United States Tax Court

162 T.C. No. 8

RAJU J. MUKHI,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 4329-22L. Filed April 8, 2024.

—————

P filed a petition with this Court challenging R’s

notice of determination related to approximately 

$11 million of foreign reporting penalties under I.R.C. 

§§ 6038(b) and 6677. The parties filed cross-motions for 

summary judgment on the issues of whether the settlement 

officer violated P’s right to due process under the Fifth 

Amendment to the U.S. Constitution, whether the 

settlement officer abused his discretion in rejecting 

collection alternatives, and whether the penalties violated 

the Excessive Fines Clause of the Eighth Amendment to 

the U.S. Constitution.

Held: The settlement officer did not violate P’s Fifth 

Amendment due process rights or his rights under I.R.C. 

§ 6320 or 6330.

Held, further, the settlement officer did not abuse 

his discretion in rejecting P’s collection alternatives that 

were significantly below his reasonable collection 

potential.

Held, further, R lacked authority to assess the 

penalties under I.R.C. § 6038(b) and therefore cannot

proceed with collection actions as they relate to these 

penalties.

Served 04/08/24
2

Held, further, penalties imposed under I.R.C. § 6677 

are not fines and therefore do not implicate the Excessive 

Fines Clause. 

—————

Sanford J. Boxerman and Michelle F. Schwerin, for petitioner.

Randall L. Eager, Alicia H. Eyler, and William Benjamin McClendon,

for respondent.

OPINION

GREAVES, Judge: This collection due process (CDP) case is 

before the Court on petitioner’s Motion for Summary Judgment, filed 

December 29, 2022, and respondent’s Motion for Partial Summary 

Judgment, filed January 4, 2023. The parties seek summary 

adjudication of the following issues: (1) whether the settlement officer

violated petitioner’s right to due process under the Fifth Amendment, 

(2) whether the settlement officer abused his discretion in rejecting 

petitioner’s offers-in-compromise, and (3) whether the section 6038(b) 

and 6677 penalties violated the Excessive Fines Clause of the Eighth 

Amendment.1 For the reasons set forth below, we answer the first two

questions and the third question as it relates to the section 6677 

penalties in the negative. We do not reach the Excessive Fines Clause 

analysis as it relates to the section 6038(b) penalties. 

Background

The following facts are based on the parties’ pleadings and motion 

papers, the attached declarations and exhibits, and the administrative 

record. See Rule 121(c). They are stated solely for purposes of deciding 

the parties’ motions and not as findings of fact in this case. See 

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 

F.3d 965 (7th Cir. 1994). Petitioner resided in Missouri when he timely 

1 Unless otherwise indicated, statutory references are to the Internal Revenue 

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are 

to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, 

and Rule references are to the Tax Court Rules of Practice and Procedure.
3

filed the petition. The parties have stipulated that this case is

appealable to the U.S. Court of Appeals for the Eighth Circuit.

On May 20, 2022, respondent filed a Motion to Consolidate this 

case with petitioner’s related deficiency case at Docket No. 15315-19. 

On July 21, 2022, we granted the motion and consolidated the cases for 

trial, briefing, and opinion. Petitioner’s Motion for Summary Judgment 

and respondent’s Motion for Partial Summary Judgment relate 

exclusively to the collection due process case.

I. Penalty Determination

Between November 2001 and September 2005 petitioner created 

three entities: Sukhmani Partners II Ltd., a foreign corporation for U.S. 

tax purposes; Sukhmani Gurkukh Nivas Foundation, a foreign trust for 

U.S. tax purposes; and Gurdas International Ltd., a foreign trust for 

U.S. tax purposes. Through these entities, petitioner opened several 

foreign brokerage accounts. From 2005 through 2007 petitioner

personally and through foreign entities transferred at least $9,729,249 

to Gurdas International Ltd. From 2006 through 2008 petitioner 

withdrew at least $4,763,464 from Gurdas International Ltd.2

On June 5, 2014, petitioner was indicted on two counts of 

subscribing to false U.S. individual income tax returns and four counts 

of willful failure to file reports of foreign bank and financial accounts

(FBAR) related to the above-described transactions. Petitioner entered 

a guilty plea, admitting to one count of subscribing to false U.S. 

individual income tax returns and one count of failure to file an FBAR. 

The plea agreement expressly stated that it did not limit the rights of 

the U.S. Government to take any civil or administrative actions against 

petitioner, except as agreed regarding civil liability for failure to file an 

FBAR.

After the guilty plea, respondent began an examination of 

petitioner’s liability for civil tax penalties related to the foreign entities. 

During the examination, petitioner filed under protest various 

international information returns related to his foreign investments. 

Between July 21, 2015, and January 13, 2016, petitioner filed Forms 

5471, Information Return of U.S. Persons With Respect to Certain 

2 The facts in this paragraph have been alleged by respondent and challenged 

by petitioner. The issues in this opinion do not implicate the veracity of transactions 

leading to the civil tax penalties. These alleged facts are stated solely for explanatory 

purposes. 
4

Foreign Corporations, related to his interest in Sukhmani Partners II 

Ltd. for tax years 2005 through 2013. On September 29, 2016, petitioner 

filed Forms 3520, Annual Return To Report Transactions With Foreign 

Trusts and Receipt of Certain Foreign Gifts, related to contributions 

petitioner made and distributions he received from Sukhmani Gurkukh 

Nivas Foundation for tax years 2005 through 2013. On the same day,

petitioner filed Forms 3520–A, Annual Information Return of Foreign 

Trust With a U.S. Owner, disclosing his interest in Sukhmani Gurkukh 

Nivas Foundation for tax years 2005 through 2013.

At the conclusion of the examination, respondent issued a notice 

letter, dated September 6, 2017, informing petitioner that respondent 

assessed $5,072,449 in penalties under section 6677 for failure to timely 

file Form 3520 for tax years 2005 through 2008.3 Respondent also 

assessed $5,920,419 in penalties under section 6677 for failure to timely 

file Form 3520–A for tax years 2005 through 2010. The next day 

respondent issued an additional letter informing petitioner that he 

assessed $120,000 in penalties under section 6038(b) for failure to timely 

file Form 5471 for tax years 2002 through 2013. This opinion will refer 

to the penalties under sections 6038(b) and 6677 collectively as foreign 

reporting penalties. Both letters informed petitioner of his right to a 

postassessment conference. Petitioner filed a protest with the IRS 

Office of Appeals (Appeals Office).4

II. Postassessment Conference

The case was assigned to an Appeals officer (AO) in the Appeals 

Office, Area 11 (International Operations). AO verified that he had no 

prior involvement with petitioner. Between April 4, 2018, and March 

25, 2019, AO reviewed petitioner’s challenge to the foreign reporting 

penalties. His review included correspondence with petitioner and 

research related to petitioner’s underlying liability challenge.

AO concluded his review and on May 9, 2019, issued two Letters 

1277, Penalty Appeal Decision, which stated that there were no grounds 

for penalty abatement and that petitioner’s case with the Appeals Office 

was closed. Respondent attached to the letters a copy of the Appeals 

3 All dollar amounts are rounded to the nearest dollar.

4 On July 1, 2019, the Internal Revenue Service Office of Appeals was renamed 

the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, 

§ 1001, 133 Stat. 981, 983 (2019).
5

Case Memorandum, detailing AO’s determinations regarding each of 

petitioner’s arguments.

III. CDP Notices and Hearing

During the postassessment conference, respondent began taking 

collection actions related to the foreign reporting penalties. Respondent 

issued CP90, Final Notice–Notice of Intent to Levy and Notice of Your 

Right to a Collection Due Process Hearing, dated July 9, 2018. 

Petitioner timely filed Form 12153, Request for a Collection Due Process 

or Equivalent Hearing, requesting a CDP hearing related to this notice. 

Petitioner checked the boxes on Form 12153 indicating that he was 

interested in an installment agreement and that he could not pay the 

balance. Petitioner also indicated that he wanted to challenge the 

underlying liability.

Respondent issued Letter 3172, Notice of Federal Tax Lien Filing 

and Your Rights to a Hearing under IRC 6320, dated November 27, 

2018, related to the foreign reporting penalties. Petitioner timely filed 

Form 12153, requesting a CDP hearing based on this notice. On his 

request, petitioner indicated that he was interested in an installment 

agreement and withdrawal of the lien. Petitioner also sought to 

challenge his underlying liability for the foreign reporting penalties. 

The two CDP requests were consolidated into one CDP hearing and 

assigned to a settlement officer (SO1). SO1 reviewed petitioner’s 

requests and determined that he had no prior involvement with 

petitioner.

On June 6, 2019, SO1 issued Letter 4837, Appeals Received Your 

Request for Collection Due Process Hearing, confirming receipt of 

petitioner’s CDP hearing request and scheduling a telephone conference 

for July 8, 2019. The letter also requested that petitioner submit 

financial information related to the requested collection alternatives. At 

the request of petitioner, the CDP hearing was rescheduled for August 

14, 2019.

Before the CDP hearing, SO1 determined that the underlying 

liability challenge would need to be referred to International Operations 

for technical advice because the penalties related to foreign information 

reporting. At the CDP hearing, SO1 informed petitioner of this referral 

and delayed discussion of the underlying liability until he received 

International Operations’ recommendation. The parties agreed to defer 

consideration of collection alternatives until the receipt of this
6

recommendation. After the conference, petitioner submitted a 

completed Form 433–A, Collection Information Statement for Wage 

Earners and Self-Employed Individuals.

Before International Operations’ recommendation was received, 

the case was reassigned to another settlement officer (SO2). SO2

received a message from International Operations that it had already 

considered petitioner’s underlying liability and would not consider the 

arguments again. SO2 attempted to schedule an additional conference

for November 7, 2019, but petitioner did not appear. On November 13, 

2019, SO2 held a conference with petitioner. SO2 explained the 

International Operations message and requested financial information 

that would allow him to consider collection alternatives.

After this meeting, petitioner offered an installment agreement 

of $2,000 per month, which SO2 rejected because he was not aware of 

the submission of any financial information. SO2 later discovered that 

petitioner had provided financial information to SO1 and reviewed the 

submitted information in the light of petitioner’s installment agreement 

offer. On Form 433–A, petitioner reported that his individual equity in 

his assets, adjusted down to 80% of the value for potential tax 

consequences and withdrawal penalties, was $3,860,533. Petitioner 

reported that his total household income was $22,761 and his total 

monthly household expenses were $20,479. Thus, petitioner reported a 

net difference between his income and expenses of $2,282. After 

considering this financial information and petitioner’s substantial 

assets, SO2 rejected petitioner’s installment offer. Petitioner did not 

offer an alternative installment offer. Rather, petitioner informed SO2 

that he would like to be considered for an offer-in-compromise (OIC), 

and SO2 agreed to consider such an offer.

Petitioner submitted two alternative OICs. On Form 656, Offer 

in Compromise, petitioner proposed a one-time payment of $1,000,000 

and withdrawal of 22 refund lawsuits. In a letter to SO2, petitioner 

submitted an alternative OIC, which sought a global settlement of all 

outstanding tax issues by offering to liquidate specific assets and 

transfer the proceeds to the IRS, valued at approximately $2,672,717, 

and to withdraw 22 refund lawsuits. As part of the alternative OIC, 

petitioner also sought to be absolved from any income tax generated 

from the liquidation of these assets. The OICs were sent to the 

Centralized Offer in Compromise Unit (COICU) for review.
7

After petitioner sent his OICs, the CDP hearing was assigned to 

a new settlement officer (SO3). SO3 determined that he had no prior 

involvement and reviewed the casefile. After receiving the entire 

administrative file, SO3 determined that there were outstanding issues

relating to the underlying liability. SO3 referred the case to 

International Operations, and it was assigned to AO to review the case.

AO contacted SO3 and explained that he had already considered the 

issues and directed SO3 to the Appeals Case Memorandum. SO3 

reviewed the Appeals Case Memorandum and conducted independent 

research of the cited sources and petitioner’s file to determine whether 

he agreed with AO’s determinations on the liabilities. SO3 determined 

that he agreed with AO’s determinations regarding the underlying 

liability.

After this determination and the receipt of updated financial 

information, SO3 considered petitioner’s OICs. SO3 reviewed COICU’s 

recommendation on the OICs. COICU determined that petitioner’s 

reasonable collection potential (RCP) was $4,266,334. COICU also 

determined that petitioner’s monthly income was $23,166. On the basis 

of this information, COICU recommended rejecting petitioner’s OICs.

Considering the new financial information, SO3 determined that 

petitioner’s RCP was $4,682,596. SO3 considered arguments petitioner 

raised to reduce the equity in the assets, including current inability to 

withdraw funds, but rejected these arguments because the discount 

applied to the Form 433–A accounted for these arguments. Averaging 

petitioner’s last three years of income, SO3 determined that petitioner’s 

monthly income was $20,214. Using the lower COICU RCP, SO3 

determined that the OICs were insufficient because of the large equity 

petitioner had in assets.

SO3 scheduled a conference for November 11, 2021, which was 

rescheduled to November 17, 2021, in observation of Veterans Day. SO3 

explained to petitioner his analysis regarding the adequacy of the OICs 

and the merits of the underlying liability challenges. After providing 

petitioner additional time to submit other financial documents, SO3 

sustained the collection actions. SO3 issued a notice of determination, 

dated February 9, 2022.

Petitioner timely filed a petition in this Court asking for review 

of the notice of determination. In his petition he alleged a jurisdictional 

defect in that the notice of determination he received failed to include 

two attachments referenced in the notice: the Appeals Case 
8

Memorandum, detailing the resolution of the underlying liability 

challenges; and the calculations of his RCP. Additionally, petitioner 

contended that SO3 violated his Fifth Amendment due process rights by 

engaging with AO during the CDP hearing, that SO3 erred in concluding 

that he was liable for the foreign reporting penalties and the calculation 

of such penalties, that SO3 erred in denying his proposed collection 

alternatives, and that the foreign reporting penalties violated the 

Excessive Fines Clause.

On December 29, 2022, petitioner filed a Motion for Summary 

Judgment, asking this Court to decide as a matter of law that 

respondent violated his right to due process under the Fifth Amendment

because SO3 was not independent. On January 4, 2023, respondent 

filed a Motion for Partial Summary Judgment. Respondent asked this 

Court to find as a matter of law that (1) the notice of determination was 

valid, (2) SO3 did not violate petitioner’s Fifth Amendment due process

rights, (3) SO3 did not abuse his discretion in rejecting petitioner’s OICs, 

and (4) the foreign reporting penalties do not violate the Excessive Fines 

Clause.5 On February 7, 2023, respondent filed a Response to Motion 

for Summary Judgment. After an extension of time, petitioner 

submitted a Response to Motion for Partial Summary Judgment. 

Therein, he conceded that the notice of determination was valid but 

reserved the right to later challenge whether the attachments were 

included.

After the parties filed their respective motions, we held in a 

separate case that the IRS lacks the authority to assess the section 

6038(b) penalty. See Farhy v. Commissioner, No. 10647-21L, 160 T.C.,

slip op. at 5–14 (Apr. 3, 2023). The IRS later appealed Farhy to the U.S. 

Court of Appeals for the District of Columbia Circuit. See Farhy v. 

Commissioner, No. 23-1179 (D.C. Cir. filed July 24, 2023). Respondent 

filed a Notice of Judicial Ruling acknowledging the Farhy decision;

however, neither party sought to supplement its respective motion. 

On December 14, 2023, we ordered the parties to file briefs on the 

implication of Farhy for the current case and the necessity to reach the 

Excessive Fines Clause issue as it relates to the section 6038(b) penalty. 

In his brief, respondent argued that we should overrule Farhy and hold 

that he has the authority to assess penalties under section 6038(b). 

Following that approach, respondent argues we should resolve the 

5 Because both parties ask for summary adjudication on the Fifth Amendment 

claim, we will consider the motions together on this issue. 
9

Excessive Fines Clause issue. In contrast, petitioner argues that, if 

affirmed, Farhy resolves this case with respect to the section 6038(b)

penalties. Petitioner has indicated his intent to request the Court to 

determine that respondent cannot proceed with the collection actions as 

they relate to the section 6038(b) penalties if Farhy is affirmed by the 

D.C. Circuit. Both parties agree that Farhy does not prevent this Court 

from determining whether the penalties under section 6677 violate the 

Excessive Fines Clause. 

Discussion

I. Jurisdiction to Review the Notice of Determination 

We are a court of limited jurisdiction, and we may exercise our 

jurisdiction only to the extent authorized by Congress. See § 7442; 

Naftel v. Commissioner, 85 T.C. 527, 529 (1985). In a CDP case our 

jurisdiction is predicated upon the issuance of a valid notice of 

determination. See LG Kendrick, LLC v. Commissioner, 146 T.C. 17, 28

(2016), aff’d, 684 F. App’x 744 (10th Cir. 2017). A valid notice of 

determination is “a written notice that embodies a determination to 

proceed with the collection of the taxes in issue.” Lunsford v. 

Commissioner, 117 T.C. 159, 164 (2001). The notice of determination 

must specify the taxable period, liability, and collection action to which 

the notice relates. See LG Kendrick, LLC, 146 T.C. at 28. The notice 

must also include the settlement officer’s determination as to whether 

the collection actions may proceed. See Lunsford, 117 T.C. at 165. A 

technical error in the notice of determination will not render it invalid 

unless the taxpayer is prejudiced or misled by the error. See LG 

Kendrick, LLC, 146 T.C. at 29; John C. Hom & Assocs., Inc. v. 

Commissioner, 140 T.C. 210, 213 (2013) (“Mistakes in a notice will not 

invalidate it if there is no prejudice to the taxpayer.”).

Although petitioner conceded that the notice of determination 

was valid for purposes of these motions, we have an independent 

obligation to consider whether the notice of determination is valid 

because the parties may not confer jurisdiction on this Court by 

agreement or concession. See LG Kendrick, LLC, 146 T.C. at 27. The 

notice of determination specifies that the determination relates to the 

foreign reporting penalties, properly lists the years at issue, and 

specifies the lien and levy actions considered. The notice of 

determination expressly sets out that SO3 sustained the collection 

actions. These details alone make the notice of determination valid, 

regardless of whether the notice mailed to petitioner included the 
10

attachments. See id. at 28. Further, petitioner timely filed his petition 

with this Court and therefore was not prejudiced by any alleged error. 

See Blue Lake Rancheria Econ. Dev. Corp. v. Commissioner, 152 T.C. 90, 

102 (2019) (holding that addressing a notice of determination to only one 

taxpayer did not prejudice the other taxpayers covered by the notice 

because they timely filed a petition for review). Thus, the notice of 

determination is valid, and we have jurisdiction to review respondent’s 

determination to sustain collection actions. 

II. Motion for Summary Judgment and Motion for Partial Summary 

Judgment

A. Summary Judgment Standard

The purpose of summary judgment is to expedite litigation and 

avoid costly, unnecessary, and time-consuming trials. See FPL Grp., 

Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant 

summary judgment where there is no genuine dispute of material fact 

and a decision may be rendered as a matter of law. See Rule 121(a)(2); 

Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). Furthermore, 

we construe the facts and draw all inferences in the light most favorable 

to the nonmoving party to decide whether summary judgment is 

appropriate. See Bond v. Commissioner, 100 T.C. 32, 36 (1993). The 

nonmoving party may not rest upon the mere allegations or denials of 

his pleading but must set forth specific facts showing that there is a 

genuine dispute for trial. See Rule 121(d); Bond, 100 T.C. at 36.

 Our decision in this case is appealable to the Eighth Circuit. See

§ 7482(b)(1)(G)(i), (2). That court has held that, where de novo review is 

not applicable, the scope of review in a CDP case is confined to the 

administrative record. See Robinette v. Commissioner, 439 F.3d 455, 

459–62 (8th Cir. 2006), rev’g 123 T.C. 85 (2004). To the extent that our 

consideration is limited to the administrative record, as discussed below, 

“summary judgment serves as a mechanism for deciding, as a matter of 

law, whether the agency action is supported by the administrative 

record and is not arbitrary, capricious, an abuse of discretion, or 

otherwise not in accordance with law.” Belair v. Commissioner, 157 T.C. 

10, 17 (2021) (quoting Van Bemmelen v. Commissioner, 155 T.C. 64, 79 

(2020)).

B. Standard of Review

Section 6320(b) permits a taxpayer to challenge an IRS lien filing 

before the Appeals Office, and section 6320(c) (incorporating section 
11

6330(d)) provides for Tax Court review of an Appeals Office 

determination. Section 6330(b) permits a taxpayer to challenge a 

proposed levy before the Appeals Office, and section 6330(d) provides for 

Tax Court review of an Appeals Office determination. The Code does 

not prescribe the standard of review that this Court should apply in 

reviewing an IRS administrative determination in a CDP case; rather, 

we are guided by our precedents.

Where the validity of a taxpayer’s underlying tax liability is 

properly at issue, we review the determination regarding the underlying 

liability de novo. See Sego v. Commissioner, 114 T.C. 604, 609–10 

(2000). We review all other determinations for abuse of discretion. See 

id. at 610. Abuse of discretion exists when a determination is “arbitrary, 

capricious, or without sound basis in fact or law.” Murphy v. 

Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 

2006). Section 6330(c)(2) permits a taxpayer to challenge “the existence 

or amount of the underlying tax liability” in a CDP hearing if he did not 

previously receive a notice of deficiency and did not have a prior 

opportunity to challenge the tax liability. 

Neither the Code nor the regulations define “underlying tax 

liability.” See Montgomery v. Commissioner, 122 T.C. 1, 7 (2004). 

Underlying tax liabilities include any amounts owed by the taxpayer 

pursuant to the tax laws, including the tax deficiency, additions to tax, 

and statutory interest. See Katz v. Commissioner, 115 T.C. 329, 339 

(2000). 

There is no dispute that petitioner was entitled to challenge his 

underlying liability because his postassessment conference had not 

concluded before his request for a CDP hearing. See Perkins v. 

Commissioner, 129 T.C. 58, 66–67 (2007). To determine whether to 

apply a de novo or an abuse of discretion standard of review to each 

issue, we must determine which, if any, of the issues relate to his 

underlying tax liability.

Petitioner’s Fifth Amendment challenge to SO3’s independence is 

not a challenge to his underlying tax liability. See id. at 69–71. 

Similarly, petitioner’s challenge to SO3’s rejection of his collection 

alternatives does not relate to his underlying tax liability. See Robinette 

v. Commissioner, 439 F.3d at 462–63; Pough v. Commissioner, 135 T.C. 

344, 350 (2010). We will review these determinations for abuse of 

discretion and our review is limited to the administrative record. See 

Robinette v. Commissioner, 439 F.3d at 459–62; Sego, 114 T.C. at 610.
12

As for petitioner’s Excessive Fines Clause argument, it is not 

necessary to determine the standard of review. “Where, as here, we are 

faced with a question of law . . . , our holding does not depend on the 

standard of review we apply. We must reject erroneous views of the 

law.” Manko v. Commissioner, 126 T.C. 195, 199 (2006); see also Farhy, 

160 T.C., slip op. at 4–5; Freije v. Commissioner, 125 T.C. 14, 32–37 

(2005) (setting aside a determination to proceed with collection because 

the Appeals officer’s verification that the requirements of applicable law 

were met was “incorrect” because of an “error as a matter of law,” 

specifically an assessment that was “simply invalid,” and holding that a 

taxpayer’s ability to dispute his underlying tax liability pursuant to 

section 6330(c)(2)(B) does not cure an invalid assessment).

C. Due Process Rights Under the Fifth Amendment

The Fifth Amendment provides that “[n]o person shall . . . be 

deprived of life, liberty, or property, without due process of law.”

Petitioner alleges that respondent violated his Fifth Amendment due 

process rights by (1) failing to provide a hearing in front of an impartial 

settlement officer as required by sections 6320(b)(3) and 6330(b)(3) and 

(2) taking a position in this litigation inconsistent with prior criminal 

proceedings.

As a preliminary matter, it should be noted that the Due Process 

Clause does not require respondent to conduct a hearing before his 

collection actions where there is an adequate opportunity for later 

judicial review. See Phillips v. Commissioner, 283 U.S. 589, 595–99 

(1931); Robinette v. Commissioner, 439 F.3d at 458. However, with the 

enactment in 1998 of sections 6320 and 6330, Congress created certain 

pre-collection rights and privileges. Therefore, petitioner’s Fifth 

Amendment challenges are more properly characterized as challenges 

to respondent’s compliance with sections 6320 and 6330.

Sections 6320(b)(3) and 6330(b)(3) provide that a CDP hearing 

“shall be conducted by an officer or employee who has had no prior 

involvement with respect to the unpaid tax specified . . . before the first 

hearing.” The Code does not define “no prior involvement.” See Harrell 

v. Commissioner, T.C. Memo. 2003-271, slip op. at 16, supplemented by 

T.C. Memo. 2003-312. However, the regulations provide that prior 

involvement includes “participation or involvement in a matter (other 

than a CDP hearing held under either section 6320 or section 6330) that 

the taxpayer may have had with respect to the tax and tax period shown 
13

on the CDP notice.” See Treas. Reg. §§ 301.6320-1(d)(2), Q&A-D4,

301.6330-1(d)(2), Q&A-D4.

It is undisputed that SO3 had no prior involvement related to the 

tax liabilities for the years at issue. Further, the parties do not dispute 

that SO3 was required to refer this matter to International Operations 

because petitioner’s challenge to his underlying liability involved 

international reporting penalties. See Internal Revenue Manual (IRM) 

8.7.3.7 (Oct. 1, 2012). Rather, the parties dispute whether AO’s 

communication with SO3 during the CDP hearing violated sections 

6320(b)(3) and 6330(b)(3). AO clearly had prior involvement in the 

dispute of the foreign reporting penalties via his participation in the 

postassessment conference. AO was the Appeals officer assigned to 

petitioner’s postassessment conference and rendered the final decision 

not to abate the foreign reporting penalties. We must determine 

whether AO is deemed to have “conducted” the CDP hearing as 

contemplated by sections 6320(b)(3) and 6330(b)(3).

We have considered a similar situation in which an OIC was 

reviewed by an attorney who had prior involvement. See Isley v. 

Commissioner, 141 T.C. 349, 367 (2013). In that case a settlement 

officer referred a proposed OIC to the IRS Office of Chief Counsel as 

required by policy. Id. The attorney in the IRS Office of Chief Counsel 

who received the proposed OIC had previously worked on tax issues 

related to the taxpayer’s prior bankruptcy. Id. After reviewing the OIC, 

the attorney recommended denying the OIC in a memorandum to the 

settlement officer. Id. We determined that the attorney’s involvement 

did not cause him to become “the de facto Appeals officer” conducting 

the hearing, and thus section 6330(b)(3) did not apply to him. Id. We 

went on to hold that even if the attorney was the de facto Appeals officer, 

he did not have prior involvement with the specific tax years at issue. 

Id.

The rationale in Isley is equally compelling in this case. AO was 

not present during any of the conferences with petitioner, and the record 

does not indicate that he had extensive conversations with SO3. After 

SO3 was informed that AO was assigned to the underlying liability 

issue, communication between the two appears limited to AO informing 

SO3 that he had previously considered the issues and directing SO3 to 

the memorandum he had previously drafted. AO logged a mere 45 

minutes in his case activity report once he was assigned to the CDP 

hearing. As with the attorney in Isley, we do not find that this limited 

involvement with the CDP hearing made AO the “de facto Appeals 
14

Officer” conducting the hearing. Rather, SO3 was the settlement officer 

to which section 6330(b)(3) applies.

Furthermore, there is no evidence that AO’s involvement impeded 

SO3’s impartiality. After SO3 received the memorandum, he compared 

the issues in the memorandum to those raised by petitioner and 

determined that they were identical. SO3 then reviewed AO’s analysis 

and researched the law AO had relied upon and consulted the record. 

Only after this research, SO3 determined that he agreed with AO’s 

findings on the underlying liability. SO3 exercised his independent 

authority to determine whether the foreign reporting penalties were 

properly assessed. Therefore, any involvement by AO did not bear on 

SO3’s impartiality.

Petitioner asserts that SO3 could not have performed a complete 

review of the underlying liability challenges because he logged three

hours on the issue. In addition to the three hours that petitioner 

highlights, SO3 made other entries into his case report indicating he 

worked on the underlying liability issue but reported the time as zero. 

SO3’s consideration of the issues, rather than the time spent, is the focus 

of our analysis. SO3’s case report details how he considered each issue 

raised by petitioner and made a determination based on his research 

confirming AO’s determination. Thus, petitioner’s Fifth Amendment 

and CDP rights were not violated because of AO’s limited involvement.

Petitioner raises one additional Fifth Amendment argument in 

his petition. Petitioner vaguely asserts: “Respondent’s assertion of the 

Penalties was improperly inconsistent with its position in a prior 

proceeding involving Petitioner.” Petitioner had an opportunity to 

further expand on this allegation in either his Motion for Summary 

Judgment or his Response to Motion for Partial Summary Judgment but 

failed to do so. Assuming petitioner is arguing that his plea agreement 

precludes respondent’s assertion of the foreign reporting penalties, we 

reject this argument because petitioner’s guilty plea specifically stated 

that it did not limit the rights of the Government to pursue civil action 

against petitioner. Accordingly, respondent did not violate petitioner’s 

Fifth Amendment due process rights or his rights under sections 6320 

and 6330.

D. Collection Alternatives: OICs

Section 7122(a) authorizes the IRS to compromise an outstanding 

tax liability, and the regulations set forth three grounds for such a 
15

compromise: (1) doubt as to liability; (2) doubt as to collectibility; or 

(3) promotion of effective tax administration. See Treas. Reg. 

§ 301.7122-1(b). Petitioner proposed to compromise his liability based 

on doubt as to collectibility. The Secretary may compromise a tax 

liability based on doubt as to collectibility where the taxpayer’s assets 

and income render full collection unlikely. See id. para. (b)(2). 

Conversely, the IRS may reject an OIC where the taxpayer’s RCP is 

greater than the amount he proposes to pay. See Johnson v. 

Commissioner, 136 T.C. 475, 486 (2011), aff’d, 502 F. App’x 1 (D.C. Cir. 

2013). RCP is generally calculated by multiplying a taxpayer’s monthly 

income available to pay taxes by the number of months remaining in the 

statutory period for collection and adding to that product the realizable 

net equity in the taxpayer’s assets. See id. at 485.

A settlement officer is generally directed to reject offers 

substantially below the taxpayer’s RCP. See Rev. Proc. 2003-71, 

§ 4.02(2), 2003-2 C.B. 517, 517. In some cases, the Secretary will accept 

an offer of less than the RCP of the case if there are special 

circumstances. See id. Special circumstances are (1) circumstances 

demonstrating that the taxpayer would suffer economic hardship if the 

IRS were to collect from him an amount equal to the RCP of the case or 

(2) if no demonstration of such suffering can be made, circumstances 

justifying acceptance of an amount less than the reasonable collection 

potential of the case based on public policy or equity considerations. See 

Murphy, 125 T.C. at 309; IRM 5.8.11.3.1 (Oct. 4, 2019), 5.8.11.3.2.1 (Oct. 

4, 2019).

SO3 did not abuse his discretion in rejecting petitioner’s OICs

because petitioner’s offers were significantly less than his RCP as 

determined by COICU and SO3.6 COICU determined petitioner had an

RCP of $4,266,334. SO3 reviewed this calculation, and based on 

updated financial information, increased petitioner’s RCP to $4,682,596. 

SO3 determined that even using the lower COICU RCP, petitioner’s 

OICs, valued at $1,000,000 and $2,672,717 respectively, were 

significantly lower than his RCP.

Petitioner argues that SO3 did not meaningfully review the OICs; 

however, the administrative record does not support this argument. 

SO3 performed an in-depth review of petitioner’s financial 

6 Respondent also alleges that SO3 did not have to consider the alternative 

OIC because it was not submitted on the proper form. However, we could find no basis 

for this argument in SO3’s case activity report. 
16

documentation to determine his RCP. In reviewing petitioner’s offers, 

SO3 adopted the RCP proposed by the COICU, which allotted petitioner 

$416,263 of net equity in assets from which to pay living expenses. SO3 

communicated to petitioner his intent to reject the OICs and allowed 

petitioner additional time to submit a revised OIC or additional 

supporting documents. Petitioner did not provide either. SO3 also 

considered petitioner’s arguments that he could not liquidate certain 

assets and needed to retain assets for his support but determined that 

liquidity issues were already factored into the RCP calculation by Form 

433–A. Although petitioner takes issue with this “mechanical” review 

of his OICs, this review is not arbitrary or capricious as it complies with 

the applicable IRS guidance relevant to analyzing an OIC. See Rev. 

Proc. 2003-71, § 4.02(2), 2003-2 C.B. at 517. Therefore, SO3 did not 

abuse his discretion in rejecting petitioner’s OICs because petitioner’s 

RCP greatly exceeded his OICs.

E. Eighth Amendment Excessive Fines

Section 6038(b)(1) imposes a penalty of $10,000 for each tax year 

for which a United States person does not file an information return 

disclosing ownership of a foreign corporation. Section 6677 imposes 

penalties for failure to file information returns related to foreign trusts. 

Section 6677 imposes a penalty for failure to file an information return 

disclosing ownership7 of a foreign trust as required by section 6048(b). 

See § 6677(a) and (b). For returns required to be filed by December 31, 

2009, the penalty is equal to 5% of the gross value of the portion of the 

trust assets that a United States person is treated as owning. For 

returns required to be filed after December 31, 2009, the penalty is equal 

to the greater of $10,000 or 5% of the gross value of the portion of the 

trust assets that a United States person is treated as owning. 

Section 6677 also imposes a penalty for failure to file an 

information return disclosing the transfer of money to a foreign trust as 

required by section 6048(a). See § 6677(a). For returns required to be 

filed by December 31, 2009, the penalty is equal to 35% of the gross value 

of property transferred. For returns required to be filed after that date, 

the penalty is equal to the greater of $10,000 or 35% of the gross value 

of property transferred.

7 A person may be deemed the owner of a trust under the grantor trust rules 

of sections 671 through 679. See § 6048(b)(1).
17

Petitioner contends that the penalties imposed under sections 

6038(b) and 6677 violate the Excessive Fines Clause of the Eighth 

Amendment of the U.S. Constitution. We consider the challenge to each 

penalty in turn. 

1. Section 6038(b) Penalties

Petitioner asks that we find section 6038(b) unconstitutional;

however, it is a well-established principle of constitutional law that we 

should “avoid[] unnecessary adjudication of constitutional issues.” See 

United States v. Nat’l Treasury Emps. Union, 513 U.S. 454, 478 (1995); 

see also Siler v. Louisville & Nashville R.R. Co., 213 U.S. 175, 193 (1909) 

(“Where a case in this court can be decided without reference to 

questions arising under the Federal Constitution, that course is usually 

pursued and is not departed from without important reasons.”); United 

States v. Allen, 406 F.3d 940, 946 (8th Cir. 2005) (“When we are 

confronted with several possible grounds for deciding a case, any of 

which would lead to the same result, we choose the narrowest ground in 

order to avoid unnecessary adjudication of constitutional issues.”). 

While a court need not contort the law to find a nonconstitutional ground 

for deciding a case, we also cannot ignore a clear statutory ground for 

resolving the issue when it is looking us right in the face. See Citizens 

United v. Fed. Election Comm’n, 558 U.S. 310, 329 (2010) (“It is not 

judicial restraint to accept an unsound, narrow argument just so the 

Court can avoid another argument with broader implications. Indeed, a 

court would be remiss in performing its duties were it to accept an 

unsound principle merely to avoid the necessity of making a broader 

ruling.”); City of Mesquite v. Aladdin’s Castle, Inc., 455 U.S. 283, 294 

(1982) (“[T]his self-imposed limitation on the exercise of this Court's 

jurisdiction has an importance to the institution that transcends the 

significance of particular controversies.”).

Here, there is an independent, nonconstitutional basis to resolve 

the issue of whether respondent’s determination to sustain collection 

actions related to section 6038(b) was an abuse of discretion: respondent 

lacks the authority to assess penalties under section 6038(b). See Farhy, 

160 T.C., slip op. at 5–14. Respondent assessed penalties under section 

6038(b) against petitioner without the authority to do so, which 

consequently means that respondent may not proceed with the collection 

of the section 6038(b) penalties from petitioner via the proposed levy or 

lien. See Farhy, 160 T.C., slip op. at 14. Therefore, there is no need to 

reach the constitutional issue of whether the penalties under section 

6038(b) violate the Excessive Fines Clause. 
18

Respondent argues that we should revisit and overrule our 

holding in Farhy because he believes it was decided incorrectly. We 

adhere to the doctrine of stare decisis and thus afford precedential 

weight to our prior reviewed and division opinions. See Sanders v. 

Commissioner, No. 15143-22, 161 T.C., slip op. at 6 (Nov. 2, 2023). 

Respondent’s argument that Farhy was decided incorrectly is not 

sufficient justification alone to warrant reconsideration of its holding. 

See Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 266 

(2014). 

Moreover, the mere fact that Farhy is currently on appeal at the 

D.C. Circuit is insufficient. This case is appealable to the Eighth Circuit, 

and therefore any ruling from the D.C. Circuit would not be binding on 

this proceeding. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970) 

(stating that when a “squarely [o]n point” decision of the appellate court 

to which an appeal would lie contradicts our own precedent, we will 

follow the appellate court’s decision), aff’d, 445 F.2d 985 (10th Cir. 1971). 

The Eighth Circuit has not spoken as to the question of whether the IRS 

has the authority to assess section 6038(b) penalties. Where we are not 

constrained by precedent of the pertinent court of appeals, we follow 

stare decisis and apply our own precedent.8 See Lawrence v. 

Commissioner, 27 T.C. 713, 716–17 (1957), rev’d per curiam on other 

grounds, 258 F.2d 562 (9th Cir. 1958). 

We further see no reason to delay resolution of this issue until the 

resolution of the appeal in Farhy by the D.C. Circuit. Rule 121(g)(2) 

permits the Court to grant a motion for summary judgment on grounds 

not raised by the parties after notice and a reasonable time to respond. 

Our order to brief the implications of Farhy gave adequate notice of the 

possibility that we may grant partial summary judgment for petitioner 

on this issue, and both parties had reasonable time to respond in the 

form of their briefs. Respondent could not assess the penalties under 

section 6038(b), and therefore as a matter of law respondent may not 

proceed with the collection of the section 6038(b) penalties from 

petitioner via the proposed levy or lien. We will grant partial summary 

judgment on this issue in favor of petitioner. 

8 To the extent the IRS had the authority to assess penalties under section 

6038(b), the analysis on the Excessive Fines Clause issue would be identical to the 

section 6677 penalties analysis infra. 
19

2. Section 6677 Penalties

The Eighth Amendment to the Constitution provides: “Excessive 

bail shall not be required, nor excessive fines imposed, nor cruel and 

unusual punishments inflicted.” The Excessive Fines Clause “limits the 

government’s power to extract payments, whether in cash or in kind, ‘as 

punishment for some offense.’” Austin v. United States, 509 U.S. 602, 

609–10 (1993) (quoting Browning-Ferris Indus. of Vt., Inc. v. Kelco 

Disposal, Inc., 492 U.S. 257, 265 (1989)). The touchstone of whether a 

fine violates the Excessive Fines Clause is the “principle of 

proportionality: The amount of the forfeiture must bear some 

relationship to the gravity of the offense that it is designed to punish.” 

United States v. Bajakajian, 524 U.S. 321, 334 (1998). Therefore, we 

must first determine whether the section 6677 penalties are fines and 

then if they are fines, whether they are excessive.

To determine whether a penalty is a fine, we must examine 

whether the penalty serves the purpose of punishing the offense. See 

Austin, 509 U.S. at 610. This Court has consistently found that the 

purpose of civil tax penalties and additions to tax is to encourage 

voluntary compliance, and therefore they are not punitive. See 

Thompson v. Commissioner, 148 T.C. 59, 66 (holding that the civil fraud 

penalty under section 6662A is not punitive); Ianniello v. Commissioner, 

98 T.C. 165, 187 (holding that the addition to tax under section 6653 is 

not punitive); Bell Cap. Mgmt., Inc. v. Commissioner, T.C. Memo. 2021-

74, at *18 (holding that the civil fraud penalty under section 6663(a) is 

not punitive); Gorra v. Commissioner, T.C. Memo. 2013-254, at *63–64

(holding that gross valuation misstatement penalty under section 6662 

is not punitive); Mason v. Commissioner, T.C. Memo. 2001-58, slip op. 

at 8 (holding that additions to tax under section 6651(a)(1) and (2) are 

not punitive).

Various other courts have agreed. In Helvering v. Mitchell, 303 

U.S. 391, 401 (1938), the Supreme Court analyzed whether a civil fraud 

penalty under the Revenue Act of 1928 was punishment or purely 

remedial in character. The Court found the penalty to be remedial, 

stating: 

The remedial character of sanctions imposing additions to 

a tax has been made clear by this Court in passing upon 

similar legislation. They are provided primarily as a 

safeguard for the protection of the revenue and to 

reimburse the Government for the heavy expense of 
20

investigation and the loss resulting from the taxpayer’s 

fraud.

Id.; see also Little v. Commissioner, 106 F.3d 1445, 1454 (9th Cir. 1997)

(declining to find that negligence and substantial understatement 

additions to tax under former sections 6653(a) and 6661 were fines 

because “[t]he additions to tax . . . are purely revenue raising because 

they serve only to deter noncompliance with the tax laws by imposing a 

financial risk on those who fail to do so”), aff’g T.C. Memo. 1993-281. In 

considering penalties under sections 6038(b) and 6677, other trial courts 

have found that the penalties serve a remedial purpose and are not 

fines. See Dewees v. United States, 272 F. Supp. 3d 96, 100–01 (D.D.C. 

2017) (holding that penalties under section 6038(b) are not fines), aff’d, 

767 F. App’x 4 (D.C. Cir. 2019); In re Wyly, 552 B.R. 338, 613 (Bankr.

N.D. Tex. 2016) (determining that penalties under sections 6038(b) and 

6677 are not fines).

Similarly, the U.S. Court of Appeals for the First Circuit has 

found that penalties related to failure to file an FBAR with the IRS are 

not fines. See United States v. Toth, 33 F.4th 1, 19 (1st Cir. 2022). The 

First Circuit reasoned that the FBAR penalties are not related to any 

criminal sanction but rather are imposed after the IRS determines that 

a taxpayer has failed to report a foreign bank account. Id. at 16. 

Additionally, FBAR penalties are related to fraud on the United States 

and loss to the public fisc. Id. at 17. The loss to the public fisc is caused 

not only by the lost tax revenue when these secret accounts are used for 

transactions but also by the great difficulty of law enforcement 

investigations into these accounts. Id. Finally, the fact that the penalty 

may be higher than the amount of tax owed on the concealed activity did 

not make the penalty a punishment. Id. at 18; see also Mitchell, 303 

U.S. at 401 (finding that the government could require an individual 

who had failed to pay his taxes to both pay the amount owed in taxes 

that had not been paid as well as impose a 50% penalty for willfully 

failing to pay those taxes).

Petitioner does not cite any relevant cases in support of his 

assertion that the section 6677 penalties violate the Excessive Fines 

Clause. Nothing in the text of the statute indicates that we should treat 

the section 6677 penalties differently from the other civil penalties. Like 

the civil penalties discussed above, the section 6677 penalties clearly 

serve the purposes of protecting revenue and reimbursing the 

Government for the heavy expense of investigation and fraud. The 

section 6677 penalties are primarily a method to safeguard the collection 
21

of revenue as without such reporting many foreign entities having U.S. 

tax effects would be difficult to find and monitor. The purposes of these 

penalties are clear in petitioner’s case. As evident from the consolidated 

deficiency case related to the tax years and transactions that form 

respondent’s basis for the penalties, petitioner’s failure to comply with 

his reporting obligations allegedly allowed him to avoid his federal 

income tax liabilities for years.

Finally, petitioner attempts to stave off summary judgment by 

arguing that we should allow a trial on this issue to fully develop the 

record because the Eighth Circuit has not ruled whether the section 

6677 penalties are fines and the law is unclear on the issue. While the 

Eighth Circuit has yet to rule on this precise issue, it has continued to 

apply Mitchell to determine that civil tax penalties are not punitive. 

See, e.g., Morse v. Commissioner, 419 F.3d 829, 835 (8th Cir. 2005)

(determining in a Double Jeopardy case that section 6663 civil fraud 

penalties serve a remedial purpose), aff’g T.C. Memo. 2003-332. 

Additionally, we find the overwhelming volume of precedent holding 

that civil tax penalties are not fines compels our determination that the 

section 6677 penalties are not fines. Further, petitioner has not 

indicated what relevant facts he wishes to further develop for appeal.

Assuming arguendo that the Excessive Fines Clause is 

implicated, the section 6677 penalties are not so grossly 

disproportionate as to violate the Eighth Amendment. To pass the 

constitutional proportionality inquiry under the Excessive Fines Clause, 

the amount of the forfeiture or fine must bear some relationship to the 

gravity of the offense that it is designed to punish. See Bajakajian, 524 

U.S. at 334. A fine violates the Excessive Fines Clause if “the amount 

of the forfeiture is grossly disproportional to the gravity of the 

defendant’s offense.” Id. at 337.

We have consistently held that similar penalties are not 

disproportionate to the fraud on the government and harm caused on 

the public fisc. See Thompson, 148 T.C. at 67–68 (holding that penalties 

under section 6662A were not fines and in the alternative that the 30%

penalty was not grossly disproportionate); Gorra, T.C. Memo. 2013-254, 

at *62–63 (determining that the 40% gross misstatement penalties 

under section 6662(h) were not fines and in the alternative that the 

penalty was not grossly disproportionate); see also United States v. 

Bussell, 699 F. App’x 695, 696 (9th Cir. 2017) (holding without analysis 

that even if penalties for failure to report foreign bank accounts were 

fines, $1.2 million of penalties that represented 50% of the value of the 
22

undisclosed bank account were not grossly disproportionate to the fraud 

on the government and harm to the public fisc). Accordingly, even if the 

section 6677 penalties are fines, they do not violate the Excessive Fines 

Clause.

We conclude that the notice of determination is valid, and 

therefore we have jurisdiction to review the notice of determination. 

SO3 did not violate petitioner’s Fifth Amendment due process rights or 

CDP rights through his interactions with AO. SO3 also did not abuse 

his discretion in rejecting petitioner’s OIC proposals. Further, the IRS 

lacks assessment authority related to the section 6038(b) penalties and 

therefore cannot proceed with the collection actions as they relate to 

these penalties. Finally, the section 6677 penalties do not violate the 

Excessive Fines Clause. 

Accordingly, we will grant respondent’s Motion for Partial 

Summary Judgment, filed January 4, 2023, in part. We will deny 

petitioner’s Motion for Summary Judgment, filed December 29, 2022. 

Independent of the motions, we will grant partial summary judgment in 

favor of petitioner on the issue of whether respondent may proceed with 

the collection actions as they relate to the section 6038(b) penalties.

To reflect the foregoing, 

An appropriate order will be issued.