T.C. Memo. 2007-303

UNITED STATES TAX COURT

WAYNE ALLEN MOOTZ, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9671-06L. Filed October 4, 2007.

Wayne Allen Mootz, pro se.

Lisa K. Hunter, for respondent.

MEMORANDUM OPINION

CHIECHI, Judge: This case is before the Court on respondent’s motion for summary judgment (respondent’s motion). We

shall grant respondent’s motion.

Background

The record establishes and/or the parties do not dispute the

following.
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1All section references are to the Internal Revenue Code in

effect at all relevant times. All Rule references are to the Tax

Court Rules of Practice and Procedure.

2Respondent credited respective refunds of $661.06 and

$109.45 due to petitioner from certain other taxable years

against the liability for petitioner’s taxable year 2001.

Petitioner resided in Dubuque, Iowa (Dubuque), at the time

he filed the petition in this case.

On April 2, 2003, petitioner filed a Federal income tax

(income tax) return for his taxable year 2001 (2001 income tax

return). In his 2001 income tax return, petitioner showed income

tax due of $6,036, which he did not pay when he filed that

return.

At a time not disclosed by the record, respondent determined

that petitioner made a mathematical error in his 2001 income tax

return. Respondent corrected that mathematical error, which

resulted in a reduction of the income tax due of $6,036 shown in

that return. The correct amount of income tax that petitioner

should have shown due in that return is $5,736.

On May 12, 2003, respondent assessed the correct amount of

income tax due of $5,736 that petitioner should have shown in his

2001 income tax return, additions to tax under section

6651(a)(1)1 and (2) of $1,290.60 and $372.84, respectively, and

interest as provided by law.2 (We shall refer to any such unpaid

assessed amounts with respect to petitioner’s taxable year 2001,

as well as interest provided by law accrued after May 12, 2003,
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as petitioner’s unpaid 2001 income tax liability.) 

Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 2001 income tax liability.

On April 15, 2003, petitioner filed an income tax return for

his taxable year 2002 (2002 income tax return). In his 2002

income tax return, petitioner showed tax due of $244, which he

did not pay when he filed that return.

On May 19, 2003, respondent assessed the income tax due of

$244 shown in petitioner’s 2002 income tax return, an addition to

tax under section 6651(a)(2) of $2.44, and interest as provided

by law. (We shall refer to any such unpaid assessed amounts with

respect to petitioner’s taxable year 2002, as well as interest

provided by law accrued after May 19, 2003, as petitioner’s

unpaid 2002 income tax liability.)

Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 2002 income tax liability.

On October 7, 2004, respondent filed a notice of Federal tax

lien with respect to petitioner’s unpaid 2001 income tax liability and petitioner’s unpaid 2002 income tax liability. 

On October 8, 2004, respondent issued to petitioner a notice

of Federal tax lien filing and your right to a hearing (notice of

tax lien) with respect to petitioner’s unpaid 2001 income tax
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3In petitioner’s Form 12153, petitioner’s authorized representative indicated disagreement with not only the notice of tax

lien that respondent issued to petitioner but also a notice of

intent to levy and your right to a hearing (notice of intent to

levy) that respondent issued to petitioner. In this connection,

the record indicates that on Aug. 2, 2004, respondent issued a

notice of intent to levy with respect to petitioner’s taxable

year 2001. Petitioner’s authorized representative did not mail

Form 12153 with respect to that notice of intent to levy until

Nov. 2, 2004, which was more than 30 days after the date on which

respondent issued that notice. As discussed below, the notice of

determination concerning collection action(s) under section 6320

and/or 6330 (notice of determination) addresses only the notice

of tax lien and makes no determination with respect to the notice

of intent to levy issued with respect to petitioner’s taxable

year 2001.

liability and petitioner’s unpaid 2002 income tax liability.

On November 8, 2004, petitioner’s authorized representative

mailed to respondent Form 12153, Request for a Collection Due

Process Hearing (petitioner’s Form 12153), and requested a

hearing with respondent’s Appeals Office (Appeals Office). In

that form, petitioner’s authorized representative indicated

disagreement with the notice of tax lien3 and stated: “The 

tax payer [sic] believes he should be given the opportunity to

work out a fair payment plan or settlement as he is unable to pay

said taxes in full.”

On March 1, 2005, a settlement officer with the Appeals

Office (settlement officer) sent a letter (settlement officer’s

March 1, 2005 letter) to petitioner with respect to petitioner’s

Form 12153. In that letter, the settlement officer stated in

pertinent part:
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I have scheduled a telephone conference on April 14,

2005 at 1:00 PM. I will call your representative at 

* * * the number you indicated on your CDP request. If

this time is not convenient, the phone number has

changed, or you prefer a face-to-face conference or a

hearing by correspondence, please let me know within

fourteen (14) days.

* * * * * * *

During the hearing, I must consider:

• Whether the IRS met all the requirements of

any applicable law or administrative procedure.

• Relevant issues you wish to discuss. These

can include:

1. Collection alternatives to the

lien. These could include full

payment of the liability, or, if

you qualify: installment agreement,

offer in compromise or temporary

delay of collection action,

2. Challenges to the appropriateness

of collection action. For example,

bankruptcy may impact appropriateness. We will determine if the

Notice of Federal Tax Lien filing

was appropriate, and whether you

qualify for a lien withdrawal or

other lien option.

3. Spousal defenses.

4. Whether you owe the tax, but only

if you have not otherwise had an

opportunity to dispute it with

Appeals.

• The balance between the need for efficient

tax collection and your legitimate concern

that the collection action be no more intrusive than necessary.

* * * * * * *
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Our records indicate that you may have some business

tax returns that you are required to file. No Forms

941 have been filed for 2002, although you did file

Form 940 for that year reporting wages. In 2003, you

filed Forms 941 for only the first and second quarters,

and did not file Form 940 for the year. Neither were

any further Forms 941 filed for the third quarter of

2003 or any quarters thereafter.

Before alternatives to the Federal Tax Lien may be

considered, except for full payment, you must be in

full compliance with all filing and payment requirements, including any business returns for which you are

liable.

Accordingly, you must file all delinquent tax returns

and bring all delinquent payments up to date, including

any required Estimated Income Tax Payments. Additional

time will not be extended to file delinquent returns or

make delinquent payments, so that collection alternatives may be considered.

Assuming that you will be in full compliance, I enclose

a Collection Information Statement that you should

complete and return to my office, if you are unable to

pay the amount due in full. This information will be

used to determine how the tax can be paid, and to

consider alternatives to the proposed lien and levy. 

Please note supporting documentation requested in each

section.

Please send me the items above within fourteen (14)

days from the date of this letter. I cannot consider

collection alternatives in your hearing without the

information requested above. [Reproduced literally.]

On March 16, 2005, the settlement officer sent petitioner a

letter rescheduling the telephonic conference from April 14 to

May 3, 2005.

On March 16, 2005, petitioner’s authorized representative

sent a letter to the settlement officer (petitioner’s March 16,
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2005 letter). Petitioner’s authorized representative enclosed

with that letter (1) completed Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals (Form

433-A), dated March 15, 2005 (petitioner’s March 15, 2005 Form

433-A); (2) a copy of completed Form 433-A dated September 16,

2003, that petitioner had previously sent to respondent; 

(3) completed Form 940, Employer’s Annual Federal Unemployment

(FUTA) Tax Return (Form 940), for his taxable year 2003; and 

(4) copies of (a) an exchange of correspondence during the summer

of 2003 that included letters between petitioner’s authorized

representative and a revenue officer with respondent’s collection

division and (b) petitioner’s completed Form 656, Offer in

Compromise (offer-in-compromise), dated September 16, 2003, that

petitioner had previously sent to respondent.

Petitioner’s March 15, 2005 Form 433-A contained several

sections identified as sections 1 through 9. In section 5 of

that form, petitioner indicated that he maintained a checking

account that had a balance of $350. In sections 5 and 6 of

petitioner’s March 15, 2005 Form 433-A, petitioner provided the

responses indicated to the following questions:

16. LIFE INSURANCE. Do you have life insurance with a

cash value? : No 9 Yes

* * * * * * *

17a. Are there any garnishments against your wages? 

: No 9 Yes
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* * * * * * *

17b. Are there any judgments against you? 9 No : Yes

* * * * * * *

17e. In the past 10 years did you transfer any assets

out of your name for less than their actual value? 

: No 9 Yes

* * * * * * *

17f. Do you anticipate any increase in household income

in the next two years? : No 9 Yes 

* * * * * * *

17g. Are you a beneficiary of a trust or estate? 

: No 9 Yes

* * * * * * *

17h. Are you a participant in a profit sharing plan? 

: No 9 Yes 

In section 7 of petitioner’s March 15, 2005 Form 433-A,

petitioner indicated that he owned (1) a 1991 Cadillac valued at

$1,500, (2) “Furniture/Personal Effects” valued at $1,000, 

(3) inventory valued at $15,000 with respect to which there was

an $8,000 outstanding loan balance, and (4)(a) a one-half interest in a duplex on University Avenue in Dubuque (University

Avenue property) valued at $40,000 and (b) a one-half interest in

a duplex on Wilson Street in Dubuque (Wilson Street property)

valued at $40,000. (We shall refer collectively to the University Avenue property and the Wilson Street property as the real

properties.) According to petitioner’s March 15, 2005 Form 433-

A, petitioner had borrowed $50,000 from his brother with respect
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to one of the real properties.

In section 8 of petitioner’s March 15, 2005 Form 433-A,

petitioner indicated that he owned various accounts and/or notes

receivable with a total amount due of $3,000. 

In section 9 of petitioner’s March 15, 2005 Form 433-A,

petitioner listed various income items and various living expense

items. With respect to the income items listed in that section,

petitioner indicated that he had total monthly income of $1,010

consisting of $500 of monthly net income from business and $510

of monthly net rental income. With respect to the expense items

listed in section 9 of petitioner’s March 15, 2005 Form 433-A,

petitioner indicated that he had total monthly living expenses of

$1,128 consisting of $393 of monthly expenses for food, clothing,

housekeeping supplies, and personal care products, $400 of

monthly expenses for housing and utilities, $200 of monthly

expenses for transportation, $35 of monthly expenses for taxes,

and $100 of other unidentified monthly expenses.

On March 21, 2005, in response to petitioner’s March 16,

2005 letter, the settlement officer sent a letter to petitioner’s

authorized representative (settlement officer’s March 21, 2005

letter). In that letter, the settlement officer stated in

pertinent part:

In response to your March 16, 2005 letter, this will

advise you that I received and processed Form 940 and

the related remittance for American Office Equipment

[petitioner’s business]. However, our records indicate
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that Mr. Mootz still has a Form 941 filing requirement

for some portion of calendar year 2002, since the Form

940 that he filed for that year reports $5,460.00 in

taxable wages for unemployment purposes. Also, your

letter to Revenue Officer * * * dated April 1, 2003

confirms that wages were paid to an employee named 

* * * that were not reported on Forms 941 or W-3.

Accordingly, Mr. Mootz has to file Form(s) 941 that

reflect the wages he actually paid in 2002, whether

more or less than the amount set forth above. I am

sure you are aware that wages of part time employees

are fully taxable for federal purposes.

I have determined that Mr. Mootz actually submitted two

offers, one on June 19, 2003, and a second on September

22, 2003. Records indicate that both were returned

shortly after submission due to lack of filing compliance, and/or failure to maintain currency on business

filings and payment for two consecutive quarters prior

to the quarter in which the offer was submitted. 

Hence, there is no offer currently pending. Until Mr.

Mootz becomes fully compliant with all filing and

payment requirements, he is not eligible to have an

offer considered.

In that regard, please advise whether or not Mr. Mootz

is required to make Estimated Income Tax Payments for

2005 based on his current income, and provide a copy of

his 2004 Form 1040. Please submit this information no

later than five days before our conference that I had

to reschedule to May 3, 2005. [Reproduced literally.]

On April 11, 2005, in response to the settlement officer’s

March 21, 2005 letter, petitioner’s authorized representative

sent to the settlement officer (1) a copy of petitioner’s income

tax return for his taxable year 2004; (2) Form 941, Employer’s

Quarterly Federal Tax Return, for each quarter of taxable year

2002; and (3) information relating to petitioner’s estimated tax

payments for his taxable year 2005.
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4As discussed below, petitioner’s authorized representative

later advised the settlement officer that the pending judgment

was in the amount of $12,000.

On May 3, 2005, the settlement officer held a telephonic

conference with petitioner’s authorized representative (May 3,

2005 conference). During that conference, the settlement officer

asked petitioner’s authorized representative questions about some

of the answers in petitioner’s March 15, 2005 Form 433-A, including whether the $40,000 value shown for each of the real properties represented petitioner’s one-half interest in each such

property and the purpose for which petitioner had borrowed

$50,000 from his brother. The only question that petitioner’s

authorized representative was able to answer was with respect to

the $40,000 value shown in petitioner’s March 15, 2005 Form 433-

A. In response to that question, petitioner’s authorized representative informed the settlement officer that he believed that

the $40,000 shown in that form represented the value of petitioner’s one-half interest in each of the real properties. 

Petitioner’s authorized representative told the settlement

officer that he would obtain from petitioner answers to the

remaining questions that the settlement officer asked. Petitioner’s authorized representative also informed the settlement

officer during the May 3, 2005 conference that he was aware of

one pending judgment against petitioner,4 that petitioner had

received $100,000 from his mother to pay personal living ex-
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penses, and that petitioner did not have any borrowing potential.

During the May 3, 2005 conference, the settlement officer

and petitioner’s authorized representative also discussed collection alternatives. The settlement officer indicated that it did

not appear that petitioner had sufficient income to fund an

installment agreement and that an offer-in-compromise might be

the best alternative. Petitioner’s authorized representative

informed the settlement officer that petitioner intended to ask

his mother for a loan in order to fund any offer-in-compromise,

but that he was uncertain whether petitioner’s mother would be

willing to do so. Petitioner’s authorized representative agreed

to contact the settlement officer by no later than May 20, 2005,

as to whether petitioner intended to submit an offer-in-compromise.

On May 5, 2005, petitioner’s authorized representative sent

a letter to the settlement officer (May 5, 2005 letter). In that

letter, petitioner’s authorized representative stated in pertinent part:

I had a long talk with Mr. Mootz today. * * *

Enclosed are copies of the signed four (4) 941s for

2002. He indicates he filed them, without payment, in

late April.

* * * * * * *

As to judgments, there is a 2001/2002 Discover Card

judgment in Dubuque County Small Claims Court of about

$6,000.00 and a 2000 judgment by Tri-State Adjustment

for about $250.00. He also is currently being sued for
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about $12,000.00 by Asset Acceptance Corp in Dubuque

County District Court. The matter is pending.

As to the two rental units on University Avenue and

Wilson Street, he owns a one half (1⁄2) interest with his

brother, Michael. Michael has over $100,000.00 coming

for his investment in the purchases and improvements. 

However, there is no note and mortgage. While there

hasn’t been a recent appraisal of the properties, it

appears Mr. Mootz’s one half interest could be

$50,000.00 or so for each. If the two properties were

sold for a total of $200,000.00, it appears Michael

could be entitled to the full purchases price.

Mr. Mootz indicates he owes his mother about

$120,000.00. There is no note or mortgage. Mr. Mootz

has four brothers and it is highly unlikely he would

inherit anything from his mother.

Mr. Mootz indicates that he has not had any employees

since the period he reported having an employee.

Mr. Mootz had originally made a lump sum offer to the

IRS of $10,000.00. He intended to borrow said sum from

a relative as he would be unable to borrow money from

conventional sources. After he made the offer I.R.S.

apparently received $2,000.00 for the State of Iowa,

forfeiting his $2,000.00 state sales tax bond. He

should be given credit for said sum on his offer of

compromise. [Reproduced literally.]

On June 17, 2005, the settlement officer reviewed the

information that petitioner’s authorized representative submitted

in his May 5, 2005 letter. After that review, the settlement

officer made the following pertinent entries in his “Case Activity Records”:

R/E equity is estimated at $50K apiece in ea of rental

properties, altho POA says that TP owes substantial

sums to both brother and mother, neither of whom have

notes or mortgages to secure their debts. Thus, TP

legally has about $100K equity in these properties, so

an offer is out of the question. * * * Liens are filed

on basically all IMF and BMF accounts at this time, so
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would precede any subsequent judgments, and may be

ahead of those already on file * * * [Reproduced literally.]

The settlement officer also concluded that petitioner did not

have sufficient income to fund an installment agreement.

On June 20, 2005, in response to the settlement officer’s

requests in the settlement officer’s March 21, 2005 letter,

petitioner’s authorized representative mailed to the settlement

officer copies of (1) petitioner’s check in payment of estimated

tax due on April 15, 2005, and Form 1040-ES, Payment Voucher 1,

for petitioner’s taxable year 2005 and (2) a bill from the

Internal Revenue Service (IRS) that appears to relate to petitioner’s Federal tax liability for 2004 and a check signed by

petitioner in payment of that bill.

On June 22, 2005, the settlement officer held a telephonic

conference with petitioner’s authorized representative (June 22,

2005 conference). During that conference, petitioner’s authorized representative agreed that petitioner was unable to fund an

installment agreement. The settlement officer indicated that an

offer-in-compromise would probably not be accepted because of

petitioner’s equity in the real properties. Nonetheless, petitioner’s authorized representative indicated that petitioner

still wished to submit an offer-in-compromise. 

On June 22, 2005, the settlement officer sent to petitioner’s authorized representative the materials needed for
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5The copy of petitioner’s June 28, 2005 offer-in-compromise

that is in the record does not appear to be complete. Item 8

appears to be missing.

petitioner to submit an offer-in-compromise and requested that

petitioner return any such offer directly to the settlement

officer by no later than July 6, 2005.

On June 29, 2005, petitioner’s authorized representative

sent a letter to the settlement officer (June 29, 2005 letter).

In that letter, petitioner’s authorized representative stated in

pertinent part:

Enclosed is Mr. Mootz’s signed Offer In Compromise and

Mr. Mootz’s check for $150.00 for the processing fee. 

Since Wayne originally attempted to settle this matter

in 2003, he has made substantial payments to the I.R.S.

As to Wayne’s interest in the two parcels of real

estate, it should be noted he only owns a one half (1⁄2)

interest. Arguably, the value of an undivided one half

(1⁄2) interest to a third party would be limited at best. 

While his brother owns the other one half interest,

Wayne also owes him a substantial sum for expenses,

etc. paid by his brother in connection with the real

estate. While this sum has not been quantified by a

note and/or mortgage Wayne contends it is a legal

obligation. [Reproduced literally.]

Petitioner’s authorized representative submitted with his

June 29, 2005 letter petitioner’s offer-in-compromise dated June

28, 2005 (petitioner’s June 28, 2005 offer-in-compromise).5 In

item 5 of petitioner’s June 28, 2005 offer-in-compromise, petitioner provided the responses indicated to the following questions:
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6In item 5 of petitioner’s June 28, 2005 offer-in-compromise, petitioner offered to compromise his respective Federal tax

liabilities for certain taxable years that the settlement officer

did not show as petitioner’s liabilities in his “Rejection or

Withdrawal Memorandum” discussed infra note 7. In addition, as

also discussed infra note 7, in his “Rejection or Withdrawal

Memorandum”, the settlement officer showed as petitioner’s

liabilities his respective Federal tax liabilities for certain

taxable years that petitioner did not offer to compromise in item

5 of petitioner’s June 28, 2005 offer-in-compromise.

Item 5 — To: Commissioner of Internal Revenue Service

I/We * * * submit this offer to compromise the tax

liabilities plus any interest, penalties, additions

to tax, and additional amounts required by law (tax

liability) for the tax type and period marked below:

* * *

: 1040/1120 Income Tax — Year(s) 2000 to 2002, inclusive

: 941 Employer’s Quarterly Federal Tax Return —

Quarterly period(s) 1998 to 2001, inclusive

: 940 Employer’s Annual Federal Unemployment (FUTA)

Tax Return — Year(s) 1998 to 2001, inclusive[6]

In items 6 and 7 of petitioner’s June 28, 2005 offer-incompromise, petitioner provided the responses indicated to the

following questions:

Item 6 — I/We submit this offer for the reason(s)

checked below:

9 Doubt as to Liability — “I do not believe I owe

this tax.” You must include a detailed explanation of the reason(s) why you believe you do not

owe the tax in Item 9.

: Doubt as to Collectibility — “I have insufficient

assets and income to pay the full amount.” You

must include a complete Collection Information

Statement, Form 433-A and/or Form 433-B.
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9 Effective Tax Administration — “I owe this amount

and have sufficient assets to pay the full amount,

but due to my exceptional circumstances, requiring

full payment would cause an economic hardship or

would be unfair and inequitable.” You must include a complete Collection Information Statement,

Form 433-A and/or Form 433B and complete Item 9.

Item 7

I/We offer to pay $ 10,000.00 (must be more than

zero). Complete item 10 to explain where you will

obtain the funds to make this offer.

Check only one of the following:

9 Cash Offer (Offered amount will be paid in 90 days

or less.)

* * * * * * *

9 Short-Term Deferred Payment Offer (Offered amount

paid in MORE than 90 days but within 24 months

from written notice of acceptance of the offer.)

* * * * * * *

9 Deferred Payment Offer (Offered amount will be

paid over the remaining life of the collection

statute.)

$3,000.00 within 90 days * * * from written notice of

acceptance of the offer; and

beginning in the first month after written notice of

acceptance of the offer $200.00 on the 4th day of

each month for a total of 35 months.

In items 9 and 10 of petitioner’s June 28, 2005 offer-in-compromise, petitioner provided the responses indicated to the following questions:
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Item 9 — Explanation of Circumstances

I am requesting an offer in compromise for the reason(s) listed below:

Note: If you are requesting compromise based on

doubt as to liability, explain why you

don’t believe you owe the tax. If you believe you have special circumstances affecting your ability to fully pay the

amount due, explain your situation. You

may attach additional sheets if necessary.

I am financially unable to make payments. See my

financial information provided to I.R.S.

Item 10 — Source of Funds

I/we shall obtain the funds to make this offer from

the following source(s):

Loan from relatives

On August 22, 2005, the settlement officer sent a letter to

petitioner. In that letter, the settlement officer stated in

pertinent part:

I have forwarded your Offer in Compromise to an offer

examiner for investigation. You may be contacted in

the near future concerning any additional information

necessary to evaluate your offer.

When the completed investigation is returned to my

office, I will advise you as to the examiner’s recommendation, and schedule a conference if appropriate to

discuss the findings. If your offer cannot be recommended for acceptance, we will discuss other alternatives to the proposed lien or levy. [Reproduced literally.]

On March 17, 2006, the settlement officer sent a letter to

petitioner. In that letter, the settlement officer stated in
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pertinent part:

I have received the results of investigation of your

Offer in Compromise. The examiner’s recommendation was

that the offer should not be accepted because Net

Realizable Equity in assets is substantially greater

than the amount you offered as set forth below:

ASSET/EQUITY TABLE

OFFER DEPOSIT

 

 -0-

CASH/BK ACCTS 100

LIFE INS -0-

PENS/IRA/401(k) -0-

REAL PROP (2) 85,400

PERS PROP -0-

TOOLS/EQUP -0-

1991 CADILLAC 1,000

1993 GMC 2,000

BUS INVENTORY 29,608

ACCTS REC 3,500

TOTAL 121,608

If you wish to appeal the examiner’s findings, please

submit information no later than March 31, 2006 to show

the areas of disagreement and I will schedule a conference to discuss the examiner’s findings and any additional information you submit.

If the offer cannot be recommended for acceptance, we

will discuss other collection alternatives. [Reproduced literally.]

On March 29, 2006, petitioner sent a letter to the settlement officer (petitioner’s March 29, 2006 letter). In that

letter, petitioner stated in pertinent part:

I have worked with you and your people for the past

four years. In that time you have levied against me

and taken about $3,000 dollars. Also I have paid over

$3,000 dollars in legal fees. From the very start your
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7The “Rejection or Withdrawal Memorandum” dated Mar. 30,

2006, that the settlement officer prepared with respect to

petitioner’s June 28, 2005 offer-in-compromise showed that

petitioner had total outstanding Federal tax liabilities of

$48,183.10. The “Appeals Transmittal and Case Memo” dated Apr.

19, 2006, that the settlement officer prepared with respect to

that offer-in-compromise showed that petitioner had total outstanding Federal tax liabilities of $32,449. The Court is unable

to reconcile the difference between the respective outstanding

Federal tax liabilities shown in the settlement officer’s “Rejection or Withdrawal Memorandum” and the settlement officer’s

(continued...)

people told me we could work out a reasonable compromise. Now you refuse my offer. * * *

* * * * * * *

The property you have listed was paid for solely by my

brother.

My inventory is very dated * * *

In view of these events , I do not feel I was treated

fairly. [Reproduced literally.]

Petitioner did not provide any documents or other information

corroborating the contentions advanced in petitioner’s March 29,

2006 letter that petitioner’s brother paid for the real properties and that petitioner’s inventory was “very dated”.

On March 30, 2006, the settlement officer telephoned (March

30, 2006 telephone call) petitioner’s authorized representative

and informed him (1) that petitioner’s June 28, 2005 offer-incompromise of $10,000 was not adequate and would not be accepted

to resolve the various Federal tax liabilities of petitioner for

various taxable years, including petitioner’s unpaid 2001 income

tax liability and petitioner’s unpaid 2002 income tax liability,7
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7(...continued)

“Appeals Transmittal and Case Memo”. 

As discussed supra note 6, in item 5 of petitioner’s June

28, 2005 offer-in-compromise, petitioner offered to compromise

his respective Federal tax liabilities for certain taxable years

that the settlement officer did not show as petitioner’s liabilities in his “Rejection or Withdrawal Memorandum”. As also

discussed supra note 6, in his “Rejection or Withdrawal Memorandum”, the settlement officer showed as petitioner’s liabilities

his respective Federal tax liabilities for certain taxable years

that petitioner did not offer to compromise in item 5 of petitioner’s June 28, 2005 offer-in-compromise. We presume that, in

filing petitioner’s June 28, 2005 offer-in-compromise, petitioner

was unaware of those other Federal tax liabilities and that the

settlement officer concluded that they should have been included

in petitioner’s June 28, 2005 offer-in-compromise. See Internal

Revenue Manual (IRM) 5.8.2.3.1(2) (“A taxpayer may submit an

offer that does not include all outstanding liabilities. Prior

to accepting the offer, the Form 656 must be amended to include

all outstanding tax liabilities.”).

(2) that it appeared that the case should be returned to respondent’s collection division, and (3) that he would be closing the

case. During the March 30, 2006 telephone call, petitioner’s

authorized representative told the settlement officer that he had

previously advised petitioner that petitioner’s June 28, 2005

offer-in-compromise would probably not be accepted, but that

petitioner had no other way to discharge his outstanding Federal

tax liabilities.

The settlement officer prepared a written recommendation

explaining the reasons why he had concluded that petitioner’s

June 28, 2005 offer-in-compromise was not adequate and would not

be accepted to resolve petitioner’s Federal tax liabilities,

including petitioner’s unpaid 2001 income tax liability and
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petitioner’s unpaid 2002 income tax liability. In that recommendation, the settlement officer stated in pertinent part:

SUMMARY AND RECOMMENDATION

The taxpayer sought to compromise, under authority of

IRC 7122, individual income and employment taxes shown

on the attachment for the sum of $10,000.00, with

$3,000.00 to be paid within ninety days of notice of

acceptance, and $200.00 per month for a term of 35

months. This, the taxpayer’s first offer, submitted in

connection with his Collection Due Process case, was

based solely on the basis of collectibility; effective

tax administration or doubt as to liability was not an

issue.

I recommend that the offer be rejected, since a greater

amount than the amount offered appears to be collectible.

BACKGROUND

Mr. Mootz (59), an unmarried person, has been self

employed in office supply business for many years, with

employment tax deficiencies going back to 1997. He has

an unremarkable record of compliance with filing and

payment of employment taxes, which comprise the bulk of

the taxes at issue. He allegedly has had no employees

since mid-2003.

There are no minor children in the home, and no health

issues that would support an Effective Tax Administration approach. He lives in a home that he owns with

his brother, each having a 50% interest. They also own

another parcel with the same manner of ownership. 

Although Mr. Mootz alleges that his brother loaned him

the funds to obtain the 50% ownership interests, no

mortgages of record exist to memorialize any such

arrangement, so filed Notices of Federal Tax Lien enjoy

priority over the alleged unsecured debt and secure the

government’s interest in both properties.

DISCUSSION AND ANALYSIS

The examiner determined that the taxpayer had ability

to pay $132,828, with Net Realizable Equity of $121,608

coming from $85,400 equity in real properties, along
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with business inventory, accounts receivable, vehicles

and cash on hand. Future income value was set at

$11,220.00.

The taxpayer was given opportunity to protest the

examiner’s findings, but provided no additional information to support reduction in the values assigned.

* * * * * * *

The examiner determined future income value based on an

excess of $110.00/month, but failed to make contingent

allowances for health care or life insurance, both of

which should have been factored into necessary living

expenses. Since it was anticipated that the cost of

these items would exceed the $110.00 projected excess

per month, future income value was eliminated as unrealistic for the taxpayer’s situation. * * *

The examiner’s findings were shared and discussed with

the taxpayer’s representative, who advised that he had

related to the taxpayer that the offer would not be

acceptable due to his equity position in real property. 

Based on the taxpayer’s lack of a meaningful response

to these findings, I anticipate that he would be disinclined to withdraw the offer.

CONCLUSION

I recommend that the proposed rejection be sustained.

[Reproduced literally.]

On April 17, 2006, respondent issued to petitioner a notice

of determination with respect to petitioner’s unpaid 2001 income

tax liability and petitioner’s unpaid 2002 income tax liability.

That notice stated in pertinent part:

Summary of Determination

You submitted a timely Collection Due Process Hearing

and a conference was held to discuss alternatives to

the filed Notice of Federal Tax Lien. As a result of

that conference, you submitted an Offer-in-Compromise,

which was investigated, but could not be recommended

for acceptance because you demonstrated ability to pay
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8Although the notice of determination related only to petitioner’s unpaid 2001 income tax liability and petitioner’s unpaid

2002 income tax liability, in making the determination to reject

petitioner’s June 28, 2005 offer-in-compromise, that notice took

into account not only petitioner’s unpaid 2001 income tax liability and petitioner’s unpaid 2002 income tax liability but also

other outstanding Federal tax liabilities of petitioner for his

taxable years 2001 and 2002 and certain other taxable years. See

supra notes 6 and 7.

the balance due in full from equity in assets.[8]

Since the offer could not be recommended for acceptance, and you did not propose any other means to

protect the government’s interest, the lien cannot be

released. Your case will be returned to Collection for

whatever actions they deem appropriate to collect the

tax, unless you exercise you right to judicial review

of our determination. [Reproduced literally.]

An attachment to the notice of determination stated in pertinent

part:

BRIEF BACKGROUND

Notice of filing of the Notice of Federal Tax Lien was

sent October 8, 2004, while your Collection Due Process

Hearing request was received November 8, 2004, within

the thirty-day timeframe set forth in Internal Revenue

Code Section 6320 for a timely hearing request.

A Collection Due Process Hearing was scheduled for

April 14, 2005 by letter dated March 1, 2005. The

letter advised you that you had to be up to date with

depositing, filing and paying all income taxes before

collection alternatives could be considered. It also

requested that you submit a Collection Information

Statement to assist in determining the proper course of

action.

Due to scheduling conflicts, the conference was rescheduled to May 3, 2005. Following the conference,

after you filed all delinquent returns and brought

required payments up to date, you submitted an Offerin-Compromise for consideration.
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The offer was investigated, but found not to be acceptable, since you have sufficient equity in real property

and other assets to pay the amount due in full. You

and your representative were advised of the findings

and given opportunity to provide additional information

concerning the value of the assets, but did not do so. 

Therefore, your offer cannot be recommended for acceptance. No other collection alternatives were proposed

to resolve your tax obligations or secure the government’s interest in lieu of the Notice of Federal Tax

Lien.

DISCUSSION AND ANALYSIS

Transcripts and the case history verify that:

1) the taxes at issue were assessed in accordance with IRC Section 6201, and that notice

and demand for payment was mailed to your

last known address timely in accordance with

IRC Section 6303.

2) there were balances due when the Collection

Due Process notice was issued, as required by

IRC Section 6322 and 6331(a), and that a levy

source had been identified.

3) IRC 6320(a)(2) requires that taxpayers be

notified of filing of a Notice of Federal Tax

Lien within five days of the date it is

filed. The record shows that this notice was

issued timely in accordance with the law.

4) Collection Due Process Notice was sent by

certified mail, return receipt requested, to

your last known address, which is the same as

that on your request for hearing.

5) The Automated Collection staff attempted to

resolve your case, but was unable to do so. 

Therefore, your file was forwarded to Appeals

promptly upon receipt of your hearing request.

6) internal account transaction codes were entered to place your accounts in suspended

status pending the outcome of the due process

hearing.
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7) The Settlement Officer in your case has had

no prior involvement with you concerning the

tax periods at issue in this due process

hearing, pursuant to requirements of Internal

Revenue Code Section 6330.

ISSUES RAISED BY THE TAXPAYER

1) that you should be given opportunity to work

out a fair payment plan or settlement, since you

were unable to pay the taxes in full.

Finding: Collection alternatives were considered,

including an Installment Agreement and an Offerin-Compromise. Your current limited income does

not allow you to fund an acceptable Installment

Agreement. Your Offer-in-Compromise could not be

accepted because you have more equity in assets

than the amount of the tax due.

2) No other substantive issues were raised.

BALANCING THE NEED FOR EFFECTIVE COLLECTION OF THE TAX

WITH LEGITIMATE TAXPAYER CONCERN THAT COLLECTION ACTIONS BE NO MORE INTRUSIVE THAN NECESSARY

Filing of the Notice of Federal Tax Lien was clearly

intrusive, and has far-reaching adverse financial

consequences, since it puts other creditors on notice

of your federal tax debt, and creates difficulties with

borrowing funds that may be necessary to provide for

basic health and welfare of the family, or production

of income.

Therefore, it is the policy of the Internal Revenue

Service to provide taxpayers ample opportunity to

resolve their tax matters before a Notice of Federal

Tax Lien is filed, although a lien may be filed at any

time it is deemed necessary to protect the government’s

interest.

The case file reveals that Internal Revenue Service had

multiple personal contacts with you concerning your

delinquent taxes, but that such efforts did not result

in a mutually agreeable resolution to your tax problem. 

Therefore, lien filing was deemed necessary.
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Appeals has determined that filing of the Notice of

Federal Tax Lien was appropriate in your case, considering that you were not able to offer other means to

protect the government’s interest in your assets. 

Therefore, lien filing is considered to be the most

efficient method to facilitate collection of the tax. 

[Reproduced literally.]

The notice of determination made no determination with respect to

the notice of intent to levy issued with respect to petitioner’s

taxable year 2001. See supra note 3. In petitioner’s amended

petition, petitioner alleged: “I would like to work out a

payment plan. I cannot raise enough capital to cover the entire

amount. I have worked with you and need a reasonable settlement!” 

Discussion

The Court may grant summary judgment where there is no

genuine issue of material fact and a decision may be rendered as

a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). We

conclude that there are no genuine issues of material fact

regarding the questions raised in respondent’s motion.

Petitioner does not dispute the existence or the amount of

petitioner’s unpaid 2001 income tax liability or petitioner’s

unpaid 2002 income tax liability in the pleadings that he filed

in this case or in his response to respondent’s motion. Although

not altogether clear, petitioner appears to argue that respondent

abused respondent’s discretion in determining in the notice of
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9As discussed above, during the June 22, 2005 conference,

petitioner’s authorized representative acknowledged that petitioner was unable to fund an installment agreement. 

determination to reject petitioner’s June 28, 2005 offer-incompromise.9 As discussed above, in that offer-in-compromise,

petitioner offered $10,000 to compromise Federal tax liabilities

totaling between $32,449 and $48,183.10. See supra note 7.

Where, as is the case here, the validity of the underlying

tax liability is not properly placed at issue, the Court will

review the determination of the Commissioner of Internal Revenue

for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604,

610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

Section 7122(a) authorizes the Secretary of the Treasury

(Secretary) to compromise, inter alia, any civil case arising

under the internal revenue laws. Section 7122(c) authorizes the

Secretary to prescribe guidelines for the officers and the

employees of the IRS to determine whether an offer-in-compromise

is adequate and should be accepted to resolve a dispute. The

regulations promulgated under section 7122 set forth three

grounds for the compromise of a liability: (1) Doubt as to

liability, (2) doubt as to collectibility, and (3) to promote

effective tax administration. Sec. 301.7122-1(b), Proced. &

Admin. Regs. The only ground that petitioner raised in petitioner’s June 28, 2005 offer-in-compromise was doubt as to

collectibility.
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Doubt as to collectibility exists in any case where the

taxpayer’s assets and income are less than the full amount of the

taxpayer’s assessed liability. Sec. 301.7122-1(b)(2), Proced. &

Admin. Regs. Respondent has prescribed procedures that are to be

used to determine doubt as to collectibility in the regulations

promulgated under section 7122, the IRM, and Rev. Proc. 2003-71,

2003-2 C.B. 517 (Revenue Procedure 2003-71).

Section 301.7122-1(c)(2)(i), Proced. & Admin. Regs., provides:

(i) Allowable Expenses.--A determination of doubt as to

collectibility will include a determination of ability

to pay. In determining ability to pay, the Secretary

will permit taxpayers to retain sufficient funds to pay

basic living expenses. The determination of the amount

of such basic living expenses will be founded upon an

evaluation of the individual facts and circumstances

presented by the taxpayer’s case. * * *

Part 5.8.1.1.3 of the IRM provides:

5.8.1.1.3 Policy (09-01-2005)

(1) Policy Statement P-5-100 states:

The Service will accept an offer in compromise when it

is unlikely that the tax liability can be collected in

full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate

alternative to declaring a case currently not collectible or to a protracted installment agreement. The

goal is to achieve collection of what is potentially

collectible at the earliest possible time and at the

least cost to the Government.

In cases where an offer in compromise appears to be a

viable solution to a tax delinquency, the Service

employee assigned the case will discuss the compromise

alternative with the taxpayer and, when necessary,

assist in preparing the required forms. The taxpayer
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10The special circumstances referred to in part 5.8.1.1.3 of

the IRM and sec. 4.02(2) of Revenue Procedure 2003-71 (discussed

below) are

(1) circumstances demonstrating that the taxpayer would

suffer economic hardship if the IRS were to collect

from him an amount equal to the reasonable collection

potential of the case or (2) if no demonstration of

such suffering can be made, circumstances justifying

acceptance of an amount less than the reasonable collection potential of the case based on public policy or

equity considerations. IRM pt. 5.8.4.3.4 (Sept. 1,

2005) (Effective Tax Administration and Doubt as to

Collectibility with Special Circumstances). To demonstrate that compelling public policy or equity considerations justify a compromise, the taxpayer must be

able to demonstrate that, due to exceptional circumstances, collection of the full liability would under-

(continued...)

will be responsible for initiating the first specific

proposal for compromise.

The success of the offer in compromise program will be

assured only if taxpayers make adequate compromise

proposals consistent with their ability to pay and the

Service makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to

verify their ability to pay. The ultimate goal is a

compromise which is in the best interest of both the

taxpayer and the government. Acceptance of an adequate

offer will also result in creating for the taxpayer an

expectation of a fresh start toward compliance with all

future filing and payment requirements.

(2) Offers will not be accepted if it is believed

that the liability can be paid in full as a lump sum or

through installment payments extending through the

remaining statutory period for collection (CSED),

unless special circumstances exist. See IRM 5.14,

Installment Agreements.

(3) Absent special circumstances, a Doubt as to

Collectibility (DATC) offer amount must equal or exceed

a taxpayers [sic] reasonable collection potential (RCP)

in order to be considered for acceptance. The exception is that if special circumstances[10] exist as de
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10(...continued)

mine public confidence that the tax laws are being

administered in a fair and equitable manner. Sec.

301.7122-1(b)(3)(ii), Proced. & Admin. Regs. 

Murphy v. Commissioner, 125 T.C. 301, 309 (2005), affd. 469 F.3d

27 (1st Cir. 2006); see also IRM 5.8.11 (Effective Tax Administration). 

fined in IRM 5.8.4.3, Effective Tax Administration and

Doubt as to Collectibility with Special Circumstance,

or IRM 5.8.11, Effective Tax Administration, the offer

may be accepted on the basis of hardship or Effective

Tax Administration (ETA).

Section 4.02(2) of Revenue Procedure 2003-71 provides in

pertinent part:

An offer to compromise based on doubt as to collectibility generally will be considered acceptable if

it is unlikely that the tax can be collected in full

and the offer reasonably reflects the amount the Service could collect through other means, including

administrative and judicial collection remedies. See

Policy Statement P-5-100. This amount is the reasonable collection potential of a case. In determining

the reasonable collection potential of a case, the

Service will take into account the taxpayer's reasonable basic living expenses. In some cases, the Service

may accept an offer of less than the total reasonable

collection potential of a case if there are special

circumstances.

On the record before us, we find that the settlement officer

followed all of the guidelines that respondent has prescribed to

determine whether an offer-in-compromise is adequate and should

be accepted to resolve a dispute. In the settlement officer’s

March 1, 2005 letter, the settlement officer suggested to petitioner the possibility of an offer-in-compromise and outlined the

filing and payment requirements that petitioner would be required
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11As discussed above, the contentions that petitioner advanced in petitioner’s March 29, 2006 letter were that petitioner’s brother paid for the real properties and that petitioner’s inventory was “very dated”.

12As discussed above, petitioner offered $10,000 to compromise not only petitioner’s unpaid 2001 income tax liability and

petitioner’s unpaid 2002 income tax liability but also certain

other outstanding Federal tax liabilities. See supra note 6 and

accompanying text and note 7.

to meet before that or any other collection alternative could be

considered. During the May 3, 2005 conference, the settlement

officer and petitioner’s authorized representative discussed

collection alternatives, including the possibility of an offerin-compromise.

Upon receiving petitioner’s June 28, 2005 offer-in-compromise, the settlement officer forwarded it to an offer examiner

for investigation. The settlement officer gave petitioner the

opportunity to respond to the recommendation of the offer examiner and reviewed petitioner’s response to that recommendation. 

While petitioner advanced certain contentions in petitioner’s

March 29, 2006 letter,11 petitioner did not provide any documents

or other information corroborating those contentions. The

settlement officer concluded that petitioner’s June 28, 2005

offer-in-compromise of $10,000 should be rejected because petitioner had demonstrated ability to pay in full from his equity in

assets his Federal tax liabilities totaling between $32,449 and

$48,183.10.12 See supra note 7. 
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Based upon our examination of the entire record before us,

we find that respondent did not abuse respondent’s discretion in

making the determinations in the notice of determination with

respect to petitioner’s unpaid 2001 income tax liability and

petitioner’s unpaid 2002 income tax liability. On that record,

we sustain those determinations. 

We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

On the record before us, we shall grant respondent’s motion.

To reflect the foregoing,

An order granting respondent’s

motion and decision for respondent

will be entered.