t o th e In t ern al Rev en u e Serv i ce (IRS) Ap p eal s Offi ce. Th e cas e was rem an d edt o al l ow t h e Ap peal s Offi ce t o rev i ew i n fo rm at i on ab o utp et i t i o n er’ s real es t at e h o l d in g s . A s up pl em en t al co l l ect i o n du e p ro ces s (CDP) h eari n g was h el d
. Du ri n g th e s upp lem en t al CDP h eari n g p et i t i o ner p ro v i d edi n fo rm at i on reg ard i n g th e o wn ers h ip h i st o ry o f p ro p ert i es o n Bri arcl iff Ro adan d Wh i t n ey Av en u e i n Ham d en , Co n n ect i cu t . OnAu g u s t8 , 2 00 3 , p et i ti o n er h ad t ran s ferred b y qu it cl ai m

d eedan u n di v i d edo ne-s i x t een t h i n t eres ti n t h e Wh i t ney Av en u e p ro p erty t o h i s d au gh t er. On J u n e 1 6 , 2 0 1 0 , p et i t i o ner h adtran s ferred b y d eed h i s
rem ai n i n g i n t eres ti n the Whi t n ey Av en u e p ro p ert y

an dth e Bri arcl i ff Ro ad p ro p erty t o h i s d au gh t er. Th i s d eed , reco rd edo n J ul y 2 , 2 0 10 , i n d icat es th atn o
co n vey an ce o r St at e t ax was p ai d . Pet i ti o ner h adtran s ferred t h e p ro p ert i es t o h i s d au gh t er fo r $ 1
. Pet i t i o ner p ro v i d edres p o n d en twi t h an ap p rai sal o f $ 4 8 0,0 0 0 fo r t h e Wh i tn ey Av en u e p ro p ert y

d at edJ u n e 8 , 2 01 0 . Iti s u n cl ear wh et h er th e ap p rai s al al s o i n cl u d es th e Bri arcl iff Ro adp ro p ert y , wh i ch ab ut s th e Wh i t n ey Av enu e- 4
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[* 4 ] p ro p ert y . Th e ap p rai s al d es cri bedth e p ro p ert y as tw o ad jacen tp arcel s . Th e IRS v al u at i o n en gi neer d et erm i n edth atth e v al u e o f t h e Wh i t ney Av en u e p ro p ert y
was $ 54 5 ,0 0 0 o n J u n e 1 6, 2 0 1 0 , an d $ 51 5 , 0 0 0 o n Ap ri l 1 0 , 2 0 1 2 . Th e IRS
v al u at i o n en g i neer d et erm i nedth atth e v al u e o f th e Bri arcl i ff Ro adp ro p erty was $ 1 2 0 ,0 0 0 o n J un e 1 6 , 2 0 1 0 , an d$ 1 1 3 , 0 0 0 o n Ap ri l 1 0 , 2 0 1 2. As o f Decem b er 1 1 , 2 0 1 1 , th e b al an ce du e o n th e m o rt g ag e fo r t h e Whi t n ey Av en u e p ro pert y

was $ 5 4 9 ,3 3 5
. Du ri n g th e s upp lem en t al CDP h eari n g p et i t i o ner d idn o to ffer a co ll ect i o n al t ern at i v e. Th e s et t lem en to ffi cer (s eco n d s et t l em en to ffi cer) wh o co n du ct edth e
s up p lem en t al CDP h eari n g was n o t t h e o n e wh o h adco n du ct edth e fi rs t CDP h eari n g . Th e s eco n d s et t l em en to ffi cer co n cl u d edthatth ere was n o equ i ty i n th e Wh i tn ey Av en u e p ro p ert y

b u t t h atp et i t i on er h adequ i t y i n th e Bri arcl i ff Ro ad p ro p erty . OnSep t em

b er 3 , 2 0 1 5 , th e s eco n ds et tl em en to ffi cer i s s u eda
s up p lem en t al n o t i ce o f d et erm i n at i o n s u s t ai n i n g th e p ro p o s ed l ev y . OPINION Sect io n 6 3 3 1 (a) au t h o ri zes th e Secret ary t o l ev y up on th e p ro pert y an d p ro p erty ri g h t s o f a t ax p ay er wh o fai l s t o p ay a t ax wi t h i n 1 0 d ay s aft er a n o t i ce
an d d em an d . Befo re th e Secret ary m ay l ev y upo n the t ax p ay er’ s p ro p ert y , th e Secret ary m us t n o t ify h i m o r h er o f t h e Secret ary ’ s i n t en ti o n t o m ak e t h e l ev y .- 5
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[* 5 ] Sec. 6 3 3 1 (d )(1 ). Th e Secret ary m u s tal s o n o t i fy

th e t ax p ay er o f h is o r h er ri gh t t o a CDP h eari n g . Sec. 6 3 3 0 (a)(1 ). If t h e t ax p ay er req u es t s a CDP h eari n g , th e h eari n g i s co n duct edb y a
s et t l em en to ffi cer fro m

th e Ap p eal s Offi ce. Sec. 6 3 3 0 (b )(1 ). Atth e h eari n g th e t ax p ay er m ay

rai s e an y rel ev an ti s s u e rel at in g t o th e u np ai dt ax o r t h e p ro p o s ed l ev y . Sec. 6 3 3 0 (c)(2 )(A). On ce t h e s et t lem en to ffi cer m ak es a d et erm i n at i o n , th e t ax p ay er m ay

ap p eal th e d et erm i n at i o n t o thi s Co u rt . Sec. 6 3 3 0 (d )(1 ). Th e Co u rt h as juri s di ct i o n t o rev i ew t h e Co m m i ss i on er’ s ad m i n is t rat i v e d et erm i n at io n s . Id
. Wh ere t h e v al id i t y

o f t h e u n d erl y i n g t ax l i ab i l i t y i s p ro p erl y

ati ss ue, t h i s Co u rtrev i ews th e l i ab i l it y d et erm i n at i on d e n ov o . Seg o v . Co m m i s s i o ner, 1 1 4 T.C. 6 0 4 , 6 1 0 (2 0 0 0 ); Go za v . Co m m i s s i o n er, 1 1 4 T.C. 1 7 6 , 1 8 1 -1 82 (2 0 00 ). Th e Co u rtrev i ews ad m i n is t rat i ve d et erm i n at i o n s m ad e b y th e Ap p eal s Offi ce reg ard i n g n o n li ab i l i t y

i s s ues fo r ab u s e o f d i s cret i o n . Seg o v . Co m m i s s i o ner, 1 14 T.C. at6 1 0 ; Go za v . Co m m i s s i o n er, 1 1 4 T.C. at1 8 2 . Pet it i on er d o es n o t ch al l en g e h i s u n derl y i n g l i ab i l it y fo r 2 00 9 , an dth erefo re we rev i ew res p o n d en t ’ s d et erm i n at i o n fo r ab u s e o f d i s cret i on . In d et erm in i n g wh et h er t h ere h as b een an ab u s e o f d i s cret i o n , we co n s i d er wh et h er t h e d et erm i n at i on b y th e Ap p eal s Offi ce was arb i t rary , cap ri ci o u s , o r wi th o u ts o u n d b as i s i n facto r l aw. See, e.g
. , M u rp h y v . Co m m i s s io n er, 1 2 5 T.C.- 6
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[* 6 ] 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 ); W oo dral v . Co m m i s s i o n er, 1 1 2 T.C. 1 9 , 2 3 (1 9 9 9 ). Th e Co u rtd o es n o t co n du ctan i n d ep en den trev i ew an ds ubs t i tu t e i ts ju d g m en tfo r t h at o f t h e s et t l em en t o ffi cer. M u rp h y v . Co m m i s s i o n er, 1 2 5 T.C. at3 2 0 . If th e s et t l em en to ffi cer fo l l ows al l
s t atu to ry an dad m i n i st rat i v e g u i d el i n es an dp ro v i d es a reas o n ed , b al an ced d eci s i o n , the Co u rtwi l l n o trewei g h th e eq u i t ies . Li n kv . Co m m is s io n er, T.C. M em o. 2 0 1 3 -5 3 , at* 1 2
. Fo l l owi n g a CDP h eari n g th e s et t l em en to ffi cer m u std et erm in e wh et h er t o
s u s t ai n th e co l l ect i on act i on , i n th i s cas e t he i m p o s i t i on o f a l ev y . Inm ak i n g th at d et erm i n at i o n , s ect i o n 6 3 3 0 (c)(3 ) p ro v i d es th atthe s et t l em en to ffi cer m u s t
co n si d er: (1 ) v eri fi cat i o n p res en t ed b y th e Secret ary duri n g t he h eari ng p ro ces s th atth e requ i rem en t s o f an y ap p l i cab l e l aw o r ad m i n i s t rat i ve p ro cedure h av e b een
m et ; (2 ) an y

i s su es ap p ro p ri at el y

rai s edb y th e t ax p ay er; an d (3 ) wh eth er t h e p ro p os edl ev y

act io n b al an ces th e n eedfo r t h e effi ci en tco l l ect i o n o f t ax es an dth e l eg i t i m at e co n cern o f t h e t ax p ay er t h atan y co l l ect i o n act i o n b e n o m o re i n t ru s i v e th an n eces s ary . Lun s fo rdv . Co m m i s s i o n er, 1 1 7 T.C. 1 8 3 , 1 8 4 (2 0 0 1 ); Di am o n d
v . Co m m i s s i o n er, T.C. M em o . 2 0 1 2 -9 0 , s li p o p . at6 -7
. W e n o te t h atth e s eco n d s et t l em en to ffi cer p ro perl y b as edh er d et erm i n at i o n
o n th e req u i redfact o rs . Th e s et t l em en to ffi cer (1 ) v eri fi edth atal l l eg al an d- 7
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[* 7 ] p ro cedu ral req u i rem en ts h ad b een m et , (2 ) co n si d eredthe i s s u es p et i t io n er rai s ed , an d (3 ) d et erm i n edth atth e p ro p o sedl ev y act io n ap p ro p ri at el y

b al an cedth e
n eed fo r t h e effi ci en tco l l ect i on o f t ax wi t h t h e l eg i t i m at e co n cern o f p et i t io n er t h at th e co l l ect i o n act i o n b e n o m o re i n t ru s i v e t h an n eces s ary . Pet i t i o ner co n ten d s th ath e m ad e an o ffer reg ard i n g p aym en t s . Pet i ti o n er t es t i fi edth atth e Bri arcl iff Ro adp ro p ert y was t h e b ack y ardo f t h e Wh i t n ey Av en ue p ro p erty an dth at h e o ri gi nal l y t h o u gh tthatth ere was a m o rt g ag e o n th e Bri arcl i ff Ro adp ro p ert y . He fu rt h er t es t i fi ed t h ath e n o w ag rees th at t h ere i s n o m ort g ag e
o n th e Bri arcl i ff Ro ad p ro p ert y . Res p o n d en tco n t en d s t hati t was n o tan ab u s e o f d i s cret i o n fo r t h e s eco n ds et t lem en to ffi cer t o i n cl u d e eq u i t y i n th e Bri arcl i ff Ro ad p ro p erty i n a co ll ect i o n al t ern at i v e co n s i d erat i o n an dt o s us t ai n th e p ro p o s edl ev y . Th e s eco n ds et t l em en to ffi cer s u s t ai nedth e p ro po s edl ev y b ecau s e o f h er
co n cl u s i o n th atp et i t i o n er h adequ i t y i n th e Bri arcl iff Ro adp ro p ert y . Pet i ti o n er h ad tran s ferred th e Bri arcl i ff Ro adp ro p ert y t o h i s d au g h ter o n J u n e 1 6 , 2 0 1 0
. Pet i t io n er s t i l l h adan o wn ers h i p i n t eres ti n th e p ro p ert i es i n 2 0 0 9 an d d i v es t edh i s i n t eres ti n th e p ro p ert i es aft er h i s t ax l i ab i l i ty fo r 2 0 0 9 accru ed . Al t h ou g h p et i t i o n er co n t en d edthath e m ad e an o ffer reg ard i n g p aym en ts , h e p ro v i d edn o
co l l ect i o n al t ern at i v es t o th e s eco n ds et t lem en to ffi cer. A s et t l em en t o ffi cer d o es
n o tab us e h i s d i s cret i o n wh en h e o r s h e d ecl i n es t o co n si d er a co ll ect i o n- 8
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[* 8 ] al t ern at iv e u n d er t h es e ci rcu m st an ces . See Ken dri ck s v . Co m m i s s i o n er, 1 2 4 T.C. 6 9 , 7 9 (2 00 5 ). W e fi n dth atth e s eco n ds et t l em en to ffi cer d i dn o tab u s e h er d i s cret i on i n
up h o l d i n g t h e p ro p o s edco l l ect i o n act i on . To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t ered fo r res p o n den t .