T.C. Memo. 2008-227

UNITED STATES TAX COURT

JAMES R. RUTHERFORD AND LINDA L. RUTHERFORD, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25729-06L. Filed October 8, 2008.

Christopher A. Colvert, for petitioners.

Marilyn Ames, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, Judge: This action was commenced in response to a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 (notice of determination) with respect

to petitioners’ 1992, 1993, and 1994 Federal income tax

liabilities. The issue for decision is whether it was an abuse

of discretion to send a notice of determination without extending
- 2 -

the time for petitioners to submit financial information. Unless

otherwise indicated, all section references are to the Internal

Revenue Code, as amended.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference. 

Petitioners resided in Texas at the time that their petition was

filed.

Petitioners jointly filed Forms 1040, U.S. Individual Income

Tax Return, for 1992, 1993, and 1994 reporting taxes due in the

amounts of $8,834, $6,966, and $4,121, respectively. Petitioners

failed to pay the reported liabilities.

The Internal Revenue Service (IRS) assessed the liabilities

shown on petitioners’ income tax returns for 1992, 1993, and

1994, on August 13, 1994, May 1, 1995, and May 8, 1995,

respectively.

On October 27, 1995, the IRS accepted an offer-in-compromise

with respect to petitioners’ liabilities for 1986 through 1991

and the taxes shown on the returns filed by petitioners for 1992,

1993, and 1994. Under the terms of the compromise, petitioners

were required to pay a total of $41,668 plus interest. 

Petitioners failed to make the payments. On August 14, 1996, the

IRS declared the offer-in-compromise in default.
- 3 -

On December 12, 1997, the IRS filed notices of Federal tax

liens for the then-outstanding tax liabilities of petitioners. 

Petitioners paid the liabilities, and the liens were released on

January 20, 1999.

On December 2, 1997, a notice of deficiency was sent to

petitioners for 1992, 1993, and 1994, determining deficiencies in

tax totaling $293,057 and penalties and additions to tax totaling

$130,179 under sections 6651(a)(1) and 6662(a).

Petitioners filed a petition with this Court in response to

the December 2, 1997, notice of deficiency. On December 7, 2000,

the Court entered a decision, pursuant to the agreement of the

parties, determining that petitioners owed: (1) Deficiencies in

income taxes for the taxable years 1992, 1993, and 1994 in the

amounts of $123,063, $161,648, and $8,346, respectively; (2)

additions to tax for the taxable years 1992 and 1993, under the

provisions of section 6651(a)(1) in the amounts of $30,979 and

$40,579, respectively; and (3) penalties for the taxable years

1992, 1993, and 1994 under the provisions of section 6662 in the

amounts of $24,613, $32,330, and $1,669, respectively. On

February 6, 2001, the liabilities reflected in the Tax Court

decision were assessed.

On June 16, 2006, the IRS filed a notice of Federal tax lien

for petitioners’ 1992, 1993, and 1994 tax liabilities and sent

petitioners a Notice of Federal Tax Lien Filing and Your Right to
- 4 -

a Hearing Under IRC 6320. On June 22, 2006, the IRS sent

petitioners a Notice of Intent to Levy and Notice of Your Right

to a Hearing with respect to their liabilities for 1992, 1993,

and 1994.

Petitioners timely requested a hearing under section 6330. 

In a letter dated September 18, 2006, the hearing process was

explained to them. The hearing was held on October 31, 2006. 

Petitioner James Rutherford (petitioner) appeared at the hearing

with experienced tax counsel. During the hearing, petitioner

raised a defense based on the previous offer-in-compromise. The

Appeals settlement officer refused to discuss the underlying

liabilities because of the prior opportunity to dispute them. 

The Appeals settlement officer requested that petitioner submit a

completed Form 433-A, Collection Information Statement for Wage

Earners and Self-Employed Individuals, in order to evaluate his

financial situation and consider collection alternatives. 

Petitioner was not prepared to discuss collection alternatives. 

Petitioner, acting on advice of counsel, had not presented

financial information. His counsel told petitioner:

We’re not going to present any paperwork, we’re not

going to do nothing, we’re just going to get through

this process, through this step, and then we’re going

to go file a petition and go to federal court and fight

the merits and fight the entire case at federal court,

not at this level, so at this time we just need to go

and do the process and get it past here and get to the

federal court.
- 5 -

The Appeals settlement officer told petitioner that he had

to provide the financial information that same day as part of the

hearing.

On November 9, 2006, the Appeals Office sent the notice of

determination to petitioners. The notice summarized the issues

raised by the taxpayers and the conclusion reached as follows:

IRC § 6330(c) allows the taxpayer to raise any

relevant issues relating to the unpaid tax at the

hearing. In the request for a hearing the taxpayer

states “Taxes were extinguished by accepted and paid

offer in compromise. Taxpayers qualify for alternative

collection method.”

*******

During the face-to-face hearing the taxpayer

raised the issue of the accepted offer in compromise. 

He stated the IRS had accepted the offer, filed a tax

lien on the amount of the accepted offer when he was

unable to comply with its terms, and released the tax

lien when the balance was paid. Once the lien was

released, the IRS had no right to assess additional

taxes.

*******

The taxpayer stated he was not prepared to discuss

collection alternatives at the hearing. His issue was

the assessment of the additional tax liabilities, which

he continues to believe was unfair. He stated he is

currently unable to pay the balance due in full and

would consider other options. One option he will

consider is the filing of an Offer in Compromise. The

taxpayer was advised of the new requirements for the

processing fee and payment requirements. Another

option he will consider is the filing of bankruptcy. 

This option was not discussed.

The taxpayer raised no other issues during the

hearing.
- 6 -

BALANCING THE NEED FOR EFFICIENT COLLECTION WITH THE

TAXPAYER’S CONCERN THAT COLLECTION ACTION BE NO MORE

INTRUSIVE THAN NECESSARY

IRC Section § 6333(c)(3)(C) [6330(c)(3)(C)]

requires that the Settlement Officer determine if the

proposed levy action and the filed Notice of Federal

Tax Lien balances the need for efficient collection of

the taxes with the legitimate concern of the taxpayer

that any collection action be no more intrusive than

necessary. The tax liabilities are legally due and

owing. No financial documents were provided. 

Therefore, the Settlement Officer had insufficient

information to determine if the taxpayer qualified for

a collection alternative such as an installment

agreement or offer in compromise. Therefore, it is my

determination that the levy and the lien balance the

need for efficient tax collection with the taxpayer’s

concern that such action be no more intrusive than

necessary. The proposed levy action and the filing of

the Notice of Federal Tax Lien are sustained.

OPINION

Petitioners argue that it was an abuse of discretion for the

Appeals settlement officer not to recognize that petitioners were

receiving ineffective assistance of counsel and not to allow

petitioners additional time to submit the required financial

information. Petitioners assert:

The record in this case demonstrates that this

controversy has been dragging on for over 10 years

prior to the CDP hearing. It is manifestly

unreasonable and arbitrary and capricious and an abuse

of discretion not to allow taxpayers even 1 additional

day in which to present the information necessary to

resolve this case.

Respondent argues that: (1) It is unreasonable to expect

the Appeals settlement officer to assess the adequacy of

counsel’s advice to a taxpayer; (2) based on their prior
- 7 -

experience, petitioners were well aware of the requirement of

providing financial information for consideration of an offer-incompromise; and (3) petitioners failed to provide the information

after the deadline passed.

We cannot conclude on this record that petitioners were not

adequately advised by counsel. Petitioner’s testimony suggests

that there were strategic reasons for not producing the financial

information at the hearing, and the decision not to produce

“paperwork” was a deliberate one. We will not speculate as to

the reasons for counsel’s advice, and the Appeals settlement

officer was certainly not in a position to inquire into the

reasons for counsel’s advice to petitioners. Neither reason nor

authority supports petitioners’ arguments based on alleged

ineffectiveness of counsel.

Petitioners have invoked our jurisdiction under section

6330(d) to review the notice of determination sent to them with

respect to the notice of tax lien filing and the proposed levies

to collect their long-outstanding tax liabilities. Petitioners

cite relevant authorities, but those authorities do not support

their position. As petitioners acknowledge, the notice of

determination is reviewed by this Court for abuse of discretion,

which is defined as action that was arbitrary, capricious, or

without sound basis in fact or law. Woodral v. Commissioner, 112

T.C. 19, 23 (1999). Under section 6320(b)(2), taxpayers are
- 8 -

entitled to only one hearing with respect to taxable years in

dispute. See sec. 301.6320-1(b)(1) and (2), Proced. & Admin.

Regs. Petitioners had sufficient time to prepare for the

hearing, were advised by experienced tax counsel, and had

experience with respect to the financial information required to

support an offer-in-compromise. They appeared at the hearing

unprepared and unwilling to discuss collection alternatives. The

only argument raised at the hearing was that the prior offer-incompromise somehow affected the underlying tax liabilities. 

Petitioners have now abandoned that argument, which appears to

have no merit.

Petitioners are seeking an opportunity to reverse course,

abandon the strategy that they and their counsel adopted in

relation to the hearing, and further delay collection of the

liabilities that, as petitioners acknowledge, had accrued over a

period in excess of 10 years. Through the time of trial

petitioners had not presented the financial information necessary

to resolve their tax liabilities without enforced collection. It

was not unreasonable for the Appeals settlement officer to set a

deadline, and not continuing the hearing cannot be characterized

as arbitrary, capricious, or without sound basis in fact or law. 

In Roman v. Commissioner, T.C. Memo. 2004-20, we stated: 

No statutory or regulatory provision requires that

taxpayers be afforded an unlimited opportunity to

supplement the administrative record. * * * The
- 9 -

statute only requires that a taxpayer be given a

reasonable chance to be heard prior to the issuance of

a notice of determination.

Petitioners had that chance. To reflect the foregoing,

Decision will be entered for

respondent.