T.C. Mem o. 2 01 3- 12 1

UNITED STAT ES TAX COURT

DANNY L ANE, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 16 60 2- 10 L. Fil edMay 6, 20 13
.

Ri ch ardL. Py

pe r, fo r pe ti ti on er. Mar sh al l R. J on es , forres po nd en t.

MEMORANDUM OPINION CHIECHI, J ud ge : Th is cas e is be fo re u s o n re sp on de nt ’s m ot io n fo r
su m m ary jud gm en t (r es po nd en t’s m ot io n)
. W e sh al l d en y res po nd en t’s m ot io n 1

Pet it io ne r fi le d ares po ns e to res po nd en t’s m ot io n, an d re sp on de ntfil eda 1 rep ly to p et it io ne r’s res po ns e.- 2 -

[* 2] an d re m an d thi s ca se to res po nd en t’s Ap pe al s Off ic e (Ap pe al s Off

ic e). 2 Bac kg ro un d The reco rdest ab li sh es an d/ orth e p art ie s d o n otdi sp ut e th e fo ll owi ng . Pet it io ne r res id edinAlab am a atth e ti m e h e fi le d t he pe ti ti on . At al l re le va ntti m es , pet it io ne r was en ga ge d i n t he bu si ne ss of c omm erci al real est at e co ns tru ct io n. He co nduc te d t ha t b us in es s as a so le pro pr ie to rs hi p u nd er th e n am e D & L Co ns tru ct io n. Pet it io ne r fi le d l at e (1 ) Fo rm 94 0- EZ, Em

pl oyer’s Annua l Fe de ral Une m pl oym en t (F UTA) Tax Re tu rn(Fo rm 94 0- EZ), for e ach of h is tax ab le y ears 20 03 an d 2 00 5 a nd(2) Fo rm 94 1, Em pl oyer’s Quarte rly Fede ral Tax R eturn (F orm 94 1) , for each of t he 20 co ns ecu ti ve qu art ers th atbe ga n o n J anua ry 1, 2 00 3, an d th aten de d o n Dec em

be r 31 , 20 07 . Peti ti on er al so pa idlat e th e res pe ct iv e Fed eral ta xe s (t ax es inqu es ti on ) th athe owedforth os e res pe ct iv e ta xabl e p eri od s. 3
All sec ti on refe ren ces are t o t he Int ern al Rev enue Co de ineffe ctat a ll 2 rel ev an t t im es . All R

ul e ref eren ces are t o t he Tax C ou rt Rul es of P ract ic e an d Pro cedur e. Pet it io ne r pa idth e ta xe s i n que st io n (1 ) on Marc h 2 7, 2 00 8, fo r hi s t ax ab le 3 y ear 2 00 3 a ndfor

th e ei gh t co ns ecu ti ve qu art ers th atbe ga n o n J anua ry 1, 2 00 3, an d tha t en de d o n Dec em be r 31 , 20 04 ; (2 ) onApri l 2 9, 2 00 8, fo r hi s t ax ab le y ear 20 05 an d fo r th e se ve n c on se cu ti ve qu art ers th atbe ga n o n J anuary 1, 2 00 5, an d th aten de d o n S ep te m

be r 30 , 20 06 ; (3 ) on Ju ly 28, 2 00 8, fo r th e qua rte r th atbe ga n on Octo be r 1, 2 00 6, an d tha t en de d o n Dec em be r 31 , 20 06 ; an d (4 ) ata ti m e n ot

(co nt in ue d...)- 3 -

[* 3] Howev er, h e h as no t p ai d a ny add it io ns to , and/o r an y pe na lt ie s o n, the tax es in qu es ti on or i nt eres t as pro vi de d b y law. (We sh al l re fer t o a ny suc h a dd it io ns
an d/ oran y

su chpe na lt ie s an d i nt eres t as pro vi de d b y law as pe ti ti on er’s unp ai d li ab il it ie s atis su e.) On J ul y 1, 2 00 8, re sp on de ntis su edto pe ti ti on er two s ep arat e n ot ic es of Fed eral tax li enfil in g andy ou r ri gh t t o ahe ari ng un de r IRC 63 20 (no ti ces of t ax li en ). One o f th os e n ot ic es pe rta in edto pe ti ti on er’s 1 5 c on se cu ti ve qu art erl y pe rio ds th atbe ga n o n J anuary 1, 2 00 3, an d t ha t en de d o n S ep te m be r 30 , 20 06 , for whi chhe fil edFo rm s 9 41 . The s eco ndof tho se no ti ces pe rta in edto (1 ) pe ti ti on er’s an nu al pe rio ds 20 03 an d 2 00 5, fo r whi chhe fil edFo rm s 9 40 -EZ,
an d (2 ) pe ti ti on er’s fi ve co ns ecu ti ve qu art erl y pe rio ds th atbe ga n o n Oct ob er 1 , 20 06 , andth aten de d o n Dec em be r 31 , 20 07 , forwhi chhe fil edFo rm s 9 41
. Ri ch ardL. Py

pe r (Mr . Py

pe r), p et it io ne r’s auth or iz edrep res en ta ti ve , ti m el y
subm it te d t o re sp on de ntpe ti ti on er’s 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 (p et it io ne r’s Fo rm 12 15 3) , andreque st eda he ari ng with the App eal s Off

ic e. Inth atform , Mr. Py

pe r in di cat edth atpe ti ti on er (...co nt inue d) 3 es tabl is he d b y

th e rec or d a fte r Ju ly 28, 2 00 8, an d b efo re Fe brua ry 24 , 20 09 , forth e fo urco ns ecu ti ve qu art ers th atbe ga n o n J anua ry 1, 2 00 7, an d t ha t en de d o n Decem be r 31 , 20 07
.- 4 -

[* 4] di sa gr eedwith the no ti ces of t ax li enan d i nd ic at edth atpe ti ti on er i nt en de d t o pr op os e anoff

er-i n- co m pr om is e as a co ll ect io n a lt ern at iv e. On Fe brua ry

24 , 20 09 , Mr. Py

pe r at te nd eda face -to -fac e h eari ng (he ari ng ) with re sp on de nt ’s set tl em en t o ffi cer wh o was ass ig ne d p et it io ne r’s Fo rm 12 15 3 (s et tl em en t o ffi cer) . At th athe ari ng , Mr. Py pe r subm it te d t o t he set tl em en t o ffi cer Fo rm 65 6, Offe r in Co m

pr om is e (Fo rm

65 6) . In tha t fo rm , pet it io ne r pr op os edto
se tt le pe ti ti on er’s unp ai d l iabi li ti es at i ss ue by pay in g ato ta l o f $1 00 ,00 0, wi th $2 0,0 00 to be pa idat t he ti m e h e subm it te d h is off er an d t he rem ai ni ng $8 0,0 00 to be pa idinfiv e m on th ly ins ta ll m en ts of $ 16 ,00 0 (p et it io ne r’s of fer- in

co m pr om is e). Pet it io ne r in di cat edinFo rm 65 6 t ha t h e was pro po si ng anoff er-i nco m pr om is e b ecau se of “ Doubtas t o C ol le ct ib il ity --‘I hav e in su ffi ci en t as se ts an d in co m e to pa y

th e fu ll am ou nt .’ ” Acco rd in g t o p et it io ne r, Marke t co nd it io ns were re sp on si bl e fo r m y fai lu re t o p ay

th e em pl oym en t t ax es on ti m e. Howev er, I h av e si nc e m ad e al l re qu ire d pa yro ll tax pa ym en ts an d the on ly out st an di ng ob li ga ti on owedby m e is for pe na lt ie s an d i nt eres t ap pl ic ab le to th e unp ai d t ax es . Due t o co nt inui ng de te rio rat io n i n t he curren t co ns tru ct io n m ark et , itis do ub tfu l tha t I wi ll be inan y po si ti on for

th e n ex t s ev eral y ears to m ak e p aym en ts inex ces s o f wha t I h av e p ro po se d h ere. FYI: Thi s i s th e wor steco no m

y I ha ve see n i n 4 0 years; I ha ve no t s ho wn a p ro fit si nc e 2 00 0 a ndam

jus t k eep in g m

y bu si ne ss op ento ke ep m y rep ut at io n i nt actincas e th ere i s a r eco ve ry .- 5 -

[* 5] At the he ari ng with the set tl em en t o ffi cer, M r. Py pe r pr ov id edhe r pe ti ti on er’s Fo rm

43 3- B, Co ll ect io n In fo rm at io n S ta te m en t fo r Bu si ne ss es (p et it io ne r’s fir stFo rm

43 3- B). Inth atform , pet it io ne r sh owe d, i nt er al ia , gro ss bu si ne ss in co m e an d b us in es s ex pe ns es of $ 87 ,06 3 a nd$8 2,6 65 .94 , res pe ct iv el y , fo r th e p eri odth atbe ga n o n No ve m be r 30 , 20 08 , andth aten de d o n Dec em be r 31 , 20 08 . In p et it io ne r’s fir stFo rm 43 3- B, pe ti ti on er al so sh owe d t he fol lo win g bu si ne ss ass et s an d h is equi ty the rei n: 4

Ass et Equ ity Bu si ne ss ba nkacco un ts $1 2,6 85 .24 Acco un ts /n ot es rece iv ab le 87 ,06 3.0 0 Veh ic le s 9,3 90 .00 Bu si ne ss equi pm en t 11 5,3 34 .45 On Fe brua ry

16 , 20 10 , th e se tt le m en t o ffi cer s en t a wri tt enpre li m in ary
as se ss m en t o f pe ti ti on er’s o ffer -in -co m pr om is e to Mr. Pyper. Tha t p rel im in ary
as se ss m en t i nc lu de d the fol lo win g s o- cal le d As se t/ Equ ity Tabl e an d s o- cal le d In co m e/ Exp en se Tabl e:

Exc ep t fo r pe ti ti on er’s b us in es s b an k a cco un ts , th e rec or d d oe s n ot 4 es tabl is h the res pe ct iv e d at es as o f whi chpe ti ti on er s ho wedhi s equi ty in the va rio us ass et s tha t h e h el d.- 6 - [*6] Asset/Equity

Table
Item Fa ir Marke t

Value % Reduce d Quick Sale Value Encumbra

nces Equity * * * * * * * Checkingacc ount $17,812 0% $17,812 $17,812

* * * * * * * Vehicle 1-2002 Chev 1,800 20% 1,440 1,440 Vehicle 2 - 2003 For d 2,160 20% 1,728 1,728 Vehicle 3 - 2004 For d 2,480 47% 1,314 1,314 Equipment/tools 115,334 20% 92,268 92,268

* * * * * * * Acc ounts rece ivable 87,063 87,063 87,063 Vehicle 4 - 2004 For d 2,950 20% 2,360 2,360 Totals 229,599 203,985
--- 203,985- 7 - [*7] Income/Expense Table * * * * * * * Total Income Nec essar y Business Expenses Source Gross Ex pense Claimed Allowed 19. Gross re ceipts $87,063 27. Materia ls purchase d $41,836.47 $41,836.47 19a. Returns & Allowance * * * 28. Inventory purcha sed

19b. Cost of Goods Sold * * * 29. Gross wa g es & salarie s 11,347.00 11,347.00 20. Gross re ntal income 30. Rent 400.00 400.00 21. Intere st 31. Supplies 246.05 246.05 22. Dividends 32. Utiliti es/telephone 723.69 723.69 23. Other inc ome (spec ify

below) 33. Vehicle g asoline/oil 2,961.05 2,961.05

34. Repairs/maintena

nce 11,837.05 11,837.05 35. Insuranc e 3,181.09 3,181.09 36. Current taxes 1,060.91 1,060.91 37. Other e x penses * * * 9,072.63 * * * * * * * 26. Total income $87,063 39. Total expenses $82,666 $73,593.37

NET DIFF ERENCE (L ine 26 minus line 39) * * * $13,469.63 * * * * * * * Monthly net diffe renc e is $13,469.63 x 48 months (cash off er) equals $646,542.- 8 -

[* 8] On M arch 4, 2 01 0, M r. Py pe r se nta le tt er (M arch 4, 2 01 0 l ette r) t o t he
se tt le m en t o ffi cer b y

facs im il e (fa x) inwhi chhe res po nd edto he r pr el im in ary
as se ss m en t o f pe ti ti on er’s o ffer -in -co m pr om is e. Thatlet te r st at edinpe rti ne nt pa rt: Ite m

# 1 . Form

43 3- A, Line 37 , Acco un ts Rece iv ab le
. Y ou ha ve tre at ed

th es e a mou nt

s a s co ntri bu ti ng

to yo ur an al ys is of th e Ass et Equ it y Ta bl e (“AET”) pe rtai ni ng to th e taxp ay er

, bu t yo ur an al ys is is flaw ed

. Res po ns e # 1: Und er Al ab am a la w a subc on tra ct orha s a s o c al le d
“ m ech an ic s l ie n” onall servi ces an d m at eri al s tha t ar e co m m itte d t o apa rti cu lar job . In the in st an t ca se , th es e Acco un ts Rece iv ab le are al ready earm ark edforpay

m en t t o M r. Lan e’s va rio us subc on tra ct or s b efo re the y are s ub m it te d t o h is cu st om ers . In re al ity

hi s s hare o f th e p ro ceed s h is to ric al ly run s ab ou t 1 0%. Du e to Mr. Lan e’s ta x p ro bl em s, the cu st om er no rm al ly iss ue s a c he ckinpa ym en t o n a cco un t i n t he na m es of Mr. Lan e an d h is subc on tra ct or (s ), so th athe m us t re mitth e pr op orti on al sh are t o t he subc on tra ct orinord er t o m ai nt ai n h is cred ib il ity

with h is cu st om ers . Whe n youtak e th e acc ou nt s rece iv ab le off

y ou r cal cu la ti on of t he AET, th e rem ai ni ng ba lanc e (±$ 11 6,0 00 ) ap pr ox im at es th e am ou ntth e ta xp ay er h as of fere d t o p ay

pe r hi s OIC [of

fer- in -co m

pr om is e]. * * * * * * * Ite m # 4 . Liqui da ti on of Equi pm en t. Y ou r a na lysis pr es up po ses tha t Mr . Lan e co uld l iq ui da te mos t o f h is op er at in g as se ts to meet

his l ia bi li ti es witho ut

in cu rr in g s er io us da mag e to his ab il it y to rema in in bu si ness .- 9 -

[* 9] Res po ns e # 4.

If the tax pa y er h adto imm ed ia te ly liqui da te hi s equi pm en t t o m eethi s o bl ig at io ns to th e In te rn al Rev enue Serv ic e th is wou ldpl ace a n u nr eas on ab le burd enon hi m be cau se itwou ldess en ti al ly m eanhe wou ldha ve to go ou t o f bu si ne ss . W itho utth is equi pm en t h e co ul d n otsec ur e ad di ti on al , m ean in gf

ul workan d wo ul d h av e to lay off em pl oyees andres ort t o g ov ern m en t s up po rt h im se lf. Th e equi pm en t i s es se nt ia l t o s tay in g i n b us in es s. I d on ’t bel ie ve th e cu rren t p ol it ic al an d e co no mic ob jecti ve s o f th e U.S. Gov ern m en t i s t o fo rce s m al l b us in es sm en , li ke th e ta xp ay er, t o go ou t o f bu si ne ss an d a ddm or e worke rs to th e une m pl oym en t ro le s. On M arch 9, 2 01 0, the set tl em en t o ffi cer s en t a l et te r (Ma rch 9, 2 01 0 l et te r) to Mr. Pyper i n re sp on se to hi s M arch 4, 2 01 0 l et te r. Thatlet te r st at edinpe rti ne nt pa rt: I am

inrece ip t o f y ou r le tt er tha t was fax edto App eal s o n 03 /0 4/ 20 10
. Acco un ts an d n ot es rece iv ab le are co ns id eredass et s. Th e v al ue of th e acc ou nt s an d n ot es rece iv ab le are d et erm in edby wha t i s co ll ect ib le fro m

th e b orro wer, wha t ca n b e le vi edup on an d wh atis se cu redan d i f so by wha t as se ts . Per th e in fo rm at io n re vi ewed , th e acco un ts an d n ot es rece iv ab le rep orte d o n t he Fo rm 43 3- B canbe co ll ect edpe r th e se rv ic es ren de redby D & L Co ns tru ct io n. Th e am ou ntowedto D & L Con st ru ct io n c anbe lev ie d upo n fo r paym en t of th e ta xe s o wed . The ac co un ts an d n ot es rece iv ab le wil l n otbe di sr eg ard edforth e co m

pu ta ti on of a n a ccep tabl e o ffer
. * * * * * * *- 10 -

[* 10 ] D & L Con st ru ct io n i s a s ol e p ro pr ie to r[s hi p]. There fo re, I h av e en cl os edFo rm

43 3- A, Col le ct io n In fo rm at io n S ta te m en t fo r co m pl et io n s in ce M r. Lane is th e so le own er o f th is bu si ne ss . The ta xe s can a ls o b e co ll ect edfro m hi s p ers on al ass et s as well as t he bu si ne ss ass et s. Pl eas e co m pl et e an d re tu rnth e Fo rm 43 3- A to m e with the ap pl ic ab le att ach m en ts no lat er tha n 3 /2 6/ 20 10
. In ve nt ory , m ach in ery an d e qu ip m en t ar e as se ts of the bu si ne ss . The refo re, the ir v al ue s ar e in cl ud edinth e co m pu ta ti on of a n o ffer . It is no te d tha t an ex em

pt io n o f $4 ,12 0 wi ll be de du ct edfro m th e to ta l of equi ty sho wn i n the equi pm en t an d t oo ls on th e AET [Ass et/Equi ty Tab le ]. On M arch 26 , 20 10 , Mr. Py pe r se nta le tt er (M arch 26 , 20 10 let te r) t o t he
se tt le m en t o ffi cer b y

fax inres po ns e to he r Mar ch9, 2 01 0 l et te r. Thatlet te r st at ed in pe rti ne ntpa rt:

Thi s l et te r is in te nd edas apro po rti on al res po ns e to y our rec en t co m m en t re ga rd in g the rig htto co ns id er the gro ss am ou ntof a cco un ts rece iv ab le th e ta xp ay er d es cri be d o n the Fo rm 43 3- B th atwas subm it te d i n c on

jun ct io n wi th hi s OIC [of fer- in -co m

pr om is e] a y ear ag o. I tho ug htth e res po ns e # 1 i n my let te r da te d M arch 4, 2 01 0, was su ffi ci en t t o app ris e y ouof your m is ap pr eh en si on as c on ta in edinth e an al y si s o f th e Ass etEqu ity Tabl e (“ AET”), bu t ap pa ren tl y I di d n ot do a cred ib le job of e xp la in in g the un ique rel at io ns hi p t ha t ex is ts am on g g en eral co ntract or s an d s ub co nt ract or s (“ th e subs ”) u nd er Alab am a law. There fo re, p le as e co ns id er the fol lo win g:

A. Spe ci fic al ly, th e am ou ntrep orte d o n F orm 43 3- B d id no t re fle ctth e fac t tha t 9 0% o f th e am ountrep orte d was no t owe d t o M r. Lane bu t was owedto th e v ari ou s s ub co nt ract or s hi redm y [si c] Mr. Lane to pro vi de cert ai n s erv ic es an d m at eri al s fo r th e p ro

ject a ward edto Mr. Lan e. Inth atco nt ex t he was m erel y ac ting

as the ir ag ent insec ur in g apa ym en t an d co ul d n otap pl y

th e fu nd s fo r an y

ot he r pu rp os e b ecau se th e- 11 - [* 11 ] subs po ss es se d am ech an ic s l ie n wh ic h aut om at ic al ly at ta ch edit se lf t o the fun ds th e m om en t the y were re m it te d t o Mr. Lan e insat is fact io n o f th e acc ou ntrece iv ab le . To be ab so lu te ly corre ctth e am ou ntsh own as an a cco un t re cei vabl e on th e Fro m

[si c] 43 3- B s ho ul d h av e b een$8 ,70 6.3 0 i ns te adof th e $ 87 ,06 3 tha t was rep orte d. Mr . Lane th ou gh t the Int ern al Rev enue Serv ic e wou ldreco gn iz e th is factwhen itwas or ig in al ly repo rte d, b utth ere h av e b eenothe r in st an ces when th e I.R.S. h as fai le d t o re co gn iz e a l ie n aut ho riz edun de r Alab am a law. * * * Th is is th e ro ut in e way inwhi ch subc on tra ct orob li ga ti on s an d v en do r de bt s ar e h an dl edan d co nf orm s t o i ndus try sta nd ard s. On M arch 30 , 20 10 , th e se tt le m en t o ffi cer s en t a l et te r to Mr. Pyper b y fax in res po ns e to hi s M arch 26 , 20 10 let te r. Thatlet te r st at edinpe rti ne ntpa rt: Per re vi ew of

th e in fo rm at io n re cen tl y

rece iv ed , an upd at edFo rm 43 3- B, Co ll ect io n In fo rm at io n S ta te m en t fo r Bu si ne ss es canbe subm it te d b y

04 /0 7/ 20 10
. Per re vi ew of

th e [p et it io ne r’s fir st ] Fo rm 43 3- B, th e am ountof $8 7,0 63 is th e to ta l o f th e acc ou nt s re cei vabl e. Per p ag e 6 of t he [p et it io ne r’s fir st ] Fo rm

43 3- B, th e am ou ntof $ 87 ,06 3 o n l in e 2 5 i s th e to ta l o f th e acc ou nt s re cei vabl e rep orte d a s m on th ly inc om e. The to ta l o f ex pe ns es cla im edwas d educ te d fr om th atam ou nt . The ex pe ns es wou ldha ve in cl ud edan y subc on tra ct or s, em

pl oyees, et c th atwere o wed . This am ou ntde le te d fr om th e Ass etan d Equi ty tab le le av es a ba lanc e o f $1 12 ,80 2. * * * * * * * Als o, M r. Lane is a so le pro pr ie to r (o wns 10 0% o f hi s b us in es s) , bu t we di d n otin cl ud e an y

of h is pe rs on al ass et s o n t he Ass etan d Equi ty tabl e. The t ax canbe co ll ect edfro m hi s p ers on al an d b us in es s as se ts
. I ne eda co py of th e m ortg ag e co up on , etc (whi chsh ows th e v al ue- 12 -

[* 12 ] an d the ba lanc e due on hi s p ers on al res id en ce). Th is in fo rm at io n m ay be subm it te d wi thth e upd at edFo rm 43 3- B b y

04 /0 7/ 20 10
. On Ap ril 6, 2 01 0, M r. Py pe r subm it te d t o t he set tl em en t o ffi cer a n upd at ed Fo rm 43 3- B (p et it io ne r’s se co ndFo rm 43 3- B). Inth atform , pet it io ne r sh owe d, in te r al ia , gro ss bu si ne ss in co m e an d b us in es s ex pe ns es of $ 26 ,56 0 a nd $2 4,9 29 .43 , res pe ct iv el y , forth e p eri odth atbe ga n o n F eb ru ary 28 , 20 10 , andth at
en de d o n M arch 31 , 20 10 . In p et it io ne r’s se co ndFo rm 43 3- B, pe ti ti on er al so sh owe d the fol lo win g b us in es s as se ts an d h is equi ty the rei n: 5 6 Ass et Equ ity Bu si ne ss ba nkacco un ts $4 ,95 8.0 0 Acco un ts /n ot es rece iv ab le 26 ,56 0.0 0 Rea l p ro pe rty 25 ,00 0.0 0 Veh ic le s 9,3 90 .00 Bu si ne ss equi pm en t 11 5,3 34 .45

One of t he ass et s tha t p et it io ne r li st edinpe ti ti on er’s s eco ndFo rm 43 3- B 5 was hi s re si de nc e o n wh ic h the re were cert ai n m ortg ag e lo an s. Itwas a t the reque stof t he set tl em en t o ffi cer t ha t p et it io ne r sh owe d a s an ass etinth atform hi s res id en ce an d h is equi ty the rei n e ve n t ho ug h t ha t re si de nc e was no t a b us in es s as se t o f pe ti ti on er. Exc ep t fo r pe ti ti on er’s b us in es s b an k a cco un ts , th e rec or d d oe s n ot 6 es tabl is h the res pe ct iv e d at es as o f whi chpe ti ti on er s ho wedhi s equi ty in the va rio us ass et s tha t h e h el d.- 13 -

[* 13 ] On Ma y

21 , 20 10 , th e se tt le m en t o ffi cer s en t a l ette r (Ma y 21 , 20 10 let te r) to Mr. Pyper. Tha t l at er s ta te d i n p ert in en t p art : The in fo rm at io n re cei ve d d idno t ch an ge th e Rea so nabl e Co ll ect io n Po te nt ia l o n M r. Lane ’s cas e. * * * * * * * The off er i n the am ountof $ 10 0,0 00 is reject ed . The t ax es m ay be pa idby w ay

of a n i ns ta ll m en t ag reem en t o f ap pr ox im at el y $6 00 0 a m on th an d b y

bo rro win g o n a ss et s o f th e b us in es s an d i nd iv idua ll y to reduc e th e b al an ce t o i nc lu de inanin st al lm en t ag reem en t. Youm ay no ti fy m e n o l at er than 0 6/ 07 /2 01 0 i f y ouwis h t o c on si de r th e ab ov e as a co ll ect io n a lt ern at iv e o n your cas e. Oth erwi se , y ou r cas e wil l b e cl os edan d ade te rm in at io n l et te r wil l b e is su ed
. On J un e 8 , 20 10 , Mr. Py

pe r se nta le tt er (J un e 8 , 20 10 let te r) t o t he
se tt le m en t o ffi cer b y

fax inres po ns e to he r May 21 , 20 10 let te r. Thatlet te r st at ed in pe rti ne ntpa rt:

Thi s i s i n re sp on se to y ou r le tt er d at edMay 21, 2 01 0. Th ere i s so m e unc ert ai nt y

reg ard in g t he pro po sa l o f $6 ,00 0 p er m on th . If th is is no t a m od ifi cat io n o f th e ta xp ay er’s OIC, wh atis th e ti m e p eri od fo r m ak in g s uc h m on th ly paym en ts ? A m on th ly paym en t o f $6 ,00 0, i f m ad e wit h c urren t ca shflo w, wou ldob vi ou sl y

be “ aft er t ax ” whi chequa te s t o agro ss earn in gs of cl os e to $1 0,0 00 pe r m on th “be fo re t ax ”. Wha t i nf orm at io n h as be en subm it te d t o yousu gg es ti ng th e ta xp ay er h as th is ki ndof c as h fl ow av ai labl e fo r su cha st rin g o f in de te rm in at e p aym en ts du rin g t hi s t im e of ex tre m e eco no m ic ha rd sh ip form os t b us in es se s i nv ol ve d i n t he co ns tru ct io n i ndus try? Ple as e advi se .- 14 -

[* 14 ] Si nc e itap pe ars onit s fa ce thi s i s n ota m od ifi cat io n o f * * * Mr. Lan e’s OIC, unl es s we are m is ta ke n, the tax pay er m us t res pe ct fu ll y

de cl in e th e p ro po sa l an d wi ll awai t the rece ip t o f y ou r de te rm in at io n. On J un e 9 , 20 10 , th e se tt le m en t o ffi cer s en t a l et te r to Mr. Pyper i n re sp on se to hi s J un e 8 , 20 10 let te r. Thatlet te r st at edinpe rti ne ntpart: Per yourlet te r rec ei ve d v iafax on to day , a rev ie w of the ba nk st at em en ts rece iv edin di cat e th atanin st al lm en t p aym en t i n t he am ou ntof $ 60 00 co ul d b e m ad e o n t he tax li ab il it ie s. The off er i n the am ountof $ 10 0,0 00 is reject ed . Youwil l re cei ve m y de te rm in at io n i n wri ti ng an d h av e th e o pp ortu ni ty for jud ic ia l re vi ew if d es ire d. On J un e 2 3, 2 01 0, re sp on de ntis su edto pe ti ti on er two s ep arat e n ot ic es of de te rm in at io n c on cern in g c ol le ct io n a ct io n( s) un de r se ct io n 6 32 0 and/o r 63 30 (n ot ic es of d et erm in at io n) . One o f th os e n ot ic es pe rta in edto pe ti ti on er’s an nu al pe rio ds 20 03 an d 2 00 5, fo r whi chhe fil edFo rm s 9 40 -EZ. The s eco ndof t ho se
no ti ces pe rta in edto pe ti ti on er’s 2 0 c on se cu ti ve qu art erl y pe rio ds th atbe ga n o n Ja nu ary 1, 2 00 3, an d tha t en de d o n Dec em be r 31 , 20 07 , forwhi chhe fil edFo rm s 94 1. Each of t ho se no ti ces st at edinpe rti ne ntpart: Summ ar y o f Deter m in at io n The fil in g o f th e Not ic e o f Fed eral Tax Li enis ap pr op ria te , gi ve n the fact s an d c irc um st an ces of your cas e. The re qu ire m en ts of app li cab le law andadm in is tra ti ve pro cedur es have be enm etan d t he act io n t ak en was ap pr op ria te un de r th e ci rcu m st an ces .- 15 -

[* 15 ] W e co ul d n otacce pty ou r co ll ect io n a lt ern at iv e o f anoff er-i nco m pr om is e b ecau se th e Servi ce ca n re as on ab ly exp ectto co ll ectan am ou ntlar ge r th any ouoff ered
. Si nc e were unabl e to acce pty ou r of fer andy oudi d n otpro po se an ot he r vi ab le co ll ect io n a lt ern at iv e, ret ai ni ng th e Not ic e o f Fed eral Tax Lienba lanc es th e n eedforth e eff ic ie ntco ll ect io n o f th e ta xe s with your co nc ernth atan y co ll ect io n a ct io n b e m or e in tru si ve th an ne ces sa ry . Eachof t he no ti ces of d et erm in at io n i nc lu de d a n a tt ach m en t tha t s tate d i n pe rti ne ntpa rt: SUMMARY AND RECOMME NDATIO N Youfil eda reque stfora Co ll ect io n Du e Pro ces s (C DP) h eari ng un de r In te rn al Rev enue Co de § 6 32 0 fo ll owi ng rece ip t o f Lett er 3 17 2, Not ic e o f Fed eral Tax Li enFil in g a ndYou r Ri gh t t o aHeari ng . You r Fo rm 12 15 3, re qu es ti ng a CDP h eari ng was t im el y rece iv edon 07 /3 1/ 20 08 withi n the 30 -d ay pe rio d fo r reque st in g ahe ari ng . The fil in g o f th e Not ic e o f Fed eral Tax Li enis ap pr op ria te , gi ve n the fact s an d c irc um st an ce o f y ou r cas e as di sc us se d b el ow.

BRI EF BACKGRO UND The tax es du e are a res ul t o f in su ffi ci en t fe de ral tax de po si ts be in g m ad e whe n the y

were due . The n ot ic es of t he tax es be in g due were se ntto y ouat your la stkn own ad dr es s o f rec or d. Youst at edon th e Fo rm

12 15 3 t ha t you wi ll subm itanoff er-i nco m pr om is e as a co ll ect io n a lt ern at iv e. Yousubm it te d a n o ffer an d i t was in ve st ig at ed . It was de te rm in edth atth e am ounty ouoff er was le ss th any ou r rea so nabl e co ll ect io n p ot en ti al . There fo re, we co ul d no t ac cep t youroff

er. Youwere i nf

orm edth aty oum ay

co ns id er an in st al lm en t ag reem en t as a co ll ect io n a lt ern at iv e. Youdi sa gr eedwith- 16 -

[* 16 ] th e am ou ntpro po se d a s an in st al lm en t ag reem en t an d youdi d no t p ro po se anam ou ntth atco ul d b e acc ep te d p er the am ou ntof t ax es owe d o n your acc ou nt , th eref or e, no alt erat iv e to co ll ect io n was gr an te d o n your cas e. Agr eem en ts are b as edony ou r ab il ity to ful ly pay

th e ta xe s wi th in th e st atut ory pe rio d fo r co ll ect io n wh ic h i s 1 0 years f ro m th e d at e o f as se ss m en t o f th e ta x. Youwere o ffer eda face -to -fac e, te le ph on ic or c orres po nd en ce co nf eren ce b y let te r da te d 1 /2 9/ 20 09 . You r rep res en ta ti ve reque st ed an d re cei ve d aface -to -fac e co nf eren ce. DISCUSS IO N AND AN ALYSI S a. Veri fic at io n o f le ga l an d p ro cedur al requi rem en ts : App eal s h as ob ta in edve rif ic at io n fr om

th e IRS off

ic e co ll ect in g the ta x tha t the requi rem en ts of a ny app li cab le law, re gu la ti onor adm in is tra ti ve pro cedur e with re sp ectto th e p ro po se d l ev y or NFTL fil in g h av e b eenm et . Com pu te r reco rd s i nd ic at e th atth e n ot ic e an d de m an d, n ot ic e o f in te ntto lev y an d/ orno ti ce o f fed eral tax li en fil in g, an d n ot ic e o f a ri gh t t o aCo ll ect io n Du e Pro ces s h eari ng were is su ed
. Ass es sm en t was pro pe rly m ad e p er IR C § 62 01 foreach tax an d pe rio d l is te d o n the CDP n ot ic e. The no ti ce an d d em an d fo r pa ym en t l ette r was m ai le d t o your la st kn own ad dr es s, wi th in60 da y s o f th e as se ss m en t, as requi redby IRC § 6 30 3. The re was a ba lanc e due when th e CDP l ev y no ti ce was is su edor whe n the NFTL fil in g was reque st ed
.- 17 -

[* 17 ] Lett er 3 17 2 was sen t b y cert ifi edm ai l t o t he y ou r la stkn own ad dr es s perreco rd s o f th e Aut om at edLienSy st em , no lat er tha n 5 bu si ne ss days aft er the NFTL was rec or de d (I RC § 63 20 (a))
. There is no pe nd in g b an kr up tc y cas e, no r di d youha ve a pe nd in g ban krup tc y

cas e atth e ti m e th e CDP n ot ic e was sen t. Prio r in vo lv ement : I ha d n o p rio r in vo lv em en t wi th res pe ctto th e sp eci fic tax pe rio ds ei th er i n Ap pe al s o r Co m pl ianc e. Col le cti on sta tute ve ri fic at io n : The co ll ect io n s tatu te ha s b eensu sp en de d; th e co ll ect io n p eri od al lo wedby statut e to co ll ectth es e ta xe s h as be ensu sp en de d b y th e ap pr op ria te co m

pu te r co de s fo r th e ta x p eri od s atis su e. Co ll ect io n fo ll owe d a ll leg al an d p ro cedur al requi rem en ts an d the act io ns tak enor p ro po se d wer e ap pr op ria te un de r th e ci rcu m st an ces .

Is su es ra is ed by the ta xp ay er Col le cti on Alte rna tiv es Offe red b y T ax pa ye r Youreque st edth e co ll ect io n a lt ern at iv e o f anoff er-i n- co m pr om is e. W e co ns id eredy ou r reque stbu t d et erm in edth atth e o fferwas n ota vi ab le co ll ect io n a lt ern at iv e o n your cas e. Youoff eredto pa y

$1 00 ,00 0 a s a l um

p s um cas h o ffer . You subm it te d $ 20 ,00 0 wi th th e o ffer(20 %) an d upo n wri tt enacce pt an ce of th e o ffer th e b al an ce ($ 80 ,00 0) wou ldbe pa idin5 i ns ta ll m en ts of $1 6,0 00
. An o ffer -in -co m

pr om is e rea so nabl e co ll ect io n p ot en ti al is ba se on y ou r equi ty in as se ts an d abi li ty to m ak e fu tu re p aym en ts on th e ta xe s du e.- 18 -

[* 18 ] A rev ie w of the fin an ci al in fo rm at io n a nddo cu m en ta ti on y ou pr ov id ed , y ou r rea so nabl e co ll ect io n p ot en ti al was c al cu la te d t o b e $2 78 ,11 7.9 6 a s s ho wn b el ow; Asset/Equity

table
Item Fa ir Marke t

Value % Reduce d Quick Sale Value Encumbra

nces Equity * * * * * * * CheckingAcc ount $17,812 0% 17,812 17,812

* * * * * * * Vehicle 1-2002 Chev $1,800 20% 1,440 1,440 Vehicle 2- 2003 For d $2,160 20% 1,728 1,728 Vehicle 3- 2004 For d $2,480 47% 1,314 1,314 Equipment/Tools $115,334 20% 92,268 4,120 88,148

* * * * * * * Acc ounts Rece ivable $87,063 87,063 87,063 Vehicle 4- 2004 ford $2,950 20% 2,360 2,360 Totals $229,599 203,985 4,120 199,865 The ab ov e in fo rm at io n d oe s n otin cl ud e th e as se ts th atbe lo ng to y ou in di vi du al ly becau se y oudi d n otpro vi de th is in fo rm at io n. Th e in fo rm at io n i s b as edonwhaty ourep orte d o n t he [pe ti ti on er’s fi rs t] Fo rm 43 3- B an d the do cu m en ta ti on att ach edto ve rif y th e v al ue s an d en cu m br an ces on th e as se ts . You r equi ty in as se ts was c al cu la te d t o be $1 99 ,86 5.- 19 -

[* 19 ] The Inc om e/ Exp en se tab le be lo w is als o b as edon th e rev is ed [p et it io ne r’s se co nd ] Fo rm 43 3- B, Co ll ect io n In fo rm at io n fo r Bu si ne ss es , dat edan d s ig ne d b y y ouon 03 /3 1/ 20 10
. Income/Expense Table (I ET) F or Corporations & Partner ships * * * * * * * Income Tota l Nec essar y Business Expenses Source Gross Claimed Allowed 19. Gross Rece ipts 26,560 27. Materia ls Purchased $1,518.37 $1,518.37 19a. Returns & Allowance * * * 28. Inventory Purchase d

19b. Cost of Goods Sold * * * 29. Gross Wag es & Salaries 11.224.00 11,224.00 20. Gross Rental Income 30. Rent 500.00 500.00 21. Intere st 31. Supplies 22. Dividends 32. Utiliti es/telephone 674.67 674.67 23. Other inc ome (spec ify

below) 33. Vehicle Gasoline/Oil 2850.96 2850.96

34. Repairs/Maintena

nce 2933.38 2933.28 35. Insuranc e 1983.27 1983.27 36. Current Tax es 3244.88 3244.88 37. Other Expenses * * * * * * * * * * 26. Total Income $26,560 39. Total Expenses $24,929.43 $24,929.43

NET DIFF ERENCE (L ine 26 minus line 39) * * * $1630.57 * * * * * * * The amount of $1630.57 x 48 months (cash off er) = $78,252.96- 20 -

[* 20 ] The to ta l o f equi ty in as se ts pl us futur e p ot en ti al in co m e is a to ta l o f $2 78 ,11 7.9 6 wh ic h i s m or e th anth e $ 10 0,0 00 off ered
. As s ta te d e arl ie r, y ouwere re qu es te d t o s ub m itFo rm 43 3- A, Co ll ect 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 fEm pl oyed In di vi du al s p er l ette r da te d 0 3/ 09 /2 01 0. Th e Fo rm 43 3- A was no t re cei ve d. Th e Fo rm 43 3- A is requi redwhen ev al ua ti ng a so le pr op rie to r fo r an y

co ll ect io n a lt ern at iv e. Ther efo re, the ab ov e co m pu ta ti on s d o n otin cl ud e an y ass et s o r ad di ti on al in co m e y ouha ve pe rs on al ly. Si nc e we co ul d n otacce pty ou r of fer i n the am ou ntof $ 10 0,0 00 th e fil in g o f th e Not ic e o f Fed eral Tax Li enis ap pr op ria te , gi ve n t he fact s an d c irc um st an ce o f y ou r cas e. Cha ll eng es to t he Ex is tenc e o f Am ou nt o f Li ab il ity Youdi d n otdi sp ut e y ou r li ab il it ie s. You ra is ed no oth er i ss ues : Ba la nci ng of n eed f

or effi ci ent c ol le cti on w ith tax pa ye r co ncer n tha t the c ol le cti on ac tio n be no m or e in trus iv e tha n nec es sa ry . I ba lanc e th e co m

pe ti ng in te res ts infin di ng th e li enap pr op ria te
. Giv eny ou r fai lure t o p ro po se a vi ab le co ll ect io n a lt ern at iv e th at co ul d b e acc ep te d a t thi s t im e, ret ai ni ng th e fi le d l ie n b al an ces th e ne edforth e eff

ic ie ntco ll ect io n o f th e ta xe s wi th y ou r co nc ernth at 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 . [Rep ro du cedli te ral ly.] Dis cu ss io n W e m ay gra ntsu m

m ary jud gm en t wh ere t he re i s n o g enui ne di sp ut e as to
an y m at eri al factan d ade ci si on m ay be ren de redas am at te r of law. Ru le 12 1( b) ;- 21 -

[* 21 ] Sund st ran d C or

p. v . Comm is si on er, 9 8 T.C. 5 18 , 52 0 (1 99 2) , aff’d, 1 7 F .3d 96 5 (7 thCir . 19 94 ). Whe re, as is th e cas e h ere, the va li di ty of th e und erl y in g t ax li ab il ity is no t pr op erl y pl acedat i ss ue , we rev ie w th e d et erm in at io n o f th e Co m mis si on er o f In te rn al Rev enue forab 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 ); Go za v . Comm is si on er, 1 14 T.C. 17 6, 1 82 (20 00 ). Sect io n 7 12 2( a) au th or iz es th e Sec ret ary of th e Treas ury

(Sec ret ary) to
co m pr om is e, in te r al ia , any civ il cas e ari si ng un de r th e in te rn al rev enue laws
. Sect io n 7 12 2( d) (1 ) requi res th e Sec ret ary to pre sc rib e g ui de li ne s fo r of fic ers an d
em pl oyees o f th e In te rn al Rev enue Serv ic e to de te rm in e whe th er an off er-i nco m pr om is e is ad equa te an d s ho ul d b e acc ep te d t o re so lv e a d is pu te . Sect io n 30 1.7 12 2- 1( b) (2 ), Pro ced . & Adm in . Reg s., p ro vi de s tha t d oubtas t o c ol le ct ib il ity is a gr ou ndforth e co m

pr om is e o f a l iabi li ty. Sect io n 3 01 .71 22 -1 (b )(2 ), Pro ced
. 7 & Admin . Reg s., p ro vi de s tha t “ Doubtas t o c ol le ct ib il ity ex is ts inan y

cas e whe re th e ta xp ay er’s as se ts an d i nc om e are les s tha n t he ful l am ou ntof t he li ab il ity .”

Sec. 3 01 .71 22 -1 (b )(1 ) an d (3 ), Pro ced . & Adm in . Reg s., al so pro vi de s tha t 7 do ub t as to li ab il ity

an d the pro m ot io n o f effe ct iv e ta x a dm in is tra ti on are g ro un ds fo r th e co m

pr om is e o f a l iabi li ty. Pet it io ne r do es no t cl ai m th athe qu al ifi es foran of fer- in -co m

pr om is e o n e ithe r of

th os e two gro un ds
.- 22 -

[* 22 ] Res po nd en t h as pre sc rib edpro cedur es th atare co ns is te ntwith s ect io n 7 12 2
an d the reg ul at io ns th ereu nd er i n o rd er t o d et erm in e whe th er an off er-i nco m pr om is e b as edon do ub t as to co ll ect ib il ity sh ou ldbe co ns id eredan d a ccep te d. Co ns is te ntwith s ect io n 3 01 .71 22 -1 (b )(2 ), Pro ced . & Adm in . Reg s., s ect io n 4 .02 of Rev enue Pro cedur e 2 00 3- 71 , 20 03 -2 C.B. at51 7, p ro vi de s tha t an off er-i nco m pr om is e b as edon do ub t as to co ll ect ib il ity “ ge ne ral ly w il l b e co ns id ered
acce pt ab le if i t i s u nl ik el y th atth e ta x c anbe co ll ect edinful l an d the off er
reas on ab ly reflec ts th e am ou ntth e Servi ce co ul d c ol le ctth ro ug h o th er m ean s, in cl ud in g a dm in is tra ti ve an d ju di ci al co ll ect io n re m ed ie s.” Anoff er-i nco m pr om is e b as edon do ub t as to co ll ect ib il ity us ua ll y m us t equa l o r ex ceeda ta xp ay er’s rea so nabl e co ll ect io n p ot en ti al inord er t o b e acc ep te d. In te rn al Rev enue Man ua l (I RM) pt . 5.8 .1.1 .3(3 ) (Sep t. 2 3, 2 00 8)
. 8 As p ert in en t h ere, p art5.8 .4.4 .1 o f th e IRM (Sep t. 2 3, 2 00 8) pro vi de d t ha t a ta xp ay er’s rea so nabl e co ll ect io n p ot en ti al is th e su m of ( 1) th e ta xp ay er’s n et real iz ab le equi ty in as se ts (ne t re al iz ab le equi ty) and(2) th e am ou ntco ll ect ib le fro m th e ta xp ay er’s ex pe ct edfutur e in co m e aft er al lo win g fo r pa ym en t o f Unl es s o th erwi se in di cat ed , all IRM r efer en ces are t o t he ve rs io n o f th e 8 IRM th atwas i n e ffec t o n the da te of p et it io ne r’s he ari ng . Alth ou gh th ere wer e ch an ge s m ad e to th e IRM th atwentin to effe ctaft er tha t h eari ng an d b efo re res po nd en t i ss ue d the no ti ces of d et erm in at io n t o p et it io ne r, no ne of t ho se ch an ge s is ap pl ic ab le he re ex cep t fo r on e ch an ge (di sc us se d b el ow)
.- 23 -

[* 23 ] ne ces sa ry

li vi ng expe ns es (ex pe ct edfutur e in co m e). The term “ne t real iz ab le equi ty” was d efi ne d fo r pu rp os es of p art5.8 .4.4 .1 o f th e IRM (Sep t. 2 3, 20 08 ) to m ean“ qu ic k s al e v al ue * * * l es s amoun ts owedto sec ur edli enho ld ers with p rio rit y

ov er the fed eral tax li en .” Id . pt . 5.8 .5.4 .1(1 ) (Sep t. 2 3, 2 00 8) . The te rm “ qu ic k s al e v al ue ” u se d i n the de fin it io n o f “ ne t re al iz ab le equi ty” was de fin edto m ean“ anest im at e o f th e p ric e a s el le r co ul d g etforth e as se t i n a si tu at io n wh ere f

in an ci al pre ss ur es m ot iv at e th e o wne r to sel l i n ash ort p eri odof ti m e”, u su al ly 80- pe rcen t o f th e fai r m ark etva lu e o f th e as se t. Id . pt . 5.8 .5.4 .1(2 )
an d (3 ).

“ Gen eral ly, th e am ou ntto be co ll ect edfro m futur e in co m e is cal cu la te d b y ta ki ng th e p ro

jecte d g ro ss m on th ly inc om e, le ss all owabl e ex pe ns es , and
m ul ti pl y in g the di ffer en ce b y th e num be r of m on th s re m ai ni ng on th e st atut ory pe rio d fo r co ll ect io n.” Id. p t. 5 .8.5 .6.6 (1 ) (Sep t. 2 3, 2 00 8) . Part5.8 .5.6 .1(1 ) of th e IRM (Sep t. 2 3, 2 00 8) pro vi de d tha t “ al lo wab le ex pe ns es ” co ns is t o f, in te r al ia ,

“ ne ces sa ry

ex pe ns es ”, as de fin edinpa rt 5 .15 .1.7 of the IRM ( May 9, 20 08 ). The te rm “ ne ces sa ry

ex pe ns e” was de fin edforpurp os es of p art5.8 .5.6 .1(1 ) of th e IRM (Sep t. 2 3, 2 00 8) to m eananex pe ns e th atis “ ne ces sa ry to pro vi de fora ta xp ay er’s
an d h is or h er fa m il y ’s hea lth a ndwelf are a nd/o r pr oduc ti on of i nc om e.” Id . pt
. 5.1 5.1 .7(1 ). Part5.1 5.1 .7 o f th e IRM (May 9, 20 08 ) pr ov id edinpe rti ne ntpa rt:- 24 -

[* 24 ] (2 ) The re ar e th ree t y pe s o f ne ces sa ry

ex pe ns es :

• Nati on al Sta nd ard s

• Loc al Sta nd ard s

• Oth er Ex pe ns es (3 ) Nat io na l St an dard s: Thes e es tabl is h s tand ard s fo r Fo od , Clo th in g an d Othe r It em s, an d Ou t-o f-Po ck etHeal th Care Exp en se s. * * * * * * * (4 ) Loc al Sta nd ard s: Thes e es tabl is h s tand ard s fo r two ne ces sa ry ex pe ns es : h ou si ng an d u ti li ti es an d t ran sp orta ti on . * * * * * * * * * * (6 ) Oth er - Othe r expe ns es m ay be all owe d i f th ey

m eetth e n eces sa ry ex pe ns e te st
. Nati on al st an da rd s an d l oc al st an da rd s s erv e as gu id el in es to pro vi de accu racy and
co ns is te nc y

inde te rm in in g atax pa y er’s b as ic li vi ng ex pe ns es (di sc us se d b el ow)
. IRM pt . 5.8 .5.6 .2(1 ) (Sep t. 2 3, 2 00 8)
. An o ffer -in -co m

pr om is e b as edon do ub t as to co ll ect ib il ity th atis les s tha n a ta xp ay er’s rea so nabl e co ll ect io n p ot en ti al m ay be acce pt edwher e sp eci al ci rcu m st an ces ex is t tha t warran t ac cep tanc e o f le ss th anth e ta xp ay er’s rea so nabl e
co ll ect io n p ot en ti al . Id. p t. 5 .8.1 .1.3 (3 ) (Sep t. 2 3, 2 00 8) . As pe rti ne nthe re, s uc h sp eci al cir cu m st an ces ex is t wh ere r equi rin g the tax pa y er t o p ay th e fu ll am ou ntof- 25 -

[* 25 ] th e ta xp ay er’s rea so nabl e co ll ect io n p ot en ti al wou ldcau se th e ta xp ay er
eco no m ic ha rd sh ip withi n the m ean in g o f se ct io n 3 01 .63 43 -1 , Pro ced . & Adm in
. Reg s. See IRM p t. 5 .8.4 .3(4 ) (Sep t. 2 3, 2 00 8) , 5.8 .11 .2.1 (Sep t. 2 3, 2 00 8)
. Sect io n 3 01 .63 43 -1 (b )(4 ), Pro ced . & Adm in . Reg s., p ro vi de s i n p ert in en t p art : (4 ) Eco no m ic hard sh ip .--(i ) Gen eral rul e.--Th e le vy is cr eat in g a n eco no m ic ha rd sh ip du e to th e fi na nc ia l co nd it io n o f anin di vi du al ta xp ay er. Thi s co nd it io n app li es if s at is fact io n o f th e le vy in wh ol e o r in pa rt wi ll cau se anin di vi du al tax pa y er t o b e unabl e to pa y hi s o r he r reas on ab le ba si c li vi ng ex pe ns es . The d et erm in at io n o f a rea so nabl e am ou ntforba si c li vi ng ex pe ns es wil l b e m ad e b y th e d ire ct oran d wil l v ary acco rd in g t o the un ique cir cu m st an ces of t he in di vi du al ta xp ay er. Uni qu e ci rcu m st an ces , ho wev er, d o n otin cl ud e th e m ai nt en an ce o f anaffl ue ntor l ux ur io us st an da rdof l iv in g. (ii ) In fo rm at io n fr om

tax pa y er.--I n d et erm in in g areas on ab le am ou ntforba si c li vi ng ex pe ns es th e d ire ct or wil l co ns id er an y in fo rm at io n p ro vi de d b y

th e ta xp ay er i nc lu di ng
– (A) The tax pa y er’s ag e, em pl oym en t s ta tu s an d h is to ry , ab il ity to earn , num

be r of de pe nd en ts , andst atus as ade pe nd en t of so m eo ne els e; (B) Th e am ou ntreas on ab ly neces sa ry for foo d, cl ot hi ng , ho us in g (i nc lu di ng ut il it ie s, h om e-o wne r in su ran ce, h om eown er due s, an d the li ke ), m ed ic al ex pe ns es (in cl ud in g h eal th in su ran ce), tran sp orta ti on , curren t t ax pa ym en ts (in cl ud in g fed eral , st at e, an d l oc al ), al im on y , chi ldsupp ort, o r ot he r co urtor de redpaym en ts , andex pe ns es ne ces sa ry to th e ta xp ay er’s pr oduc ti on of i nc om e (s uc h a s due s fo r a trad e uni on or pr of es si on al org an iz at io n, o r ch il d c are p aym en ts whi chall ow th e ta xp ay er t o b e g ai nf

ul ly em pl oyed);- 26 -

[* 26 ] (C) Th e co stof l iv in g i n t he ge og rap hi c are a in whi chth e

ta xp ay er re si de s; (D) The am ou ntof p ro pe rty exem ptfro m lev y whi chis av ai labl e to pa y

th e ta xp ay er’s ex pe ns es ; (E) Any extrao rd in ary ci rcu m st an ces su chas s pe ci al educ at io n e xp en se s, a m ed ic al cat as tro ph e, orna tu ral di sa st er; an d (F) An y

othe r fac to r th atth e ta xp ay er cl ai m s b ears on eco no m ic ha rd sh ip an d b rin gs to th e atte nt io n o f th e d ire ct or . Inth e n ot ic es of d et erm in at io n, the App eal s Off ic e d et erm in edth at pe ti ti on er’s rea so nabl e co ll ect io n p ot en ti al was $ 27 8,1 17 .96 , i.e., th e su m of (1 ) ne t re al iz ab le equi ty of $1 99 ,86 5, wh ic h t he set tl em en t o ffi cer c al cu la te d o n th e b as is of t he ass et s an d the equi ty the rei n t ha t p et it io ne r sh owe d i n p et it io ne r’s fir stFo rm

43 3- B, an d (2 ) ex pe ct edfutur e in co m e o f $7 8,2 52 .96 , whi chth e
se tt le m en t o ffi cer c al cu la te d o n t he ba si s o f th e g ro ss bu si ne ss in co m e an d bu si ne ss ex pe ns es th atpe ti ti on er s ho wedinpe ti ti on er’s s eco ndFo rm 43 3- B. It i s

9
It i s n ot ewo rth y

th atth e fi na nc ia l i nf

orm at io n t ha t p et it io ne r sh owe d i n 9 pe ti ti on er’s fi rs t Fo rm

43 3- B d iff

eredsi gn ifi can tl y

fro m th e fi na nc ia l i nf

orm at io n th athe sh owe d i n p et it io ne r’s se co ndFo rm 43 3- B. Neve rth el es s, i n h er Ma y 21 , 20 10 let te r, th e se tt le m en t o ffi cer s ta te d t ha t the fin an ci al in fo rm at io n t ha t pe ti ti on er s ho wedinpe ti ti on er’s s eco ndFo rm 43 3- B d idno t ch an ge hi s reas on ab le co ll ect io n p ot en ti al fro m th atwhi chsh e cal cu la te d o n t he ba si s o f th e fin an ci al in fo rm at io n tha t p et it io ne r sh owe d i n p et it io ne r’s fir stFo rm 43 3- B. It i s no t cl ear wh y

th e se tt le m en t o ffi cer m ad e th atst at em en t. (co nt in ue d...)- 27 -

[* 27 ] no t cl ear wh y

th e App eal s Off

ic e d et erm in edth e am ou ntof p et it io ne r’s
reas on ab le co ll ect io n p ot en ti al inpa rt o n t he ba si s o f fi na nc ia l i nf orm at io n t ha t pe ti ti on er s ho wedinpe ti ti on er’s fi rs t Fo rm 43 3- B an d i n p arton th e b as is of fin an ci al in fo rm at io n tha t h e sh owe d i n p et it io ne r’s se co ndFo rm 43 3- B. As d is cu ss edab ov e, th e App eal s Off ic e u se d t he ass et s an d t he equi ty th erei n tha t p et it io ne r sh owe d i n p et it io ne r’s fir stFo rm 43 3- B, whi chhe subm it te d to th e se tt le m en t o ffi cer o n F eb ru ary 24 , 20 09 , to de te rm in e th e am ou ntof pe ti ti on er’s n etreal iz ab le equi ty. It i s n otcle ar wh y . Part5.8 .5.3 .2(1 ) of th e IRM (Sep t. 2 3, 2 00 8) ap pe ars to ha ve requi redth e App eal s Off ic e to de te rm in e th e
am ountof p et it io ne r’s ne t re al iz ab le equi ty by us in g t he ass et s an d t he equi ty th erei n tha t p et it io ne r sh owe d i n p et it io ne r’s se co ndFo rm 43 3- B, whi chhe
subm it te d t o the set tl em en t o ffi cer o n Ap ril 6, 2 01 0. 1 0 (...co nt inue d) 9 The set tl em en t o ffi cer c al cu la te d p et it io ne r’s reas on ab le co ll ect io n p ot en ti al to be ap pr ox im at el y

$8 46 ,40 7 o n t he ba si s o f th e fi na nc ia l i nf orm at io n t ha t pe ti ti on er s ho wedinpe ti ti on er’s fi rs t Fo rm 43 3- B. Usi ng th e sam e as su m pt io ns th atth e se tt le m en t o ffi cer m ad e in cal cu la ti ng pe ti ti on er’s rea so nabl e co ll ect io n po te nt ia l o n the ba si s o f th e fi na nc ia l i nf orm at io n t ha t p et it io ne r sh owe d i n pe ti ti on er’s fi rs t Fo rm

43 3- B, itap pe ars th atpe ti ti on er’s rea so nabl e co ll ect io n po te nt ia l wo ul d h av e b eenap pr ox im at el y $2 51 ,75 7 o n t he ba si s o f th e fi na nc ia l in fo rm at io n tha t p et it io ne r sh owe d i n p et it io ne r’s se co ndFo rm 43 3- B. Part5.8 .5.3 .2 o f th e IRM (Sep t. 2 3, 2 00 8) pro vi de d i n p ert in en t p art : “ If 1 0 du rin g the pro ces si ng of t he off er, the fin an ci al in fo rm at io n b eco m es ol de r th an12 m on th s, co nt actsh ou ldbe m ad e wit h t he tax pay er t o upd at e th e in fo rm at io n.”- 28 -

[* 28 ] Inad di ti on , th e App eal s Off ic e d et erm in edth atpe ti ti on er h ad$8 7,0 63 inne t real iz ab le equi ty in h is acco un ts rece iv ab le . In h is Marc h 4 , 20 10 let te r an d h is Mar ch26 , 20 10 let te r, Mr. Pyper cl ai m edth atth e am ou ntof p et it io ne r’s ne t real iz ab le equi ty in h is acco un ts rece iv ab le was app ro xi m at el y 10 -p erce ntof t he to ta l am ou ntof t ho se acco un ts rece iv ab le . Thatis be cau se , acco rd in g t o M r. Py pe r, each of t he subc on tra ct or s tha t p et it io ne r hi redto workon th e co ns tru ct io n pr ojec ts to whi chpe ti ti on er’s acc ou nt s re cei vabl e are att rib ut ab le he lda
m ech an ic ’s li enon each of t ho se acco un ts rece iv ab le inanam ou ntth atwas e qu al to ap pr ox im at el y

90 -p erce ntof t he to ta l o f any su chacco un ts rece iv ab le at tri bu tabl e to each su chco nt ract or . The rec or d d oe s n otest ab li sh th atth e
se tt le m en t o ffi cer i nv es ti ga te d (1 ) whe th er an y of t he subc on tra ct or s tha t p et it io ne r hi redto workon th e co ns tru ct io n p ro jects to whi chpe ti ti on er’s acc ou nt s
rece iv ab le are at tri bu tabl e h el d am ech an ic ’s li enon a po rti onof p et it io ne r’s
acco un ts rece iv ab le an d (2 ) th e si gn ifi can ce o f an y su chm ech an ic ’s li en s o n t he
va lu at io n o f pe ti ti on er’s n etreal iz ab le equi ty in h is acco un ts rece iv ab le
. Inpe ti ti on er’s s eco ndFo rm 43 3- B, pe ti ti on er s ho wed , in te r al ia , th athe ha d gr os s b us in es s i nc om e an d b us in es s ex pe ns es of $ 26 ,56 0 and$2 4,9 29 .43 , res pe ct iv el y , forth e o ne -m on th pe rio d t ha t b eg anon Feb ru ary 28 , 20 10 , andth at
en de d o n M arch 31 , 20 10 . The Ap pe al s Off ic e u se d o nl y

th os e res pe ct iv e- 29 -

[* 29 ] am ou nt s o f gr os s b us in es s i nc om e an d b us in es s ex pe ns es th atpe ti ti on er sh owe d fo r th e o ne -m on th pe rio d t ha t b eg anon Feb ru ary 28 , 20 10 , andth aten de d
on Marc h 3 1, 2 01 0, t o d et erm in e th e am ou ntof p et it io ne r’s ex pe ct edfutur e in co m e. It i s n otcle ar wh y . Part5.8 .5.3 .2(7 ) of th e IRM (Sep t. 2 3, 2 00 8) ap pe ars to ha ve requi redth e App eal s Off ic e to us e p et it io ne r’s gr os s b us in es s i nc om e an d bu si ne ss ex pe ns es forth e m os t re cen t thr ee m on th s t o d et erm in e th e am ou ntof pe ti ti on er’s ex pe ct edfutur e in co m e. 1 1 Inad di ti on , th e App eal s Off ic e d idno t t ak e in to acco un t an y pe rs on al in co m e o r an y

pe rs on al ex pe ns es of p et it io ne r in de te rm in in g t he am ou ntof pe ti ti on er’s ex pe ct edfutur e in co m e. Thatis be cau se pe ti ti on er d idno t s ub m it 1 2 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 fEm pl oyed In di vi du al s (F orm 43 3- A), whi chwou ldha ve in cl ud edth at

Part5.8 .5.3 .2(7 ) of

th e IRM (Sep t. 2 3, 2 00 8) pro vi de d i n p ert in en t p art 1 1 th ata se tt le m en t o ffi cer a ss ig ne d t o i nv es ti ga te anoff er-i n- co m pr om is e sh ou ld reque stfro m

sel f-em pl oyed i nd iv idua ls “pr oo f of gro ss in co m e * * * forth e p rio r th ree m on th s” an d s ho ul d “ Co m pa re av erag e earni ng s t o t he am ou nt s d ecl aredon th e CIS [i.e ., Form 43 3- B, Co ll ect io n In fo rm at io n S ta te m en t fo r Bu si ne ss es ]. ” The re ar e ref

eren ces inth e rec or d t o c ert ai n m ortg ag e lo an s o n p et it io ne r’s 1 2 res id en ce. Howe ve r, th e App eal s Off ic e d idno t fa ct orpe ti ti on er’s o bl ig at io n t o m ak e p aym en ts with re sp ectto th os e lo an s i nt o i ts cal cu la ti on of p et it io ne r’s ex pe ct edfutur e in co m e. Nor d idth e App eal s Off ic e fac to r th e v al ue of pe ti ti on er’s res id en ce i nt o i ts cal cu la ti on of p et it io ne r’s ne t re al iz ab le equi ty.- 30 -

[* 30 ] in fo rm at io n. It i s n otcle ar h ow the App eal s Off ic e co ul d h av e cal cu la te d 1 3
anaccu rat e am ou ntof p et it io ne r’s ex pe ct edfutur e in co m e wit ho uttak in g i nt o
acco un t an y

pe rs on al in co m e o r an y

pe rs on al expe ns es of p et it io ne r. Inth e n ot ic es of d et erm in at io n, the App eal s Off ic e st at edth atit s ca lc ul at io n of pe ti ti on er’s rea so nabl e co ll ect io n p ot en ti al , in te r al ia , di d “ no t i nc lu de an y
as se ts * * * [p et it io ne r] ha[s ] pe rs on al ly.” Becau se th e App eal s Off ic e cal cu la te d pe ti ti on er’s n etreal iz ab le equi ty on the ba si s o f th e as se ts an d t he equi ty the rei n

Bec au se pe ti ti on er fa il edto subm itFo rm 43 3- A aft er h e was di rect edto do 1 3 so by the set tl em en t o ffi cer i n h er Ma rch 9, 2 01 0 l ette r, he is no t b efo re u s wi th so cal le d c le anha nd s. If the App eal s Off ic e h adreject edpe ti ti on er’s o ffer -in

co m pr om is e o n the gro un d tha t p et it io ne r fai le d t o p ro vi de th e se tt le m en t o ffi cer with c ert ai n re qu es te d fi na nc ia l i nf orm at io n, re sp on de ntco ul d h av e arg ue d h ere th atth atwas an a de qu at e g ro un d fo r th e App eal s Off ic e to ha ve reject ed pe ti ti on er’s o ffer -in -co m

pr om is e. See, e.g ., Sul li va n v . Comm is si on er, T.C. Mem o. 2 01 2- 33 7; Wrig htv. Co m mis si on er, T.C. Mem o. 2 01 2- 24 ; Hu nt res s v . Co m m is si on er, T.C. Mem o. 2 00 9- 16 1. Th e App eal s Off ic e d idno t re

ject pe ti ti on er’s o ffer -in -co m

pr om is e o n t ha t g ro un d, h owe ve r. As a re su lt , in de te rm in in g wh ethe r to su st ai n o r rejectth e App eal s Off ic e’s de te rm in at io ns , we m us t co ns id er the gro un d( s) up on whi chitrel ie d i n m ak in g tho se de te rm in at io ns in th e n ot ic es of d et erm in at io n. Se e Jo ne s v . Commis si on er, T.C. Mem o. 2 01 2- 27 4.- 31 -

[* 31 ] th atpe ti ti on er s ho wedinpe ti ti on er’s fi rs t Fo rm 43 3- B, th atst at em en t i s

1 4
co rrec t. It i s n otcle ar h ow the App eal s Off ic e co ul d h av e cal cu la te d a n a ccu rat e 1 5
am ountof p et it io ne r’s ne t re al iz ab le equi ty w itho uttak in g i nt o a cco un t the
am ount s o f certa in m ortg ag e lo an s o n p et it io ne r’s res id en ce. 1 6 Fi na ll y , we bel ie ve th atinbo th Fo rm 65 6 a ndMr. Pyper’s Ma rch 4, 2 01 0 le tt er t o the set tl em en t o ffi cer p et it io ne r an d M r. Py pe r rai se d i ss ue s re ga rd in g the
eco no m ic ha rd sh ip th atpe ti ti on er wo ul d s uf fer i f th e App eal s Off

ic e were t o 1 7 rejecthi s o ffer -in -co m

pr om is e. Form

65 6 s ta te d i n p ert in en t p art : “ Thi s i s the 1 8
Altho ug h the App eal s Off ic e cal cu la te d p et it io ne r’s ne t re al iz ab le equi ty 1 4 on th e b as is of t he ass et s an d the equi ty the rei n t ha t p et it io ne r sh owe d i n pe ti ti on er’s fi rs t Fo rm

43 3- B, th atoff

ic e cal cu la te d p et it io ne r’s ex pe ct edfutur e in co m e o n the ba si s o f th e g ro ss bu si ne ss in co m e an d b us in es s ex pe ns es th at pe ti ti on er s ho wedinpe ti ti on er’s s eco ndFo rm 43 3- B. See s up ra n ot es 5 an d 1 2. 1 5 See s up ra n ot es 5 an d 1 2. 1 6 As d is cu ss edab ov e, eco no m ic ha rd sh ip ex is ts when a ta xp ay er i s u nabl e 1 7 to pa y hi s o r he r rea so nabl e b as ic li vi ng ex pe ns es . See s ec. 3 01 .63 43 -1 (b )(4 )(i ), Pro ced . & Adm in . Reg s. Su chba si c li vi ng ex pe ns es in cl ud e ex pe ns es ne ces sa ry , in te r al ia , forth e p ro du ct io n o f in co m e. See s ec. 3 01 .63 43 -1 (b )(4 )(i i)( B), Pro ced
. & Admin . Reg s. Eve n i f pe ti ti on er an d M r. Py pe r ha d n otrai se d t he is su e o f eco no m ic 1 8 ha rd sh ip inbo th Fo rm

65 6 andMr. Pyper’s Ma rch 4, 2 01 0 l et te r, pa rt 5 .8.4 .2(1 ) of th e IRM (Ju ne 1, 2 01 0) , whi chbe cam e effe ct iv e aft er p et it io ne r’s he ari ng an d be fo re re sp on de ntis su edth e n ot ic es of d et erm in at io n t o p et it io ne r onJu ne 23 , 20 10 , pro vi de d i n p ert in en t p artth atth e App eal s Off ic e sh ou ldco ns id er the is su e

(co nt in ue d...)- 32 -

[* 32 ] wor steco no m

y I ha ve see n i n 4 0 years; I ha ve no t s ho wn a p ro fitsi nc e 2 00 0
an d a m jus t k eep in g m

y bu si ne ss op ento ke ep m y rep ut at io n i nt actincas e th ere i s
a rec ov ery. ” Mr. Pyper’s Ma rch 4, 2 01 0 l et te r to th e se tt le m en t o ffi cer s ta te d i n pe rti ne ntpa rt: If the tax pa y er h adto imm ed ia te ly liqui da te hi s equi pm en t t o m eethi s ob li ga ti on s t o the Int ern al Rev enue Serv ic e th is co ul d p la ce an un reas on ab le bu rd enon hi m be cau se itwou ldess en ti al ly m eanhe wou ldha ve to go ou t o f bu si ne ss . W itho utth is equi pm en t h e co ul d no t s ecu re ad di ti on al , m ean in gf ul workan d wo ul d h av e to lay off em pl oyees andres ort t o g ov ern m en t s up po rt h im se lf. [ 1 9 ] The reco rddo es no t es tabl is h tha t the App eal s Off ic e co ns id eredan y

is su es reg ard in g wh ethe r pe ti ti on er wo ul d s uf fer e co no m ic ha rd sh ip inde te rm in in g t o rejectpe ti ti on er’s o ffer -in -co m pr om is e. On the reco rdbe fo re u s, we ar e unabl e to de ci de whet he r we sh ou ldsu st ai n th e d et erm in at io ns inth e n ot ic es of d et erm in at io n. Acco rd in gl y , we sh al l d en y
res po nd en t’s m ot io n andrem an d t hi s ca se to th e App eal s Off ic e fo r cl ari fic at io n
an d fo r furth er co ns id erat io n. (...co nt in ue d) 1 8 of eco no m ic ha rd sh ip , whet he r id en ti fie d b y th e ta xp ay er o r no t, wh en in ve st ig at in g a ny offer -in -co m pr om is e. Part5.8 .11 .2.1 (6 ) of

th e IRM (Sep t. 2 3, 2 00 8) pro vi de s i n p ert in en t p art 1 9 th ata fi nd in g o f eco no mic ha rd sh ip m ay be ap pr op ria te wher e “ The tax pa y er h as as se ts * * * an d l iqui da ti on to pa y th e o ut st an di ng tax li ab il it ie (s ) wou ldren de r th e ta xp ay er u nabl e to m eethi s b as ic li vi ng ex pe ns es .”- 33 -

[* 33 ] To re fle ctth e fo reg oi ng , An ap pr op ria te ord er wi ll be is su ed
.