T.C. Mem o. 2 01 5- 79

UNITED STAT ES TAX COURT

WALTER D. LIGMAN, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 12 73 5- 13 L. Fi le d Ap ril 27 , 20 15
.
Je ffre y D. Mof fat t, fo r pe ti ti on er. Su zan ne M. W arre n, fo r res po nd en t.

MEMORANDUM OPINION KERRIGAN, Ju dg e: The p et it io n i n thi s ca se was fi le d i n re sp on se to a 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 of t he Int ern al Rev enue Co de da te d M ay 2, 2 01 3, uph ol di ng a pr op os edlev y

co ll ect io n a ct io n fo r ta x year 20 08 . W e m us t co ns id er wh ethe r- 2 -

[* 2] res po nd en t’s d et erm in at io n t o p ro ceedwith the co ll ect io n a ct io n re ga rd in g pe ti ti on er’s unp ai d i nc om e ta x l iabi li ti es fortax y ear 2 00 8 was pro pe r. Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al Rev enue Co de ineffe ctat a ll rel ev an t t im es , andall Ru le refe ren ces are t o the Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. Bac kg ro un d Thi s ca se was fu ll y

st ip ul at edun de r Ru le 12 2. Th e st ip ul at edfact s ar e in co rp or at edinou r fi nd in gs by thi s re fere nc e. Pet it io ne r res id edinCal ifo rn ia whe n h e fi le d the pe ti ti on . On Ap ril 22 , 20 12 , pet it io ne r fi le d l at e h is 20 08 in co m e ta x re turnbu t fa il ed to pay th e am ou ntof t ax du e fo r th aty ear. Re sp on de ntass es se d p et it io ne r’s se lfrep orte d t ax , pen al ti es , andin te res t. OnOcto be r 15 , 20 12 , res po nd en t s en t pe ti ti on er a Fi na l No ti ce o f In te ntto Levy andNot ic e o f You r Ri gh t t o aHeari ng fo r ta x year 20 08
. On No ve m

be r 7, 2 01 2, re sp on de ntrece iv edti m el y fro m pe ti ti on er a Fo 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 Hea rin g, wi th res pe ct to th e p ro po se d l ev y

co ll ect io n a ct io n fo r ta x year 20 08 . Peti ti on er i nd ic at edon th is form th athe was i nt eres te d i n b oth an i ns ta ll m en t ag reem en t an d an o ffer -in
co m pr om is e as co ll ect io n a lt ern at iv es . On th e fo rm pe ti ti on er g av e v ari ou s- 3 -

[* 3] reas on s as to why he di sa gr eedwith the pro po se d l ev y . He st at edth athe was di sabl ed , fin an ci al ly dis tre ss ed , andrece iv in g R ai lro adRet ire m en t Bo ardbe ne fit s (Rai lro adbe ne fit s) an d tha t s om e o f th es e b en efi ts were ex em ptfro m lev y . He di d
no t d is pu te th e und erl y in g t ax li ab il ity . On J anua ry

22 , 20 13 , th e se tt le m en t o ffi cer s en t p et it io ne r a l et te r sc he du li ng a te le ph on e h eari ng forFeb ru ary 26 , 20 13 , andex pl ai ni ng what in fo rm at io n was ne ed edbe fo re p et it io ne r co ul d b e co ns id eredfora co ll ect io n al te rn at iv e. The s et tl em en t o ffi cer r eque st eda Fo rm 43 3- A, Col le ct io n In fo rm at io n S ta te m en t fo r W ag e Earn ers an d S el f-Em pl oyed In di vi du al s, an d thr ee m on th s o f ba nkan d p ay

st at em en ts alo ng with s up po rti ng do cu m en ts to subs tant ia te ex pe ns es . The s et tl em en t o ffi cer a sk edth atth e d oc um en ts be
subm it te d b y

Feb ru ary 8, 2 01 3. On J anua ry

29 , 20 13 , pet it io ne r’s rep res en ta ti ve , Jef frey Moff at t, ca ll edth e se tt le m en t o ffi cer andst at edth athe fel t the 20 08 return was pre pa redin co rrec tl y . Mr. Mo ffat t al so m en ti on edth atpe ti ti on er co ul d n otpay th e li ab il ity

be cau se he is ret ire d o n a cco un t o f a wo rkin jury andhi s o nl y

so ur ce o f in co m e was th e Rai lro ad be ne fit s. Th e se tt le m en t o ffi cer e xp la in edth atpe ti ti on er co ul d s ub m itanam en de d return. OnJan ua ry

31 , 20 13 , th e se tt le m en t o ffi cer andMr. Mo ffat t ag reedto res ch edul e th e te le ph on e h eari ng forMarc h 4 , 20 13
.- 4 -

[* 4] On M arch 4, 2 01 3, the tel ep ho ne he ari ng was h el d. Mr . Mo ffat t re qu es te d a pa rti al paym en t i ns ta ll m en t ag reem en t wi th a pa ym en t o f $2 5 p er m on th . After t he he ari ng , Mr. Mo ffat t fa xe d the set tl em en t o ffi cer p et it io ne r’s Fo rm 43 3- A as wel l
as co pi es of p et it io ne r’s m ed ic al reco rd s fr om two rece ntsu rg eri es , ren ta l re cei pt s, cel lu lar ph on e b il ls , andrece ip ts fro m vario us othe r ex pe ns es . On March 12 , 20 13 , th e se tt le m en t o ffi cer s en t p et it io ne r an d M r. Mo ffat t a l et te r ex pl ai ni ng th at sh e n eed edm or e in fo rm at io n t o c on si de r th e $ 25 -p er-m on th parti al paym en t in st al lm en t ag reem en t p ro po sa l an d re qu es ti ng ad di ti on al do cu m en ta ti onof pe ti ti on er’s i nc om e an d e xp en se s. OnMarc h 2 0, 2 01 3, M r. Mo ffat t m ai le d the reque st eddo cu m en ta ti on . At th e ti m e, pe ti ti on er’s o nl y so ur ce o f in co m e was hi s Rai lro adbe ne fit s. The set tl em en t o ffi cer d et erm in edth atpe ti ti on er h adm on th ly dis po sabl e in co m e o f $9 46 an d c al cu la te d an i ns ta ll m en t ag reem en t wi th a pa ym en t o f $7 65 pe r m on th . She in cl ud edpe ti ti on er’s i nc om e fro m hi s R ai lro adbe ne fit s wh en cal cu la ti ng hi s m on th ly inc om e. On Ap ril 1, 2 01 3, the set tl em en t o ffi cer p rep ared th e in st al lm en t ag reem en t fo rm an d s en t i t t o p et it io ne r an d M r. Mo ffat t. On Ap ril 17 , 20 13 , Mr. Mo ffat t’s as si st an t ca ll edth e se tt le m en t o ffi cer and in di cat edth atMr. Mo ffat t wo ul d b e sc he du li ng a ti m e to di sc us s the pro po se d- 5 -

[* 5] in st al lm en t ag reem en t. Mr . Mo ffat t d idno t co nt actth e se tt le m en t o ffi ce reg ard in g apaym en t p ro po sa l. On M ay 2, 2 01 3, re sp on de ntsen t p et it io ne r th e n ot ic e o f de te rm in at io n. On Ju ne 6, 2 01 3, p et it io ne r ti m el y fil eda pe ti ti on with thi s C ou rt. Dis cu ss io n Sect io n 6 33 0 re qu ire s the Secr et ary to furni sh a pe rs on no ti ce an d op po rtu ni ty for a h eari ng be fo re anim pa rti al off

ic er o r em

pl oyee of th e In te rn al Rev enue Serv ic e App eal s Off ic e (Ap pe al s) be fo re m ak in g alev y onth e p ers on ’s pr op erty . At th e h eari ng , th e p ers on m ay rai se an y rel ev an t i ss ue rel at in g t o the
unpa idtax or t he pro po se d l ev y , in cl ud in g s po us al de fen se s, ch al le ng es to th e ap pr op ria te ne ss of the co ll ect io n a ct io n, an d o ffer s o f co ll ect io n a lt ern at iv es . Sec. 63 30 (c)( 2) . The p ers on m ay ch al le ng e th e ex is te nc e o r th e am ou ntof the
un de rlyin g t ax li ab il ity

foran y pe rio d o nl y

if the pe rs on di d n otrece iv e a n ot ic e o f de fic ie nc y

or d idno t o th erwi se ha ve anop po rtu ni ty to d is pu te th e li ab il ity . Sec. 63 30 (c)( 2) (B); Seg o v . Comm is si on er, 1 14 T.C. 60 4, 6 09 (20 00 ). Fo ll owi ng a he ari ng th e App eal s o ffi cer m us t d et erm in e whe th er p ro ceed in g with the pro po se d l ev y

act io n i s ap pr op ria te . In m ak in g tha t d et erm in at io n, the App eal s o ffi cer i s re qu ire d t o t ak e in to co ns id erat io n: (1) whet he r th e requi rem en ts of a ny app li cab le law o r admin is tra ti ve pro cedur e h av e b eenm et ;- 6 -

[* 6] (2) an y

is su es ap pr op ria te ly rais edby the tax pa y er; an d (3 ) whe th er the pr op os edco ll ect io n a ct io n b al an ces th e n eedforth e eff ic ie ntco ll ect io n o f ta xe s with the leg it im at e co nc ernof t he tax pay er tha t an y co ll ect io n a ct io n b e n o m or e in tru si ve th anne ces sa ry . Sec. 6 33 0( c)(3 ); s ee al so Lun sf or d v . Comm is si on er, 1 17 T.C. 18 3, 1 84 (20 01 ). W e n ot e th atth e se tt le m en t o ffi cer p ro pe rly bas edth e de te rm in at io n o n the requi redfact or s. I. St an dardof R ev ie w Onc e App eal s i ss ue s a n ot ic e o f de te rm in at io n, the pe rs on m ay see k re vi ew inth is Co urt. Sec . 63 30 (d )(1 ). Whe re the va li di ty of th e und erl y in g t ax li ab il ity is pr op erl y at i ss ue , we rev ie w th atm at te r de no vo . Seg o v . Comm is si on er, 1 14 T.C. at61 0; Gozav. Co m

m is si on er, 1 14 T.C. 17 6, 1 82 (20 00 ). A tax pa y er m ay ch al le ng e th e und erl y in g t ax li ab il ity durin g aCDP h eari ng if h e o r sh e d idno t rece iv e a s ta tu to ry

no ti ce o f de fic ie nc y

forth e li ab il ity

or d idno t o th erwi se ha ve th e o pp ortu ni ty to d is pu te th e li ab il ity . Sec. 6 33 0( c)(2 )(B) ; s ee al so Mo nt go m ery v. Co m m is si on er, 1 22 T.C. 1, 8 -9 (20 04 ). The C ou rt c on si de rs anun de rlyin g t ax li ab il ity onrev ie w on ly if th e ta xp ay er p ro pe rly rais edth e is su e dur in g the CDP he ari ng . Secs . 30 1.6 32 0- 1( f)(2 ), Q&A-F3 , 30 1.6 33 0- 1( f)(2 ), Q&A-F3 , Pro ced . & Adm in . Reg s.; see als o Gi am el li v. Co m m is si on er, 1 29 T.C. 10 7, 1 15 (20 07 ). A ta xp ay er d idno t p ro pe rly rais e anun de rlyin g t ax li ab il ity if the tax pa y er fa il edto- 7 -

[* 7] pre se ntth e se tt le m en t o ffi cer wi th any ev id en ce re gard in g the li ab il ity aft er be in g g iv ena reas on ab le ti m e. See s ec. 3 01 .63 30 -1 (f)(2 ), Q&A-F3 , Pro ced . & Adm in . Reg s. If a t ax pa y er d oe s n otch al le ng e th e und erl y in g l iabi li ty, ou r rev ie w is for ab us e o f di sc ret io n. Se go v. Co m m is si on er, 1 44 T.C. at 6 10 . An ab us e o f di sc ret io n o ccu rs if Ap pe al s ex erci se s i ts di sc ret io n “ arb itrari ly, cap ric io us ly, or witho utso un d b as is infactor l aw.” W oo dr al v. Co m m is si on er, 1 12 T.C. 19 , 23 (1 99 9) . The Co urt d oe s n otco nduc t an in de pe nd en t re vi ew an d s ub st itut e it s jud gm en t fo r th atof the set tl em en t o ffi cer. 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 ). If th e se tt le m en t o ffi cer fo ll ows all st atut ory

an d a dm in is tra ti ve gu id el in es an d p ro vi de s a r eas on ed , ba lanc edde ci si on , th e Co urt wi ll no t re weig h the equi ti es . Linkv. Co m m is si on er, T.C. Mem o. 2 01 3- 53 , at * 12
. On J anua ry

29 , 20 13 , Mr. Mo ffat t ex pr es se d h is be li ef tha t p et it io ne r’s 20 08 return was in co rrec t. The set tl em en t o ffi cer e xp la in edth atpe ti ti on er co ul d s ub m it
anam en de d re tu rn . Peti ti on er’s cas e was op enforov er thr ee m on th s. Nei th er pe ti ti on er n orMr. Mo ffat t ev er s ub m it te d an am en de d re tu rn , no r di d e ithe r pr ov id e an y

othe r ev id en ce re ga rd in g the li ab il ity . Peti ti on er h as no t p ro pe rly ch al le ng edhi s u nd erl y in g t ax li ab il ity , andou r rev ie w is forab us e o f di sc ret io n.- 8 -

[* 8] II. Abu se of Di sc ret io n Pet it io ne r co nt en ds th atitwas an abu se of d is cret io n t o c on si de r hi s Rai lro adbe ne fit s wh ende te rm in in g h is in co m e an d abi li ty to p ay be cau se th es e be ne fit s ar e p art ia ll y

lev y pro of . There fo re, h e co nt en ds th atth e se tt le m en t of fic er’s rejec ti on of h is $2 5- pe r-m on th parti al paym en t i ns ta ll m en t ag reem en t pr op os al was a ls o an abu se of d is cret io n b ecau se itwas b as edonco ns id erat io n o f hi s R ai lro adbe ne fit s. Re sp on de ntco nt en ds th atwhi le pe ti ti on er’s Rai lro ad be ne fit s ar e in de edparti al ly lev y pro of un de r se ct io ns 63 34 (a)( 6) an d 6 33 1( h) , th es e b en efi ts canst il l b e co ns id eredwhen m ak in g ade te rm in at io n o f a t ax pa y er’s in co m e an d abi li ty to p ay forpu rp os es of d et erm in in g a va il ab il ity of aco ll ect io n al te rn at iv e. Sect io n 6 33 4( a)(6 ) ge ne ral ly exem pt s R ai lro adRet ire m en t Act
an nu it ie s o r pe ns io n p aym en ts fro m IRS l ev y . Sect io n 6 33 1( h) all ows th e IRS to le vy up to 15 % of t he se be ne fit s. Sect io n 6 15 9 aut ho riz es th e Co m m is si on er t o e nt er i nt o i ns ta ll m en t ag reem en ts with t axpa y ers to sat is fy th ei r li ab il it ie s i f th e Co m m is si on er de te rm in es th atsu chag reem en ts wil l fa ci li ta te th e co ll ect io n o f th e li ab il it ie s. Th e In te rn al Rev enue Man ua l (I RM) an d s ect io ns 30 1.6 15 9- 1, 3 01 .63 20 -1 , and 30 1.6 33 0- 1, Pr oc ed . & Adm in . Reg s., es tabl is h the IRS p ro cedur es for- 9 -

[* 9] de te rm in in g wh ethe r anin st al lm en t ag reem en t wi ll faci li tate th e co ll ect io n o f a li ab il ity . See Etk inv. Co m m is si on er, T.C. Mem o. 2 00 5- 24 5. Acco rd in g t o the IRM atax pa y er’s ab il ity to pay is de te rm in edby
co m pa rin g m on th ly inc om e to all owabl e ex pe ns es . A set tl em en t o ffi cer m ay acce pt , at a m in im

um , a m on th ly paym en t equa l t o the ex ces s o f a t ax pa y er’s
m on th ly inc om e o ve r th e ta xp ay er’s al lo wab le ex pe ns es . See Lit es v. Co m m is si on er, T.C. Mem o. 2 00 5- 20 6; see als o IR M p t. 5 .14 .1.4 (Ju ne 1, 2 01 0) (d is cu ss in g o th er i ns ta ll m en t ag reem en t ac cep tanc e fac to rs co ns id ered ). On M arch 4, 2 01 3, wh enpe ti ti on er an d M r. Mo ffat t p ro po se d the parti al pa ym en t i ns ta ll m en t ag reem en t o f $2 5 p er m on th , pet it io ne r’s on ly sou rce o f in co m e was hi s R ai lro adbe ne fit s. Whenco ns id eri ng th is off er, the set tl em en t of fic er d et erm in edpe ti ti on er’s m on th ly inc om e b y in cl ud in g the se be ne fit s. IRM pt . 5.1 5.1 (Oct . 2, 2 01 2) in stru ct s IR S co ll ect io n p ers on ne l o n h ow t o an al yze a t ax pa y er’s fi na nc ia l co nd it io n. Itst at es th at“ [g ]enera ll y all ho us eh ol d in co m e wil l b e u se d t o d et erm in e th e ta xp ay er’s ab il ity to pay .” Id . pt . 5.1 5.1 .11
. The IRM d oe s n otcarv e o utan y ex cep ti on s fo r le vy-pro of be ne fit s. Fo r ex am

pl e, itin st ru ct s tha t i nc om e co ns is ts of p en si on s, i nc lu di ng So ci al Secu rit y be ne fit s. Id . pt . 5.1 5.1 .11 (2 )(e) . Cert ai n S oc ia l Se curity paym en ts , li ke Rai lro adbe ne fit s,- 10 -

[* 10 ] are s ub

ject t o am ax im

um 15 % lev y

un de r th e Fed eral Paym en t Lev y Pro gr am . See s ec. 6 33 1( h) (2 )(B) ; s ee al so IRM p t. 5 .11 .7.2 .1.1 (2 )(e) , (j) (Aug . 28 , 20 12 ). Altho ug h the IRM d oe s n otsp eci fic al ly stat e th atRai lro adbe ne fit s ar e in cl ud edinin co m e, itdo es no t s pe ci fic al ly exem ptth em . The IRM s pe ci fic al ly in cl ud es othe r an al og ou s p art ia l o r fu ll y lev y -p ro of

be ne fit s i n the in co m e cal cu la ti on , su chas S oc ia l Se curit y be ne fit s. We fin d tha t the set tl em en t o ffi cer di d n otactarb itrari ly, cap ric io us ly, orwitho utso un d b as is infactor l aw by in cl ud in g p et it io ne r’s Rai lro adbe ne fit s t o ana lyze pet it io ne r’s fin an ci al co nd it io n an d c al cu la te hi s m on th ly dis po sabl e in co m e. Any con te nt io ns we ha ve no t ad dr es se d are i rrel ev an t, m oo t, o r m eri tl es s. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t.