125 T.C. No. 9

UNITED STATES TAX COURT

GREGORY DRAKE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20454-03L. Filed October 12, 2005.

Prior to a scheduled sec. 6330, I.R.C., hearing

with P, R’s settlement officer received a memorandum

from R’s insolvency unit advisor that questioned the

credibility and motives of P’s counsel in a prior court

proceeding. P was not provided an opportunity to

participate in the ex parte communication.

Held: The memorandum constitutes a prohibited ex

parte communication pursuant to Rev. Proc. 2000-43,

2000-2 C.B. 404, and therefore the instant case will be

remanded to R’s Appeals Office for a new hearing.

Timothy J. Burke, for petitioner.

Louise R. Forbes, for respondent.
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OPINION

WELLS, Judge: Respondent’s Appeals Office determined that a

proposed levy should be sustained against petitioner, who timely

filed a petition for review of the determination. We review the

determination for abuse of discretion. Unless otherwise

indicated, all section references are to the Internal Revenue

Code, as amended, and all Rule references are to the Tax Court

Rules of Practice and Procedure. 

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the accompanying exhibits are

incorporated herein by this reference. 

Petitioner Gregory Drake and Barbara Drake are husband and

wife. At the time of the filing of the petition, petitioner

resided in South Yarmouth, Massachusetts.

As of August 19, 1997, respondent had filed Notices of

Federal Tax Lien against petitioner for income tax liabilities

for 1991, 1992, and 1995. On that date, Barbara Drake and

petitioner filed a joint bankruptcy petition under chapter 13 of

the Bankruptcy Code with the U.S. Bankruptcy Court for the

District of Massachusetts. In the bankruptcy proceedings,

Barbara Drake and petitioner received authority to sell three

properties which were subject to Federal tax liens. The

properties were sold free and clear of the tax liens, with a tax
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1The sale yielded proceeds of $161,250.65.

2Pursuant to 11 U.S.C. sec. 1321 (2000), a debtor in a ch.

13 case must file a repayment plan. Pursuant to 11 U.S.C. sec.

1307, the bankruptcy court may dismiss a case for failure to file

a timely repayment plan.

3The motion provided for sale proceeds to be distributed to

creditors, including respondent.

4This amount represented the sale proceeds less legal fees

and expenses. We note that Barbara Drake and petitioner were

represented in the bankruptcy proceedings by Neal E. Satran, who

is not involved petitioner’s sec. 6330 proceedings.

lien attaching to the sale proceeds.1 Subsequently, the

bankruptcy trustee filed a motion to dismiss the case for failure

to file a repayment plan,2 and Barbara Drake and petitioner filed

a Motion for Authority to Disburse Funds.3 The court granted the

motion to dismiss and issued an order mooting the Motion for

Authority to Disburse Funds. Upon the dismissal of the case on

June 30, 1999, the attorney representing Barbara Drake and

petitioner in the bankruptcy proceedings distributed to Barbara

Drake and petitioner sale proceeds in the amount of $151,139.74.4

Petitioner subsequently transferred, for no consideration, the

sale proceeds to his sons, Darren Drake and Gregory Drake, Jr. 

On October 6, 1999, Notices of Federal Tax Lien were filed

against Barbara Drake and petitioner with respect to their 1994,

1995, and 1997 tax years. 

On July 19, 2000, respondent mailed to Barbara Drake and

petitioner a Final Notice, Notice of Intent to Levy and Notice of

Your Right to a Hearing, with respect to their 1991, 1992, 1994,
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5Louise R. Forbes, senior attorney in respondent’s Office of

Chief Counsel, represents respondent in the instant case.

1995, and 1997 tax years. The notice asserted an unpaid tax of

$121,478.17 and penalties and interest of $88,607.27. Pursuant

to a power of attorney, Timothy J. Burke (Mr. Burke) submitted a

timely Form 12153, Request for a Collection Due Process Hearing,

on behalf of Barbara Drake and petitioner. Subsequently, on

behalf of Barbara Drake, Mr. Burke submitted a Form 8857, Request

for Innocent Spouse Relief, with respect to each of the years in

dispute.

Settlement Officer Eugene O’Shea was assigned to conduct the

requested section 6330 hearing, and he determined from Internal

Revenue Service records that petitioner had previously filed for

bankruptcy protection. On January 30, 2002, prior to the section

6330 hearing, Settlement Officer O’Shea conferred with Advisor

Sid Gordon of the Internal Revenue Service Insolvency Unit

regarding the bankruptcy case and requested related

documentation. On the same date, Advisor Gordon faxed to

Settlement Officer O’Shea a copy of Advisor Gordon’s prior

memorandum to respondent’s counsel Louise R. Forbes (Attorney

Forbes).5 In the memorandum, dated October 5, 1999, Advisor

Gordon stated that proceeds from the prior sale of the three

properties subject to Federal tax liens had been distributed to

Barbara Drake and petitioner, that the proceeds should have been
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distributed to the creditors of Barbara Drake and petitioner, and

that Advisor Gordon believed that the attorney of Barbara Drake

and petitioner had “used the Court to bypass the Federal tax

Lien.” The memorandum further stated:

According to the settlement sheets the debtor

received $161,094.73 from the three sales. Although

the Bankruptcy Court approved the sales under 11 USC

363 the IRS received nothing. Attorney Satran had

knowledge of the Internal Revenue Service Federal Tax

Liens due to the considerable litigation involved in

this case. In fact Attorney Satran filed a motion with

the Court to disburse the funds including [sic] the IRS

liens. It is a mockery to the integrity [of the]

Bankruptcy Court if an Attorney can use it to defeat a

Federal Tax Lien allowing a Debtor to walk away with

the proceeds. The Bankruptcy Code was used because 11

USC 363 was authorized by the Court.

I informed Attorney Campobasso that Attorney

Satran had previously been suspended by the Bankruptcy

Court. Chief, US Bankruptcy Court Judge Carol J Keener

suspended attorney Satran from 01/30/1996 through

11/29/1996. The action of Attorney Satran in a Chapter

11 case [involving] Paula Wyner, Carlton House of

Brockton, Inc. was the cause of the suspension. I

think the Court should be informed of the conduct of

Attorney Satran in this case.

 On January 30, 2002, Mr. Burke attended a meeting with

Settlement Officer O’Shea, who did not inform petitioner of his

communications with Advisor Gordon. Mr. Burke provided a copy of

Form 433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals, and Form 433-B, Collection Information

Statement for Businesses. A Form 656, Offer-in-Compromise, had

been completed but was not submitted to Settlement Officer O’Shea

for consideration. Petitioner concedes that the parties
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6The tax years 1993 and 1999 were not within the scope of

the proposed levy nor part of the initial request for a sec. 6330

hearing.

informally suspended consideration of any offer-in-compromise

pending a determination of Barbara Drake’s request for innocent

spouse relief, which would influence whether petitioner filed an

individual offer-in-compromise or a joint offer-in-compromise. 

By letter dated February 5, 2002, respondent made a

preliminary determination denying Barbara Drake’s request for

innocent spouse relief, and she appealed the determination to

respondent’s Appeals Office. The Appeals Office assigned Appeals

Officer Jeffrey Kaplan to the case.

On September 4, 2002, petitioner submitted to respondent’s

Appeals Office an “amended” Form 656, Offer-in-Compromise,

offering to pay $5,500 in satisfaction of petitioner’s tax

liabilities for 1991, 1992, 1993, 1994, 1995, 1997, and 1999.6

In a letter to petitioner dated September 4, 2002, Settlement

Officer O’Shea acknowledged receiving the amended offer-incompromise but noted that consideration of the original offer-incompromise had been informally suspended by the parties pending

the determination of Barbara Drake’s request for innocent spouse

relief. Accordingly, Settlement Officer O’Shea informed Mr.

Burke that no original offer-in-compromise had been submitted for

consideration and returned the amended Form 656 to Mr. Burke. 

Petitioner concedes that the reason for returning the Form 656

was to avoid any administrative confusion.
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7As noted above, Appeals Officer Kaplan had been assigned to

Barbara Drake’s innocent spouse relief appeal.

On January 17, 2003, the section 6330 matter was transferred

from Settlement Officer O’Shea to Appeals Officer Kaplan,7 who

subsequently advised Mr. Burke that no offer-in-compromise was

presently before the Appeals Office, as no original offer-incompromise had been submitted for consideration and the amended

offer-in-compromise had been returned to Mr. Burke. Appeals

Officer Kaplan informed Mr. Burke that any offer-in-compromise

should be larger than the $5,500 amount of the amended offer-incompromise submitted on September 4, 2002. Appeals Officer

Kaplan also noted that the former residence of Barbara Drake and

petitioner was now owned by their son and that the transfer

appeared questionable.

In a conversation on June 16, 2003, Mr. Burke informed

Appeals Officer Kaplan that Darren Drake, the son of Barbara

Drake and petitioner, had foreclosed upon and bought petitioner’s

house. Appeals Officer Kaplan requested documentation related to

the foreclosure and transfer.

In a letter dated July 2, 2003, Appeals Officer Kaplan

informed Mr. Burke that he would proceed with the section 6330

determination against Barbara Drake and petitioner. The letter

made the following request, reproduced verbatim, for the

production of documents:
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1. Documentation regarding what was done with the 

funds received by the taxpayers from the sale of 

property as part of their bankruptcy proceedings, 

along with how much was actually received.

2. Documentation of the value of the property located

at 40 Keel Cape Drive, South Yarmouth, MA, prior 

to the foreclosure.

3. Documentation of the foreclosure.

4. Documentation regarding the amount owed on the 

mortgage by the taxpayers at the time of the 

foreclosure.

5. Documentation regarding the entity that acquired 

the mortgage from the prior mortgage holder prior 

to the foreclosure.

6. Copies of the mortgage.

7. Documentation of the acquisition of the property 

by Darren Drake.

8. An updated Collection Information Statement for 

Mr. and Mrs. Drake.

9. Completed Offer-in-Compromise Questionnaire.

10. An updated Collection Information Statement for 

their businesses.

Appeals Officer Kaplan informed Mr. Burke that he would make a

section 6330 determination based on information already within

his possession unless Mr. Burke submitted the requested documents

by July 30, 2003. In addition, Appeals Officer Kaplan informed

Mr. Burke that any offer-in-compromise should also be submitted. 

In August of 2003, Mr. Burke provided respondent’s Appeals Office 
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811 U.S.C. sec. 1301(a) (2000) provides:

Sec. 1301 Stay of action against codebtor

(a) Except as provided in subsections (b) and (c)

of this section, after the order for relief under this

chapter, a creditor may not act, or commence or

continue any civil action, to collect all or any part

of a consumer debt of the debtor from any individual

that is liable on such debt with the debtor, or that

secured such debt, unless--

(1) such individual became liable on or secured

such debt in the ordinary course of such individual’s

business; or

(continued...)

with numerous documents. However, Appeals Officer Kaplan

informed Mr. Burke that he had not received all of the requested

information. 

On September 30, 2003, Barbara Drake filed a bankruptcy

petition under chapter 13 of the Bankruptcy Code with the U.S.

Bankruptcy Court for the District of Massachusetts. In October

of 2003, Mr. Burke advised Appeals Officer Kaplan that Barbara

Drake had filed a bankruptcy petition under chapter 13 of the

Bankruptcy Code, that the automatic stay of 11 U.S.C. sec. 362

applied to petitioner as well as Barbara Drake, and that 11

U.S.C. sec. 1301 precluded any collection action against either

Barbara Drake or petitioner. On October 27, 2003, Appeals

Officer Kaplan requested legal advice from Attorney Forbes

concerning the preclusion of any collection action against

petitioner. Attorney Forbes advised that 11 U.S.C. sec. 1301 did

not preclude the collection action against petitioner.8
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8(...continued)

(2) the case is closed, dismissed, or converted to

a case under chapter 7 or 11 of this title.

Respondent contends that tax debt is not considered consumer debt

for purposes of 11 U.S.C. sec. 1301(a). In re Stovall, 209

Bankr. 849 (Bankr. E.D. Va. 1997); In re Dye, 190 Bankr. 566

(Bankr. N.D. Ill. 1995). Consequently, respondent contends that

the stay of 11 U.S.C. sec. 1301(a) did not preclude the

collection action against petitioner. In the instant case,

petitioner does not dispute respondent’s contention that the stay

did not preclude collection against petitioner.

Consequently, on October 27, 2003, Appeals Officer Kaplan advised

Mr. Burke that the collection action could and would proceed

against petitioner. In addition, Appeals Officer Kaplan advised

Mr. Burke that information previously requested had not been

received by the Appeals Office and that the Appeals Office would

close the case and issue a determination based on information

already in its possession unless Mr. Burke submitted the

information immediately. Appeals Officer Kaplan did not receive

the requested information and closed the case file on October 29,

2003. Subsequently, respondent sent petitioner a notice of

determination (notice of determination), determining that all

statutory administrative and procedural requirements had been met

and that available information did not establish that an offerin-compromise was a viable collection alternative. On January

29, 2004, the Appeals Office issued to Barbara Drake a Final

Notice of Determination Concerning Your Request for Relief from

Joint and Several Liability under I.R.C. sec. 6015, denying the

requested relief. This Court dismissed Barbara Drake’s
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9On Dec. 1, 2003, petitioner filed a timely Petition for

Levy Action Under Section 6330. Petitioner submitted an amended

petition on Jan. 18, 2005.

10SEC. 6330 NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.

(a) Requirement of Notice Before Levy.--

(1) In general.--No levy may be made on any 

 property or right to property of any person unless the 

 Secretary has notified such person in writing of their 

 right to a hearing under this section before such levy 

 is made. * * * 

* * * * * * *

(b) Right to Fair Hearing.--

(1) In general.--If the person requests a hearing

* * *, such hearing shall be held by the Internal 

Revenue Service Office of Appeals.

11Sec. 6330(c)(1) provides: 

Requirement of investigation.--The appeals officer shall at 

(continued...)

subsequent petition for innocent spouse relief. See Drake v.

Commissioner, 123 T.C. 320 (2004). Petitioner timely petitioned

this Court for judicial review of the notice of determination.9

Discussion

Section 6330(a) provides that no levy may be made on any

property or right to property of a person unless the Secretary

first notifies the person in writing of the right to a hearing

before the IRS Office of Appeals (Appeals Office).10 Section

6330(c)(1) provides that the Appeals officer must verify at the

hearing that applicable laws and administrative procedures have

been followed.11 Sec. 6330(c)(1). At the hearing, the person
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11(...continued)

the hearing obtain verification from the Secretary that the 

requirements of any applicable law or administrative 

procedure have been met.

12Sec. 6330(c)(2)(B) provides:

(B) Underlying liability.--The person may also raise at

the hearing challenges to the existence or amount of the

underlying tax liability for any tax period if the person

did not receive any statutory notice of deficiency for such

tax liability or did not otherwise have an opportunity to

dispute such tax liability.

may raise any relevant issue relating to the unpaid tax or the

proposed levy, including appropriate spousal defenses, challenges

to the appropriateness of collection actions, and collection

alternatives. Sec. 6330(c)(2)(A). The person may challenge the

existence or amount of the underlying tax liability, however,

only if the person did not receive any statutory notice of

deficiency for such tax liability or did not otherwise have an

opportunity to dispute such tax liability. Sec. 6330(c)(2)(B).12

In the instant case, petitioner does not contest the underlying

tax liability, and, consequently, we review the Appeals officer’s

determination for abuse of discretion. See Goza v. Commissioner,

114 T.C. 176, 181-182 (2000); Sego v. Commissioner, 114 T.C. 604,

610 (2000). 

Petitioner contends, inter alia, that Settlement Officer

O’Shea and Appeals Officer Kaplan did not conduct the

administrative review in good faith, as evidenced by the ex 

parte communication between Settlement Officer O’Shea and Advisor
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Gordon on January 30, 2002. As discussed above, on that date,

Advisor Gordon faxed to Settlement Officer O’Shea a copy of a

prior memorandum from Advisor Gordon to Attorney Forbes, dated

October 5, 1999, which discussed the distribution of proceeds

from the sale of petitioner’s three properties subject to Federal

tax liens upon dismissal of petitioner’s bankruptcy case. 

Respondent contends that the ex parte communication between

Settlement Officer O’Shea and Advisor Gordon was inconsequential

because Settlement Officer O’Shea received no factual information

not already known to petitioner. Additionally, respondent

contends that petitioner was provided with the opportunity to

discuss the distribution of sale proceeds, as demonstrated by the

letter from Appeals Officer Kaplan to Mr. Burke dated July 2,

2003.

The Internal Revenue Service Restructuring and Reform Act of

1998, Pub. L. 105-206, sec. 1001(a), 112 Stat. 689, directed the

Commissioner of Internal Revenue to develop a plan to prohibit ex

parte communications between Appeals officers and other employees

of the Internal Revenue Service that appear to compromise the

independence of the Appeals officers:

The Commissioner of the Internal Revenue shall develop

and implement a plan to reorganize the Internal Revenue

Service. The plan shall * * * (4) ensure an

independent appeals function within the Internal

Revenue Service, including the prohibition in the plan

of ex parte communications between appeals officers and

other Internal Revenue Service employees to the extent

that such communications appear to compromise the
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independence of the appeals officers.

To fulfill that congressional mandate to ensure an

independent Appeals Office, respondent issued Rev. Proc. 2000-43,

2000-2 C.B. 404, which is effective for communications between

employees of the Appeals Office and other Internal Revenue

Service employees taking place after October 23, 2000. See

Harrell v. Commissioner, T.C. Memo. 2003-271. Rev. Proc. 2000-

43, sec. 3, Q&A-1, 2000-2 C.B. at 405, provides the following

general description of the prohibition on ex parte

communications:

For the purposes of this revenue procedure, ex parte

communications are communications that take place

between Appeals and another Service function without

the participation of the taxpayer or the taxpayer’s

representative (taxpayer/representative). While the

legislation refers to “appeals officers,” the overall

intent of the ex parte provision is to ensure the

independence of the entire Appeals organization. Ex

parte communications between any Appeals employee,

e.g., Appeals Officers, Appeals Team Case Leaders,

Appeals Tax Computation Specialists, and employees of

other Internal Revenue Service offices are prohibited

to the extent that such communications appear to

compromise the independence of Appeals. 

Rev. Proc. 2000-43, 2000-2 C.B. 404, provides that an

Appeals officer may not engage in ex parte discussions of the

strengths and weaknesses of the issues of a case that would

appear to compromise the Appeals officer’s independence and must

give the taxpayer an opportunity to participate in any

discussions concerning matters that are not ministerial,

administrative, or procedural in nature. Rev. Proc. 2000-43,
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13Rev. Proc. 2000-43, sec. 3, Q&A-5, 2000-2 C.B. 404, 405-

406, expressly applies to communications with the “originating

function”. The IRS Insolvency Unit does not appear to be an

originating function for purposes of the revenue procedure. See

Rev. Proc. 2000-43, sec. 3, Q&A-20, 2000-2 C.B. at 408. However,

Rev. Proc. 2000-43, sec. 3, Q&A-6, 2000-2 C.B. at 406, provides

that the ex parte communications prohibition also applies to

Appeals consideration of cases that originated in the Collection

function. Such cases that originate in the Collection function

include collection due process appeals. Id. Consequently, the

ex parte communications prohibition applies to the instant

collection due process appeal.

sec. 3, Q&A-6, 2000-2 C.B. at 406. The revenue procedure

specifically prohibits ex parte discussions of the “originating

function’s perception of the demeanor or credibility of the

taxpayer or the taxpayer’s representative” during the course of

the preliminary review of a newly assigned case.13 Rev. Proc.

2000-43, sec. 3, Q&A-5, 2000-2 C.B. at 405-406. 

In the instant case, the memorandum faxed by Advisor Gordon

to Settlement Officer O’Shea on January 30, 2002, runs afoul of

Rev. Proc. 2000-43, sec. 3, Q&A-5, 2000-2 C.B. at 405-406. The

memorandum was not ministerial, administrative, or procedural in

nature. By questioning the credibility and motives of

petitioner’s counsel in the bankruptcy proceedings, the

memorandum may have had the effect of damaging petitioner’s

credibility in the administrative proceedings before Settlement

Officer O’Shea, who neither informed petitioner of the

communications with Advisor Gordon nor provided petitioner with

the opportunity to participate in the ex parte communication. 
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14The record reveals that the memorandum from Advisor Gordon

to Attorney Forbes became a part of respondent’s administrative

file and was ultimately reviewed by Appeals Officer Kaplan. The

record further reveals that Appeals Officer Kaplan did not

provide petitioner with a copy of the memorandum. 

Rev. Proc. 2000-43, Q&A-21, 2000-2 C.B. at 408, defines the

phrase “opportunity to participate” as follows:

It means that the taxpayer/representative will be given

a reasonable opportunity to attend a meeting or be a

participant in a conference call between Appeals and

the originating function when the strengths and

weaknesses of issues or positions in the taxpayer’s

case are discussed. The taxpayer/representative will

be notified of a scheduled meeting or conference call

and invited to participate. * * * 

Because petitioner was not given an opportunity to participate in

a meeting or conference call with Advisor Gordon, we conclude

that petitioner did not have an opportunity to participate in the

ex parte communication for purposes of Rev. Proc. 2000-43, supra. 

Based on the foregoing, we conclude that the communication

between Advisor Gordon and Settlement Officer O’Shea constituted

a prohibited ex parte communication that may have damaged

petitioner’s credibility before Settlement Officer O’Shea and

Appeals Officer Kaplan.14 Consequently, we hold that Appeals

Officer Kaplan abused his discretion and shall remand the instant

case to respondent’s Appeals Office for a new section 6330

hearing with an independent Appeals officer who has received no

communication relating to the credibility of petitioner or 
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15Petitioner also contends that the ex parte communication

between Appeals Officer Kaplan and Attorney Forbes on Oct. 27,

2003, demonstrates that Appeals Officer Kaplan did not conduct

the administrative review in good faith. In light of our holding

above, we need not decide whether the communication between

Appeals Officer Kaplan and Attorney Forbes constitutes a

prohibited ex parte communication for purposes of Rev. Proc.

2000-43, supra. We note, however, that Attorney Forbes was the

recipient of the original memorandum from Advisor Gordon which

questioned the credibility of petitioner’s counsel in the

bankruptcy proceeding.

In addition to petitioner’s contentions with respect to the

ex parte communications, petitioner contends that petitioner’s

Fifth Amendment right to due process was violated by the absence

of “recognizable” procedures to be followed in the sec. 6330

hearing; that petitioner did not receive a sec. 6330 hearing

before an impartial officer; that the proposed collection

alternative was “viable”; that Appeals Officer Kaplan’s request

that petitioner submit financial documentation without

investigating prior statements demonstrates his bias; and that

respondent did not balance the need for the efficient collection

of taxes with the legitimate concern that the collection be no

more intrusive than necessary. Because we remand the instant

case to respondent’s Appeals Office for a new hearing, we need

not consider the aforementioned contentions.

petitioner’s representative.15

To reflect the foregoing,

An appropriate order will

be issued.