T.C. Mem o. 2 01 6- 99

UNITED STAT ES TAX COURT SYNERGY ENVIRONMENTAL, INC., Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 93 76 -1 2L. Fi le d M ay 16 , 20 16 .
Pau l E. Ken t, fo r pe ti ti on er. Lis a R. Wood s an d B ry an t Sm ith, fo r res po nd en t.

MEMORANDUM OPINION HAINES, Ju dg e: Thi s ca se was o rig in al ly sub m it te d o n ast ip ul at edreco rd pu rs ua ntto Ru le 12 2, an d i n S yne rg y Env tl ., Inc . v. Co m

m is si on er, T.C. Mem o. 1
Unl es s o th erwi se in di cat ed , all Ru le refe ren ces are t o the Tax C ou rt R ul es 1 of Prac ti ce an d P ro cedur e, an d a ll sec ti onrefe ren ces are t o the Int ern al Rev enue Co de , as a m en de d a ndineffe ctat a ll rel ev an t t im es . Am ou nt s ar e ro un de d t o the (co nt in ue d...)- 2 -

[* 2] 20 14 -1 40 , we rem an de d the cas e to th e IRS App eal s Off ic e (Ap pe al s) fora supp le m en ta l h eari ng . On Ju ly 2, 20 15 , res po nd en t i ss ue d h is Supp le m en ta l Not ic e o f Det erm in at io n C on cern in g C ol le ct io n Act io n( s) un de r Sec ti on63 20 an d/ or63 30 (supp le m en ta l n ot ic e) re jecti ng pe ti ti on er’s o ffer -in -co m pr om is e an d su st ai ni ng th e fi li ng of t he no ti ce o f Fed eral tax li en . W e m us t d et erm in e whe th er res po nd en t ab us edhi s d is cret io n i n re jecti ng pe ti ti on er’s o ffer -in -co m pr om is e an d su st ai ni ng th e fi li ng of t he no ti ce o f Fed eral tax li en . Bac kg ro un d Pet it io ne r, a d efu nc t co rp or at io n, m ai nt ai ne d i ts pri nc ip al pl ace o f bu si ne ss in Cal ifo rn iawhen th e p et it io n was fil ed . On Aug us t 3 1, 2 01 0, re sp on de nt rece iv edanoff

er-i n- co m pr om is e (Au gu st31 OIC) fro m pe ti ti on er o ffer in g $ 60 0 t o co m pr om is e unp ai d F ed eral in co m e ta x l iabi li ti es to ta li ng m or e th an$1 .6 m il li on fo r ta x years e nd in g S ep te m be r 30 , 19 97 , 19 98 , 19 99 , and20 00 (y ears at i ss ue ). Res po nd en t re

jecte d the Aug us t 3 1 OIC . InJu ne 20 11 res po nd en t i ss ue d ano ti ce t o p et it io ne r in di cat in g tha t a n ot ic e of Fed eral tax li en(li enno ti ce) h adbe enfil edwith re sp ectto it s o ut st an di ng tax

(...co nt inue d) 1 ne ares t d ol lar.- 3 -

[* 3] li ab il it ie s fo r th e y ears at i ss ue an d i nf orm in g i t tha t i t was en ti tl edto a he ari ng un de r se ct io n 6 32 0. Inlat e Ju ly 201 1 p et it io ne r ap pe al edth e reject io n o f th e Aug us t 3 1 OIC to App eal s. A few d ay s l at er p et it io ne r ti m el y reque st eda se ct io n 6 32 0 h eari ng reg ard in g the li enno ti ce wi th App eal s. Inth e li enno ti ce h eari ng reque st pe ti ti on er p ro po se d a n o ffer -in -co m pr om is e as a co ll ect io n a lt ern at iv e. The Aug us t 3 1 OIC was n otco ns id eredas aco ll ect io n a lt ern at iv e at pe ti ti on er’s s ect io n 6 32 0 h eari ng with Ap pe al s, an d i n S y ne rg y Env tl ., Inc . v. Co m m is si on er, T.C. Mem o. 2 01 4- 14 0, we re m an de d the cas e to App eal s fo r a supp le m en ta l h eari ng . On Oct ob er 1 4, 2 01 4, Ap pe al s Off ic er Sylve st er Fe rn an do (AO Fern an do ) he ldth e supp le m en ta l h eari ng with p et it io ne r’s at to rn ey ov er the te le ph on e. Pet it io ne r’s atto rn ey als o p ro vi de d AO Ferna nd o upd at edfin an ci al in fo rm at io n. On J anua ry

2, 2 01 5, AO Ferna nd o re qu es te d c larif ic at io n re ga rd in g the up da te d fi na nc ia l i nf

orm at io n. AO Fern an do an d p et it io ne r’s at to rn ey ag reedth at th e ad di ti on al in fo rm at io n wo ul d b e p ro vi de d b y Apri l 1 0, 2 01 5. AO Fern an do was ou t o f th e o ffi ce o n unp lann edm ed ic al leave on Apri l 1 3, 2 01 5, wh en pe ti ti on er’s co un se l fa xe d t o Ap pe al s ap pr ox im at el y 60 pa ge s o f do cu m en ts to cl ari fy th e upd at edfin an ci al in fo rm at io n. Be cau se itwas unc le ar wh enAO- 4 -

[* 4] Fern an do wou ldreturn t o wo rk , th e cas e was reas si gn edto Set tl em en t Offi cer Lin daCo ch ran(SO Co ch ran ). SO Co ch ranha d n o p rio r in vo lv em en t wi thth is m at te r. On the ba si s o f th e supp le m en ta l h eari ng an d h er re vi ew of th e adm in is tra ti ve fil e, tr an sc rip ts , and ad di ti on al do cu m en ts th atpe ti ti on er s ub m it te d, SO Co ch ranfou ndth atth e requi rem en ts of a ny app li cab le law o r admin is tra ti ve pro cedur e h adbe enm etin th is cas e. The Aug us t 3 1 OIC , whi chwas s ub m it te d s ol el y on do ub t as to co ll ect ib il ity , was co ns id eredas aco ll ect io n a lt ern at iv e. Fo r th e y ears at i ss ue pe ti ti on er was cal cu late d t o o we $1 ,66 2,1 38 as o f Ju ly 31, 2 01 5. Co ns id eri ng pe ti ti on er’s cu rren t fi na nc ia l i nf orm at io n andfil in g c om

pl ianc e, th e fac ts an d ci rcu m st an ces of the cas e, an d the off er o f $6 00 to co m

pr om is e p et it io ne r’s ta x li ab il ity , SO Coc hr ande te rm in edth atpe ti ti on er’s o ffer -in -co m pr om is e m etth e cri te riaforreject io n i n a cco rd an ce wi th IRS Po li cy Sta te m en t P- 5- 89 an d In te rn al Rev enue Man ua l (I RM) pt . 5.8 .7.7 .2 (M ar. 7 , 20 14 ). The supp le m en ta l n ot ic e was is su edonJu ly 2, 20 15 . It s ta te s: Bas edon th e ta xp ay er’s cu rren t fi na nc ia l i nf orm at io n, the tax pa y er sh ows no in co m e, no ass et s, an d n o abi li ty to m ak e p aym en t t owa rd s th e p as t due am ount s. Th e ta xp ay er’s cu rren t fi na nc ia l i nf orm at io n an d i ts curren t fi li ng co m pl ianc e as well as t he tax pa y er’s o ve ral l fact s, ci rcu m st an ces , andcas e h is to ry were co ns id ered . Bas edonth e- 5 -

[* 5] tax pay er’s cas e h is to ry an d fa ctpa tt ern , th e ta xp ay er m eet s cri te riafor* * * [o ffer -in -co m pr om is e] rejecti on , inacco rd an ce wi th IRS Po li cy

Sta te m en t P- 5- 89 * * * Tak enas ato ta li ty, th e ta xp ay er sh ows a pa tt ernof m ov in g o r el im in at in g i ts ass et s, al l the whi le ho tl y co nt es ti ng tax is su es durin g the pro lo ng ed(10 y ear) au di t an d Tax Co urt p ro ces se s. Th e ta xp ay er, the refo re, m eet s * * * [of fer- in
co m pr om is e] rejecti on cri te ria , as p er In te rn al Rev enue Man ua l (IRM ) 5.8 .7.7 .2. The supp le m en ta l n ot ic e g oe s o n t o s tate th at“ [t]he Set tl em en t Offi cer’s at te m ptto ba lanc e th e ta xp ay er’s co nc ern s wi th effi ci en t co ll ect io n m us t * * * be weig he d i n fav orof t he go ve rn m en t wi thres pe ctto th e li enis su e.” On Oct ob er 2 2, 2 01 5, the Co urt fi le d p et it io ne r’s am en de d p et it io n. Dis cu ss io n Whe n a ny pers on li ab le to pa y an y tax ne gl ect s o r refu se s t o d o s o a fte r no ti ce an d d em an d, a l ie n i s i m po se d i n fa vo r of

th e Uni te d S ta te s o n a ll pro pe rty an d ri gh ts to pro pe rty tha t b el on g t o tha t p ers on . Sec. 6 32 1. Th e li enari se s atth e ti m e th e as se ss m en t i s m ad e an d c on ti nu es un ti l the li ab il ity is sat is fie d o r be co m es un en fo rceabl e. Sec. 6 32 2. Gen eral ly, in ord er fo r th e li ento be va li d ag ai ns t thi rdpa rti es , th e Sec ret ary m us t fi le a li enno ti ce wi th cert ai n S ta te or l oc al au th or it ie s wh ere t he tax pa y er’s p ro pe rty is s itua te d. Se c. 63 23 (a), (f ); Li nd sa y

v. Co m m is si on er, T.C. Mem o. 2 00 1- 28 5, af f’d, 56 F. App ’x 80 0 (9 th Cir . 20 03 ).- 6 -

[* 6] The Secr et ary m

us t fu rn is h the tax pa y er wi th a writ te n n ot ic e o f th e fi li ng of a li enno ti ce an d o f th e ta xp ay er’s ri gh t t o ahe ari ng co nc ern in g the li en . Sec. 63 20 (a)( 1) , (3) . If th e ta xp ay er t im el y reque st s a h eari ng , th e h eari ng is to be co nduc te d b y

anoff ic er o r em

pl oyee of App eal s wh o h as ha d n o p rio r in vo lv em en t with re sp ectto th e unp ai d t ax es . Sec. 6 32 0( b) (1 ), (3 ), (c). Th e ta xp ay er m ay rai se atth e h eari ng “ an y

rel ev an t i ss ue ” rel at in g t o the unpa idtax or the li en , in cl ud in g of fers of c ol le ct io n a lt ern at iv es su chas a n o ffer -in -co m pr om is e. Secs . 63 20 (c), 63 30 (c)( 2) (A). Pet it io ne r’s co ll ect io n a lt ern at iv e, th e Aug us t 3 1 OIC , was an off er of $6 00 to co m

pr om is e it s l iabi li ty excee di ng $1 .6 m il li on . W e h av e juri sd ic ti on to rev ie w App eal s’ det erm in at io ns . Secs . 63 20 (c), 63 30 (d ). Becaus e th e und erl y in g t ax li ab il ity is no t atis su e, th is Co urt’s re vi ew is fo r ab us e o f di sc ret io n. Se e Seg o v . Comm is si on er, 1 14 T.C. 60 4, 6 10 (20 00 ); Goz a v . Comm is si on er, 1 14 T.C. 17 6, 1 82 (20 00 ). The C ourt “ do [es ] no t co nduc t anin de pe nd en t re vi ew of whatwou ldbe anacce pt ab le off er i n c om pr om is e.” Mu rp hy v. Co m

m is si on er, 1 25 T.C. 30 1, 3 20 (20 05 ), aff’d, 4 69 F.3d27 (1s t Ci r. 20 06 ). The ex te ntof o urrev ie w is to de te rm in e whe th er Ap pe al s’ dec is io n t o rejectth e Aug us t 3 1 OIC as aco ll ect io n a lt ern at iv e was arb itrary, capri ci ou s, o r witho utso un d b as is infactor l aw. See i d.- 7 -

[* 7] The no ti ce o f de te rm in at io n s et s fo rth App eal s’ fin di ng s an d d eci si on s. Sec . 30 1.6 32 0- 1( e)(3 ), Q&A-E8 , Pro ced . & Adm in . Reg s. Th e n ot ic e o f de te rm in at io n wil l: (1) st at e whe th er the IRS m etth e requi rem en ts of a ny app li cab le law o r adm in is tra ti ve pro cedur e; (2) res po ndto an y off ers by the tax pa y er fo r co ll ect io n al te rn at iv es ; an d (3 ) ad dr es s “ whe th er the co nt in ue d e xi st en ce o f th e fi le d * * * [n ot ic e o f Fed eral tax li en ] rep res en ts a ba lanc e b etweenth e n eedforth e eff ic ie nt co ll ect io n o f ta xe s an d the leg it im at e co nc ernof t he tax pa y er tha t an y co ll ect io n act io n b e n o m or e in tru si ve th anne ces sa ry .” Id . The supp le m en ta l n ot ic e st at es th atSO Co ch ranfou ndth atth e requi rem en ts of an y ap pl ic ab le law o r adm in is tra ti ve pro cedur e h adbe enm et . The supp le m en ta l n ot ic e al so fou ndth at“ [t]he Set tl em en t Offi cer’s at te m ptto ba lanc e th e ta xp ay er’s co nc ern s wi th effi ci en t co ll ect io n m us t * * * be weig he d i n fa vo r of th e g ov ern m en t wi th res pe ctto th e li enis su e.” We cann otfin d tha t SO Co ch ran fai le d t o s at is fy

eit he r of th es e requi rem en ts . Accor di ng ly, we m us t turn t o the de ci si on to rejectth e o ffer -in -co m pr om is e as a co ll ect io n a lt ern at iv e. A tax pa y er’s l iabi li ty m ay be co m pr om is edwher e d oubtas t o c ol le ct ib il ity ex is ts . Sec. 7 12 2( a); sec . 30 1.7 12 2- 1, Pr oc ed . & Adm in . Reg s. “ Doubtas t o co ll ect ib il ity

ex is ts inan y

cas e whe re the tax pa y er’s as se ts an d i nc om e are les s th anth e fu ll am ountof t he li ab il ity .” Sec. 3 01 .71 22 -1 (b )(2 ), Pro ced . & Adm in .- 8 -

[* 8] Reg s. Ho wev er, the de ci si on to acce ptor r ejectanoff er t o c om pr om is e is lef

t to th e Sec ret ary’ s d is cret io n. Id . par a. (c)( 1) , Pro ced . & Adm in . Reg s. “ The de te rm in at io n wh ethe r to acce ptor r ejectanoff er t o c om pr om is e wil l b e b as ed up on co ns id erat io n o f al l the fact s an d c irc um st an ces , in cl ud in g wh ethe r th e ci rcu m st an ces of apa rti cu lar cas e warra ntacce pt an ce o f anam ou ntth atmig htno t ot he rwis e b e acc ep tabl e und er the Secr et ary’ s p ol ic ie s an d p ro cedur es .” Id . IRS Po li cy

Sta te m en t P- 5- 89 st at es th at“ [i]f th e acc ep tanc e o f anoff er m ig htinan y

way be de tri m en ta l t o the Gov ern m en t’s i nt eres ts , itm ay be reject ed ev enth ou gh itis sh own co nc lu si ve ly tha t the am ou nt s o ffer edare g reat er tha n co ul d re as on ab ly be co ll ect edinan y othe r m an ne r.” IRM pt . 1.2 .14 .1.1 5 (J ul y 26 , 19 60 ). IRM p t. 5 .8.7 .7.2 . all ows off ers to be reject edon th e b as is of I RS Po li cy St at em en t P- 5- 89 an d o ut li ne s the cri te riaforreject in g o ffer s- in -co m pr om is e o n su chgro un ds . For e xa m

pl e, anoff

er-i n- co m pr om is e m ay

be reject edon th e b as is of a publ ic po li cy

de ci si on ina si tu at io n wh ere “ [t]he tax pa y er en ga ge d i n a pa tt ernof c on du ctsu gg es ti ng in te nt io na l d is si pa ti on of a ss et s.” Id . pt . 5.8 .7.7 .2(3 ). SO Co ch ranco ns id eredth e fac ts an d c irc um st an ces of t hi s ca se an d de te rm in edth atth e Aug us t 3 1 OIC co ul d b e reject edpu rs ua ntto IRS Po li cy St at em en t P- 5- 89 an d IRM p t. 5 .8.7 .7.2 . The s up pl em en ta l n ot ic e st at es , inpa rt- 9 -

[* 9] th at , “ [t]ak enas ato ta li ty, th e ta xp ay er s ho ws a p atte rnof m ov in g o r el im in at in g a ss et s” . W e fi ndth atSO Co ch randi d n otab us e h er d is cret io n b y reject in g a n o fferof $ 60 0 t o c om pr om is e o ve r $1 .6 m il li on an d fi ndth atsh e d id no t ab us e h er d is cret io n i n s us ta in in g the fil in g o f th e n ot ic e o f Fed eral tax li en . See s ec. 3 01 .63 20 -1 (e)( 3) , Q&A-E8, Pr oc ed . & Adm in . Reg s. Inreac hi ng ou r de ci si on we have co ns id eredall arg um en ts m ad e, an d, t o the ex te ntno t m en ti on edab ov e, we co nc lu de th ey are m oo t, i rrel ev an t, o r witho ut m eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor res po nd en t.