Case Name: James M. Robinette, Petitioner v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 2004-07-20
Citations: 123 T.C. 85
Docket Number: Docket No. 12052-01L
Parties: James M. Robinette, Petitioner v. Commissioner of Internal Revenue, Respondent
Judges: Gerber, Cohen, Swift, Wells, and Laro, JJ., agree with this majority opinion.
Reporter: Reports of the Tax Court of the United States
Volume: 123
Pages: 85–132

Head Matter:
James M. Robinette, Petitioner v. Commissioner of Internal Revenue, Respondent
Docket No. 12052-01L.
Filed July 20, 2004.
Thomas L. Overbey and Laurie M. Boyd, for petitioner.
Martha J. Weber, for respondent.

Opinion:
VASQUEZ, Judge:
This case was commenced in response to a Notice of Determination Concerning Collection Action(s) Under Sections 6320 and/or 6330. The issue is whether respondent may proceed with collection of petitioner's 1983, 1984, 1985, 1986, 1987, 1988, 1989, 1990, and 1991 tax liabilities.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts, first supplemental stipulation of facts, second supplemental stipulation of facts, and the attached exhibits are incorporated herein by this reference. At the time he filed the petition, petitioner resided in Jonesboro, Arkansas.
Since approximately 1990, Douglas W. Coy has served as petitioner's accountant. Mr. Coy has prepared petitioner's tax returns for all the tax years in which he has represented petitioner.
Petitioner's Offer-in-Compromise
On October 31, 1995, petitioner and respondent entered into an offer-in-compromise. The offer-in-compromise related to income tax liabilities for 1983, 1984, 1985, 1986, 1987, 1988, 1989, 1990, and 1991 and trust fund recovery penalties for unpaid employment taxes for periods ending March 31, June 30, and September 30, 1988, June 30 and December 31, 1989, and March 31, June 30, and September 30, 1990. The offer-in-compromise was submitted on the basis of doubt as to collectibility. The amount of individual income tax and statutory additions compromised totaled $989,475. Peti tioner offered to pay $100,000 to compromise the outstanding liabilities and penalties. Petitioner paid $1,000 with the submission of the offer and the remaining $99,000 with borrowed funds within 60 days after acceptance of the offer. Petitioner agreed to the following terms and conditions:
(d) I will comply with all the provisions of the Internal Revenue Code related to filing my returns for five (5) years from the date IRS accepts the offer.
H; ‡ ‡ $ H* ‡ ‡
(j) I understand that I remain responsible for the full amount of the tax liability unless and until IRS accepts the offer in writing and I have met all the terms and conditions of the offer. IRS won't remove the original amount of the tax liability from its records until I have met all the terms and conditions of the offer.
(o) If I fail to meet any of the terms and conditions of the offer, the offer is in default, and IRS may:
(iv) file suit or levy to collect the original amount of tax liability, without further notice of any kind.
Petitioner's 1998 Individual Income Tax Return
Petitioner received an extension to file his 1998 individual income tax return (petitioner's 1998 return) on or before October . 15, 1999. On the morning of October 15, 1999, Mr. Coy received via facsimile petitioner's Schedule K-l, Shareholder's Share of Income, Credits, Deductions, etc., for Professional Acres Leasing Group from the accounting firm of Osborne & Osborne. Upon receipt of the Schedule K-l on October 15, 1999, Mr. Coy completed petitioner's 1998 return. For 1998, petitioner was entitled to a refund of $3,300.
At approximately 3:45 to 4 p.m. on October 15, 1999, Mr. Coy left his office in Little Rock, Arkansas, en route by car to three other cities in Arkansas in order to review State and Federal income tax returns with four of his clients, including petitioner, and to obtain his clients' signatures on their returns. First, Mr. Coy drove to Mount Pleasant, Arkansas, to deliver the returns of Howard and Jane Lamb for review and signatures. After the Lambs signed their tax returns, Mr. Coy drove to Melbourne, Arkansas, to deliver the returns of David and Theresa Sharp for review and signatures. After the Sharps signed their tax returns, Mr. Coy delivered the returns of Fred Lamb, also in Melbourne, Arkansas, for review and signature. After Mr. Lamb signed his tax returns, Mr. Coy drove to Jonesboro, Arkansas, to deliver the returns of petitioner for review and signature.
Mr. Coy arrived at petitioner's office between 8:45 and 9 p.m. Petitioner signed the returns in the presence of Mr. Coy and Frances Robinette, petitioner's wife and office manager.
After the clients signed their tax returns, Mr. Coy took the signed returns from his clients so that he could mail them from his office in Little Rock, Arkansas.
Mr. Coy returned to his office in Little Rock, Arkansas, sometime after 11 p.m., but before midnight. Mr. Coy made a copy of the signature page of petitioner's 1998 return. Mr. Coy affixed postage to the envelope containing petitioner's 1998 return using a private postage meter. The postage from the private postage meter displayed a postmark of October 15, 1999. Before midnight, Mr. Coy placed the envelope containing petitioner's 1998 return in a U.S. Postal Service mailbox in the building where his office is located.
At this same time, Mr. Coy mailed the returns of Mr. Sharp. Mr. Sharp was not assessed late filing penalties or late payments by the Internal Revenue Service (IRS) with respect to his 1998 individual income tax return.
Petitioner's 1995, 1996, 1997, 1999, and 2000 Individual Income Tax Returns
Petitioner received extensions to file his 1995 individual income tax return on or before October 15, 1996. Petitioner's 1995 individual income tax return was prepared by Mr. Coy on October 15, 1996. For 1995, petitioner paid the $2,593 shown as owed on his return.
Petitioner received extensions to file his 1996 individual income tax return on or before October 15, 1997. Petitioner's 1996 individual income tax return was received by the IRS on October 20, 1997. For 1996, petitioner was entitled to a refund of $14,435.
Petitioner received extensions to file his 1997 individual income tax return on or before October 15, 1998. Petitioner's 1997 individual income tax return was prepared by Mr. Coy on October 14, 1998, and received by the IRS on October 19, 1998. For 1997, petitioner was entitled to a refund of $5,644.
Petitioner received extensions to file his 1999 individual income tax return on or before October 15, 2000. Petitioner's 1999 individual income tax return was prepared by Mr. Coy on October 15, 2000, and received by the IRS on October 19, 2000. For 1999, petitioner was entitled to a refund of $2,631.
Petitioner received extensions to file his 2000 individual income tax return on or before October 15, 2001. Petitioner's 2000 income tax return was received by the IRS on October 17, 2001.
Each of the aforementioned years, including 1998, on or about October 15, Mr. Coy, or a person from Mr. Coy's office, delivered to petitioner at petitioner's office his original individual income tax return, and petitioner would sign it.
IRS Collection Efforts
On February 21, 2000, the IRS sent petitioner a "Request for Your Tax Return" for 1998. Petitioner received this letter. On March 17, 2000, the IRS notified petitioner that it had received his required Statement of Annual Income for 1998 but needed a copy of his 1998 Form 1040, U.S. Individual Income Tax Return. On April 17, 2000, the IRS sent petitioner a letter stating: 'Your Tax Return is Overdue — Contact us Immediately" for 1998. The letter also stated:
* OFFER IN COMPROMISE *
Our records indicate that we've accepted an offer in compromise from you. You agreed to file and pay all your federal taxes for the five (5) year period after we accepted this offer. If you don't file the requested delin quent return, we may reinstate the amount you owe that we previously compromised.
Petitioner forwarded to Mr. Coy by fax all notices from the IRS concerning his 1998 return and offer-in-compromise, as he was "scared to death" of these notices.
The Austin, Texas, Service Center monitored petitioner's offer-in-compromise. Revenue Officer Kathy Santino of the Oklahoma City, Oklahoma, office was assigned to examine whether petitioner's offer-in-compromise was in default. She examined petitioner's offer-in-compromise "as a courtesy to the Austin Service Center [because] they were overloaded in potentially-defaulted offers". Ms. Santino knew of the 5-year filing requirement, but she did not know what years were covered by petitioner's offer-in-compromise. In her courtesy investigation of petitioner's offer-in-compromise, she did not look at the transcripts for 1995, 1996, or 1997. She did not consider petitioner's pattern of filing his returns on or about October 15. Ms. Santino never spoke with petitioner or Mr. Coy.
On July 13, 2000, Ms. Santino sent petitioner a letter declaring petitioner's offer-in-compromise in default. The basis for the default was that the IRS had not received petitioner's Form 1040 for 1998.
On September 28, 2000, the IRS issued a Final Notice-Notice of Intent to Levy and Your Right to a Hearing.
On October 6, 2000, petitioner, through his authorized representative Mr. Coy, filed a Form 12153, Request for a Collection Due Process Hearing. Petitioner stated the basis for the appeal as: "We do not believe the taxpayer owes the amounts stated in the Notice of Intent to Levy and would like the opportunity to resolve these matters at a Collection Due Process Hearing."
On January 10, 2001, Appeals Officer Troy C. Talbott of the Oklahoma City, Oklahoma, office sent Mr. Coy a letter identifying the options available for resolution of petitioner's tax liability (such as full payment, installment agreement, offer-in-compromise, or determination that petitioner's account is currently not collectible) and asking for more details as to why petitioner did not owe the amount stated in the notice of intent to levy. Mr. Talbott also requested and reviewed the IRS administrative file related to the default of the offer-in-compromise. On January 24, 2001, Mr. Talbott looked at petitioner's transcript of account for 1998. Mr. Talbott's case activity record states: "Per research on IDRS, no record of 98 1040 being filed. Per irp information, TP had a filing requirement, but may have been due a refund." Mr. Talbott concluded that petitioner had defaulted on the offer-in-compromise.
On January 29, 2001, in a telephone section 6330 hearing (the hearing), Mr. Coy stated to Mr. Talbott that he mailed petitioner's 1998 return on October 15, 1999. Specifically, Mr. Coy told Mr. Talbott that he prepared petitioner's return, took the return to petitioner, obtained petitioner's signature, and mailed the return on October 15, 1999.
The only evidence Mr. Talbott would consider for proof of mailing was a certified mail or registered mail receipt. Mr. Talbott did not consider petitioner's pattern of filing returns on October 15, despite having looked at the transcripts for 1995, 1996, 1997, and 1999.
Mr. Talbott believed he had no authority to reinstate petitioner's offer-in-compromise. He believed only the National Office could reinstate the offer-in-compromise. He stated: "The National Office would still have to do the reinstatement by itself" and the "National Office would have the call". Mr. Talbott reviewed the Internal Revenue Manual. The manual was silent as to whether an Appeals officer has authority to reinstate an offer-in-compromise.
Mr. Coy sent Mr. Talbott a copy of petitioner's 1998 return. Mr. Talbott received the copy of petitioner's 1998 return on February 16, 2001. Mr. Talbott forwarded it to the Austin Service Center, where it was processed by the IRS as an original return. Petitioner's transcript of account for 1998 states "return filed and tax assessed" on April 2, 2001.
Petitioner never personally met with, or spoke to, Mr. Talbott.
The Appeals settlement memorandum prepared by Mr. Talbott concluded that the notice of intent to levy was appropriate. Mr. Talbott's evaluation concluded:
The Offer in Compromise was defaulted because the IRS did not have a record of the taxpayer filing Form 1040 for 1998. The taxpayer's representative claimed to have timely mailed the tax return for 1998 on October 15, 1999, but the tax return was not sent by certified mail and the representative does not have any evidence to prove that the return was mailed. The taxpayer did not respond to the IRS's requests to file the tax return, which resulted in the offer being defaulted.
On August 21, 2001, the IRS issued to petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 determining to proceed with collection. Petitioner timely filed a petition with the Court.
OPINION
I. Section 6330
Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to do so within 10 days after notice and demand, the Secretary can collect such tax by levy upon property belonging to such person. Pursuant to section 6331(d), the Secretary is required to give the taxpayer notice of his intent to levy and within that notice must describe the administrative review available to the taxpayer, before proceeding with the levy. See also sec. 6330(a).
Section 6330(b) describes the administrative review process, providing that a taxpayer can request an Appeals hearing with regard to a levy notice. At the Appeals hearing, the taxpayer may raise certain matters set forth in section 6330(c)(2), which provides, in pertinent part:
SEC. 6330(c). Matters Considered at Hearing. — In the case of any hearing conducted under this section—
(2) Issues at hearing.—
(A) In general. — The person may raise at the hearing any relevant issue relating to the unpaid tax or proposed levy, including—
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.
(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.
Pursuant to section 6330(c)(2)(A), a taxpayer may raise at the section 6330 hearing any relevant issue with regard to the Commissioner's collection activities, including spousal defenses, challenges to the appropriateness of the Commissioner's intended collection action, and alternative means of collection. Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180 (2000).
Pursuant to section 6330(d)(1), within 30 days of the issuance of the notice of determination, the taxpayer may appeal that determination to this Court if we have jurisdiction over the underlying tax liability. Van Es v. Commissioner, 115 T.C. 324, 328 (2000).
II. Standard of Review
The parties dispute the standard of review to be applied in this case. Although section 6330 does not prescribe the standard of review that the Court is to apply in reviewing the Commissioner's administrative determinations, we have stated that where the validity of the underlying tax liability is properly at issue, the Court will review the matter de novo. Where the validity of the underlying tax liability is not properly at issue, however, the Court will review the Commissioner's administrative determination for abuse of discretion. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 181.
Generally, under section 6330(c)(2)(B), issues that are reviewed de novo include those such as a redetermination of the tax on which the Commissioner based the assessment, provided that the taxpayer did not have an opportunity to seek such a redetermination before assessment. See, e.g., Landry v. Commissioner, 116 T.C. 60, 62 (2001) ("Because the validity of the underlying tax liability, i.e., the amount unpaid after application of credits to which petitioner is entitled, is properly at issue, we review respondent's determination de novo."). Whether the Commissioner's assessment was made within the limitation period also constitutes a challenge to the underlying tax liability. Hoffman v. Commissioner, 119 T.C. 140, 145 (2002).
Under an abuse of discretion standard, "we do not interfere unless the Commissioner's determination is arbitrary, capricious, clearly unlawful, or without sound basis in fact or law." Ewing v. Commissioner, 122 T.C. 32, 39 (2004); see also Woodral v. Commissioner, 112 T.C. 19, 23 (1999). Review for abuse of discretion includes "any relevant issue relating to the unpaid tax or the proposed levy", including "challenges to the appropriateness of collection actions" and "offers of collection alternatives" such as offers in compromise. Sec. 6330(c)(2)(A). Questions about the appropriateness of the collection action include whether it is proper for the Commissioner to proceed with the collection action as determined in the notice of determination, and whether the type and/or method of collection chosen by the Commissioner is appropriate. See, e.g., Swanson v. Commissioner, 121 T.C. 111, 119 (2003) (challenge to appropriateness of collection reviewed for abuse of discretion).
Abuse of discretion is the proper standard of review in this case. The introductory language of section 6330(c)(2)(A) encompasses the situation at bar. Mr. Talbott's conclusion that respondent had acted properly in declaring petitioner's offer-in-compromise in default and that issuing a notice of determination was proper is a "relevant issue relating to the unpaid tax or the proposed levy". Further, offers in compromise are a specifically mentioned collection alternative. Sec. 6330(c)(2)(A)(iii). Additionally, whether respondent may proceed with collection of petitioner's unpaid liability is a challenge to the appropriateness of collection. See sec. 6330(c)(2)(A)(ii); Swanson v. Commissioner, supra.
Petitioner argues that a de novo standard of review is appropriate because he "put forth the argument of the validity of the underlying taxes — i.e. the petitioner does not owe the tax, nor the additions to the tax, since the tax was previously discharged by an Offer in Compromise which was improperly defaulted by the respondent". We view petitioner's argument as a challenge to the appropriateness of collection, rather than as a challenge to the underlying tax liability. See Swanson v. Commissioner, supra.
III. Evidentiary Issue
A. The Parties' Contentions
At trial, respondent moved to strike "all documents and testimony not part of the administrative record on the ground that the trial record should be limited to the agency administrative record." Documents and testimony not part of the administrative record include: (1) Petitioner's testimony; (2) petitioner's tax returns for 1995, 1996, 1997, 1999, 2000 and other stipulated facts relating to the date these returns were received by the IRS; (3) Mr. Coy's private postage meter log, cellular telephone records, credit card records, and daily calendar for October 15, 1999; (4) Frances Robinette's testimony; and (5) all statements made by Mr. Coy at trial that he did not make to Mr. Talbott. Respondent contends that this evidence is not relevant because it is not part of the administrative record.
Petitioner contends that this evidence is relevant. Petitioner argues that on account of the informal nature of section 6330 hearings, as there is no formal record, it is impossible to determine the actual statements made at the hearing. Further, petitioner argues that the tax returns for 1995, 1996, 1997, 1999, and 2000 show his pattern and practice of filing returns on or about October 15.
The Court reserved decision on this issue. For the following reasons, we hold that, when reviewing for abuse of discretion under section 6330(d), we are not limited by the Administrative Procedure Act (APA) and our review is not limited to the administrative record. The evidence in this case pertains to issues raised at the hearing. The evidence in this case is relevant and admissible.
B. Applicability of the APA Judicial Review Provisions to Tax Court Proceedings Commenced Under Section 6330(d)
1. Established Practice and Procedure
Since the enactment of section 6330, the Court has applied our traditional de novo procedures in deciding whether an Appeals officer abused his or her discretion in determining to proceed with collection. At trials under section 6330 when reviewing for abuse of discretion, the Court has received into evidence testimony and exhibits that were not included in the administrative record. See, e.g., Wells v. Commissioner, T.C. Memo. 2003-234 (taxpayer's testimony admissible at trial when he was represented by counsel and taxpayer was not present at hearing); Maloney v. Commissioner, T.C. Memo. 2003-143 (taxpayers presented numerous letters sent to Commissioner asking him to recalculate their FICA taxes as evidence of claimed overpayments), affd. 94 Fed. Appx. 969 (3d Cir. 2004); Black v. Commissioner, T.C. Memo. 2002- 307 (extensive testimony as to taxpayer's physical limitations due to diabetes and testimony of taxpayer's accountant considered when, at hearing, taxpayers raised issue of illness from diabetes and presented Appeals officer with medical files), affd. 94 Fed. Appx. 968 (3d Cir. 2004); Gougler v. Commissioner, T.C. Memo. 2002-185 (Court considered two documents at trial that were not presented to Appeals officer); Holliday v. Commissioner, T.C. Memo. 2002-67 (Commissioner permitted to present documents, records, and testimony at trial that were not part of administrative record), affd. 57 Fed. Appx. 774 (9th Cir. 2003) ("Holliday's contention that the Tax Court erred by admitting into evidence documents that were not produced at the [section 6330] hearing fails because the 'record review' provisions of the Administrative Procedure Act do not apply to the Tax Court." (Emphasis added.)), cert. denied 124 S. Ct. 1038 (2004).
2. The Court's Specific Statutory Review Provisions
The APA has never governed proceedings in the Court (or in the Board of Tax Appeals). Ewing v. Commissioner, 122 T.C. at 50 (Thornton, J., concurring). It is well established that "The Tax Court, rather than being a 'reviewing court' within the meaning of Sec. 10(e) [of the APA] reviewing the 'record', is a court in which the facts are triable de novo". O'Dwyer v. Commissioner, 266 F.2d 575, 580 (4th Cir. 1959), affg. 28 T.C. 698 (1957). The "Tax Court is not subject to the Administrative Procedure Act." Id. In Nappi v. Commissioner, 58 T.C. 282, 284 (1972), we reasoned that the apa provisions "apply to an 'agency5 of the Government of the United States, but specifically exclude 'the courts of the United States.' the United States Tax Court is established as a court of record under article I of the Constitution of the United States. Being a court of the United States, it is excluded from the provisions of the [APA]."
Although section 6330 postdates the APA, the APA judicial review provisions are not applicable. The APA does not "limit or repeal additional requirements imposed by statute or otherwise recognized by law." 5 U.S.C. sec. 559 (2000). The Court's de novo procedures for reviewing IRS functions were well established and "recognized by law" at the time of the APA's enactment. Ewing v. Commissioner, supra at 52 (Thornton, J., concurring); see also Phillips v. Commissioner, 283 U.S. 589, 598, 600 (1931); Blair v. Oesterlein Mach. Co., 17 F.2d 663, 665 (D.C. Cir. 1927); Barry v. Commissioner, 1 B.T.A. 156, 157 (1924). The Court's de novo procedures provide a stricter scope of review of the Commissioner's determinations than would be obtained under APA judicial review procedures. Ewing v. Commissioner, supra at 52-53 (Thornton, J., concurring).
The APA does not supersede specific statutory provisions for judicial review, as it is a statute of general application. 5 U.S.C. secs. 703, 704 (2000); Ewing v. Commissioner, supra at 50 (Thornton, J., concurring). "The legislative history of APA section 703 makes clear that where there is a special statutory review proceeding relevant to the subject matter, that special statutory review 'shall not be disturbed'." Ewing v. Commissioner, supra at 50 (Thornton, J., concurring); see also S. Comm, on the Judiciary, 79th Cong., Administrative Procedure Act (Comm. Print 1945), reprinted in Administrative Procedure Act Legislative History, 1944-46, at 11, 37 (1946); see also H. Rept. 1980, 79th Cong., 2d Sess. (1946), reprinted in the Administrative Procedure Act Legislative History, 1944-46, at 233, 276 (1946). "When Congress enacted the APA to provide a general authorization for review of agency action in the district courts, it did not intend that general grant of jurisdiction to duplicate the previously established special statutory procedures relating to specific agencies." Bowen v. Massachusetts, 487 U.S. 879, 903 (1988).
The Internal Revenue Code has long provided a specific statutory framework for reviewing determinations of the Commissioner. Section 6330 is part and parcel of this statu tory framework. The Court's de novo review procedures emanate from this framework. The APA judicial review procedures do not supplant the Court's longstanding de novo review procedures. Thus, the Court's de novo procedures are not limited by the APA.
3. Section 6330 Hearings Are Not Formal Adjudications
Section 6330 hearings do not take the form of the formal adjudicative hearings under the APA. Indeed, the Commissioner's regulations describe the hearing as informal and not subject to the APA:
Q-D6. How are [section 6330] hearings conducted?
A-D6. The formal hearing procedures required under the Administrative Procedure Act, 5 U.S.C. 551 et seq., do not apply to [section 6330] hearings. [Section 6330] hearings are much like Collection Appeal Program (CAP) hearings in that they are informal in nature and do not require the Appeals officer or employee and the taxpayer, or the taxpayer's representative, to hold a face-to-face meeting. A [section 6330] hearing may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications between an Appeals officer or employee and the taxpayer or the taxpayer's representative, or some combination thereof. A transcript or recording of any face-to-face meeting or conversation between an Appeals officer or employee and the taxpayer or taxpayer's representative is not required. The taxpayer or the taxpayer's representative does not have the right to subpoena and examine witnesses at a [section 6330] hearing. [Sec. 301.6330-l(d)(2), Proced. & Admin. Regs.]
The Commissioner vigorously litigated, and we agreed, that hearings are informal. In Davis v. Commissioner, 115 T.C. 35 (2000), we held that taxpayers had no right to subpoena witnesses to appear at a hearing. We stated:
When Congress enacted section 6330 and required that taxpayers be given an opportunity to seek a pre-levy hearing with Appeals, Congress was fully aware of the existing nature and function of Appeals. Nothing in section 6330 or the legislative history suggests that Congress intended to alter the nature of an Appeals hearing so as to compel the attendance or examination of witnesses. When it enacted section 6330, Congress did not provide either Appeals or taxpayers with statutory authority to subpoena witnesses. The references in section 6330 to a hearing by Appeals indicate that Congress contemplated the type of informal administrative Appeals hearing that has been historically conducted by Appeals and prescribed by section 601.106(c), Statement of Procedural Rules. The nature of the administrative Appeals process does not include the taking of testi mony under oath or the compulsory attendance of witnesses. [Id. at 41-42; fn. ref. omitted; emphasis added.]
In Katz v. Commissioner, 115 T.C. 329, 337 (2000), we held that the Appeals officer may conduct the hearing by telephone. In Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002), we held that the IRS was not required to provide assessment records to the taxpayer at the hearing. In some instances, we have affirmed the Appeals officer's determination when no hearing was conducted. See Lunsford v. Commissioner, 117 T.C. 183, 189 (2001). In Keene v. Commissioner, 121 T.C. 8 (2003), we held that while the IRS is not required to record the hearing, the taxpayer may make an audio record.
The "administrative record" compiled at the hearing is quite limited. It is nowhere near as comprehensive as the record required to be compiled at a formal apa hearing. See 5 U.S.C. sec. 556(e) ("The transcript of testimony and exhibits, together with all papers and requests filed in the proceeding, constitutes the exclusive record for decision in accordance with [5 U.S.C. section 557]"). Section 6330 hearings were not intended to provide a detailed factual record for judicial review. Rather, they allow for the taxpayer to informally raise matters relevant to the collection actions at hand, such as spousal defenses, propriety of IRS collection activities, and alternatives to collection actions proposed by the IRS. See sec. 6330(c)(2)(A).
4. Legislative History
Nothing in the legislative history of section 6330 or 6320 indicates that the apa applies or that the Court's review is limited to the administrative record. Congress was well aware when it enacted section 6330 that the Court is a trial court which has historically resolved cases by taking evidence and has never been governed by the APA. Section 6330 expanded the Court's jurisdiction. The conference agreement states: "The determination of the appeals officer may be appealed to the Tax Court or, where appropriate, the Federal district court." H. Conf. Rept. 105-559, at 266 (1998), 1998-3 C.B. 747, 1020. The report specifies that where "the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals offi cer for abuse of discretion." Id. Reference to the APA or the administrative record, however, is absent.
5. Other Instances Where the Court Reviews for Abuse of Discretion
"The mere fact that judicial review is for abuse of discretion does not trigger application of the APA record rule or preclude this Court from conducting a de novo trial. [This] Court has a long tradition of providing trials when reviewing the Commissioner's determinations under an abuse of discretion standard." Ewing v. Commissioner, 122 T.C. at 53 (Thornton, J., concurring). In Ewing, we held that when reviewing the Commissioner's determination for an abuse of discretion under section 6015, we may consider evidence presented at trial which was not included in the administrative record. Id. at 44. Our review of section 6330 cases for abuse of discretion is similar to our review of section 6015(f) cases — which are reviewed for an abuse of discretion. Id. at 39; Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 181; Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C. 276, 293 (2000).
The apa does not apply to challenges of the Commissioner's denials of requests to abate interest under section 6404, which are reviewed for abuse of discretion. See Beall v. United States, 336 F.3d 419, 427 n.9 (5th Cir. 2003) ("review under the APA is accordingly available only where 'there is no other adequate remedy in a court'"). The Court has consistently conducted trials on the issue of whether the Commissioner's denial of a request to abate interest under section 6404 was an abuse of discretion. See, e.g., Goettee v. Commissioner, T.C. Memo. 2003-43; Jacobs v. Commissioner, T.C. Memo. 2000-123.
Additionally, other cases the Court has decided under the abuse of discretion standard include waiver of additions to tax, Krause v. Commissioner, 99 T.C. 132, 179 (1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994); reallocation of income or deduction under section 482, Bausch & Lomb v. Commissioner, 933 F.2d 1084, 1088 (2d Cir. 1991), affg. 92 T.C. 525 (1989); declaratory judgment, Fujinon Optical, Inc. v. Commissioner, 76 T.C. 499, 506-507 (1981); tax-exempt status, Lowry Hosp. Association v. Commissioner, 66 T.C. 850 (1976); and change of accounting method, Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533 (1979); Bank One Corp. v. Commissioner, 120 T.C. 174 (2003). In none of these types of cases have we held that the APA applies or that we are limited to the administrative record.
For the reasons set forth supra, we conclude that our review under section 6330(d) of an Appeals officer's determination is not limited to the administrative record.
C. Whether the Evidence Presented at Trial Relates to Issues Raised at the Hearing
Respondent, citing Magana v. Commissioner, 118 T.C. 488, 493 (2002), contends that "only 'arguments, issues and other matter' presented to Appeals are relevant to the determination whether an appeals officer abused his or her discretion." Further, respondent argues that "judicial review of respondent's exercise of discretion in this case should be based solely on the information presented to, and considered by, the appeals officer." We disagree with respondent's interpretation of Magana.
In a review for abuse of discretion of the Commissioner's determination under section 6330(d)(1), "generally we consider only arguments, issues, and other matter that were raised at the collection hearing or otherwise brought to the attention of the Appeals Office." Magana v. Commissioner, supra at 493 (emphasis added). "We did not say in Magana that the taxpayer would be limited to the administrative record or that the taxpayer may not offer evidence in the proceeding in this Court." Ewing v. Commissioner, supra at 41.
In Magana, the issue for decision on the Commissioner's motion for summary judgment was whether the Court "shall consider a new issue that was not raised by the petitioner at his collection hearing with respondent's Appeals Office." Magana v. Commissioner, supra at 489 (emphasis added). In the taxpayer's request for a collection hearing and at the hearing, the only issue raised was whether the period of limitations had expired under section 6502. The taxpayer did not raise the issue of hardship. See id. at 490, 491.
In his petition to the Court, the taxpayer "for the first time, raised hardship as an objection to respondent's lien filings (namely, petitioner's physical illness and the resulting cloud on title to petitioner's residence, petitioner's only significant asset)." Id. At the oral argument on the Commissioner's motion for summary judgment, the taxpayer's counsel "acknowledged that [the taxpayer's] ill health was not recent but had extended over 20 years." Id. at 492. In response to the Court's questioning, the taxpayer's counsel "acknowledged that he had had an opportunity at the collection hearing to raise hardship but that he had chosen not to do so." Id.
In the discussion section of the Opinion, under the heading "New Issue", we reasoned:
In this case, because petitioner's alleged longstanding illness and hardship were not raised as an issue and were not otherwise brought to respondent's attention in connection with petitioner's collection hearing with respondent's Appeals Office, petitioner may not now raise hardship for the first time before this Court. [Id. at 493-494.]
The cases cited for support of the holding in Magana were issue preclusion cases. See, e.g., McCoy Enters., Inc. v. Commissioner, 58 F.3d 557, 563 (10th Cir. 1995) (Court does not have to rule on an issue when taxpayer "cannot point to a single time at which it presented the issue to the Commissioner to be ruled upon"), affg. T.C. Memo. 1992-693; Miller v. Commissioner, 115 T.C. 582, 589 n.2 (2000) ("we would not consider petitioner's alternative request because the record does not establish that he raised that issue at his Appeals Office hearing" (Emphasis added.)), affd. 21 Fed. Appx. 160 (4th Cir. 2001); Inner Office, Inc. v. United States, No. 3:00-CV-2576-L ("Plaintiff has produced no evidence that the IRS Hearing Officer's determination is legally incorrect or that the irs Hearing Officer abused his discretion. In seeking district court review of a Notice of Determination, the taxpayer can only ask the court to consider an issue that was raised in the taxpayer's [section 6330] hearing." (Emphasis added.)), adopted on this issue 89 AFTR 2d 2002-1311, 2003-1 USTC par. 50, 185 (N.D. Tex. 2002).
Unlike the taxpayer in Magana, petitioner is not raising a new issue in his petition. At the hearing, petitioner raised the issue of compliance with the terms of the offer-in-compromise. Mr. Coy asked Mr. Talbott to reinstate the offer-in-compromise. Mr. Coy brought to the attention of Mr. Talbott the fact that he mailed petitioner's 1998 return on October 15, 1999. Mr. Talbott's notes in his case activity record indicate that Mr. Coy raised the issue and brought to his attention that Mr. Coy mailed the return on October 15, 1999. Shortly after the hearing, Mr. Coy wrote Mr. Talbott stating: "As I had mentioned, I prepared the return for [petitioner], obtained his signature, and mailed the return to the Service Center on the evening of October 15, 1999." This was brought to the attention of Mr. Talbott.
Accordingly, we may consider evidence regarding this issue at trial, if it is otherwise admissible under the Federal Rules of Evidence.
D. Whether the Evidence Is Admissible Under the Federal Rules of Evidence
While we are not limited by the apa's judicial review provisions in our proceedings arising under section 6330(d), our review of materials not included in the Commissioner's administrative record is subject to the Federal Rules of Evidence. Section 7453 and Rule 143(a) provide that the Court's proceedings are to be conducted in accordance with the rules of evidence applicable in trials without a jury in the U.S. District Court for the District of Columbia. Consistent with section 7453 and Rule 143(a), we must decide whether evidence in this case which was not included in the administrative record is admissible under the Federal Rules of Evidence in our proceedings arising under section 6330(d).
Respondent moved to strike the evidence on the ground of relevancy. "All relevant evidence is admissible. Evidence which is not relevant is not admissible." Fed. R. Evid. 402. Relevant evidence "means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Fed. R. Evid. 401. Therefore, we must determine whether the evidence presented at trial that respondent characterizes as "outside of the administrative record" has any tendency to make the existence of any fact that is of consequence in determining whether the Appeals officer abused his discretion more probable or less probable than it would be without the evidence. We find that the evidence does have a tendency to show the Appeals officer abused his discretion in determining to proceed with collection.
Petitioner's testimony is relevant. Petitioner was not present at the hearing. Petitioner's testimony shows that he signed the 1998 return on October 15, 1999. Petitioner's testimony shows that he had filed his returns for 1995, 1996, 1997, 1999, and 2000 on or about October 15 in the same pattern and practice as he did for 1998. Petitioner's testimony shows that he acted in good faith in complying with the terms of the offer-in-compromise.
Petitioner's tax returns for 1995, 1996, 1997, 1999, and 2000 are relevant. They show a pattern and practice of petitioner's filing his returns on or about October 15. They show petitioner generally received refunds for the period in issue. While the Appeals officer reviewed petitioner's transcripts for 1995, 1996, 1997, and 1999, he did not consider petitioner's pattern and practice of timely filing. After reviewing petitioner's transcripts, the Appeals officer concluded petitioner was probably entitled to a refund for 1998. These facts, however, were of no consequence to him when he reviewed whether the offer-in-compromise should have been defaulted.
Mr. Coy's private postage meter log, cellular telephone records, credit card records, and daily calendar for October 15, 1999, are relevant. They corroborate Mr. Coy's statements regarding mailing. The Appeals officer, however, refused to consider any evidence of mailing, other than a certified or registered mail receipt.
Frances Robinette's testimony is relevant. Under Davis v. Commissioner, 115 T.C. 35 (2000), taxpayers are not entitled to call witnesses at the hearing. Mrs. Robinette's testimony corroborates petitioner's good faith and compliance with the terms of the offer-in-compromise.
Mr. Coy's statements at trial that he did not make to Mr. Talbott are relevant. Mr. Coy's testimony indicates the Appeals officer's unwillingness to consider in depth certain issues that he raised at the hearing.
Accordingly, respondent's motion to strike will be denied.
TV. Whether Respondent Abused His Discretion
Where, as here, the validity of the underlying tax liability is not at issue, we review the determination for abuse of discretion. Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 181-182. In doing so, we review whether the Appeals officer's determination was arbitrary, capricious, or without sound basis in fact or law. Woodral v. Commissioner, 112 T.C. at 23. Having observed the appearance and demeanor of the witnesses testifying for petitioner at trial, including petitioner, we find them to be honest, forthright, and credible.
Taking into account all the facts and circumstances, we conclude that on the basis of the record before us, respondent abused his discretion in determining to proceed with collection.
A. Whether Petitioner's Return Was Timely Filed
We note at the outset that contrary to petitioner's contentions, we find that petitioner's return was not timely filed. Filing, generally, "is not complete until the document is delivered and received". United States v. Lombardo, 241 U.S. 73, 76 (1916). Section 7502 provides an exception to this rule. Section 7502(a)(1) provides that, in certain circumstances, a timely mailed document will be treated as though it were timely filed. Section 7502(a)(2) provides that the timely mailing/timely filing rule applies if the postmark date on an envelope falls within the prescribed period or on or before the prescribed date.
In the case of postmarks not made by the U.S. Postal Service, the timely mailing/timely filing rule applies "only if and to the extent provided by regulations prescribed by the Secretary". Sec. 7502(b). The postmark in this case was made by a private postage meter. Section 301.7502-1(c)(1)(iii)(6), Proced. & Admin. Regs., provides:
If the postmark on the envelope or wrapper is made other than by the United States Post Office, (1) the postmark so made must bear a date on or before the last date, or the last day of the period, prescribed for filing the document, and (2) the document must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document contained in an envelope or other appropriate wrapper which is properly addressed and mailed and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the United States Post Office on the last date, or the last day of the period, prescribed for filing the document. However, in case the document is received after the time when a document so mailed and so postmarked by the United States Post Office would ordinarily be received, such document will be treated as having been received at the time when a document so mailed and so postmarked would ordinarily be received, if the person who is required to file the document establishes (i) that it was actually deposited in the mail before the last collection of the mail from the place of deposit which was postmarked (except for the metered mail) by the United States Post Office on or before the last date, or the last day of the period, prescribed for filing the document, (ii) that the delay in receiving the document was due to a delay in the transmission of the mail, and (iii) the cause of such delay. If the envelope has a postmark made by the United States Post Office in addition to the postmark not so made, the postmark which was not made by the United States Post Office shall be disregarded, and whether the envelope was mailed in accordance with this subdivision shall be determined solely by applying the rule of (a) of this subdivision. [Emphasis added.]
Mr. Coy testified that he placed petitioner's return in the mail between 11 p.m. and midnight. Petitioner presented no evidence that this was before the last collection for that mailbox. Petitioner presented no evidence as to a delay in the transmission of the mail. Petitioner presented no evidence as to the cause of a delay. Petitioner has failed to meet the requirements of the regulation. See Fishman v. Commissioner, 420 F.2d 491, 492 (2d Cir. 1970), affg. 51 T.C. 869 (1969); cf. Jones v. Commissioner, T.C. Memo. 1998-197 (the taxpayer met requirements of non-U.S.-postmark regulation when evidence established, in part, that he deposited the envelope in the mail before the last collection).
Petitioner argues that Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir. 1990), affg. 92 T.C. 793 (1989), and not the regulation, controls this issue. In Estate of Wood, the Court of Appeals for the Eighth Circuit, the court to which an appeal of this case would lie, discussed section 7502 in the situation where the taxpayer's return was not received by the IRS. Petitioner's reliance on Estate of Wood is misplaced. The presumption of delivery discussed in Estate of Wood is raised only when a timely mailing occurs. As petitioner's return was not timely mailed, the presumption of delivery discussed in Estate of Wood has not been raised.
On the basis of the foregoing, we hold that petitioner has not proven that he filed his return on October 15, 1999. Mr. Coy sent Mr. Talbott a copy of petitioner's 1998 return. On February 16, 2001, Mr. Talbott received the copy of petitioner's 1998 return, which he forwarded to the Austin Service Center and which was then processed by the IRS as an original return. Petitioner's transcript of account for 1998 states: "return filed and tax assessed" on April 2, 2001. Thus, petitioner's return was late filed.
B. Whether Petitioner Materially Breached the Offer-in-Compromise
Despite the late filing of petitioner's return, under the facts and circumstances of this case, respondent abused his discretion in determining to proceed with collection. The Appeals officer acted arbitrarily and without sound basis in law and had a closed mind to the arguments presented on petitioner's behalf. He failed to consider the facts and circumstances of this case. He determined to proceed with collection even though the breach in the contract was not material and under contract law the contract remained in effect.
1. Jurisdiction To Consider Petitioner's Offer-in-Compromise
Respondent contends that the Court has no jurisdiction to determine whether petitioner's offer-in-compromise was properly terminated. Respondent contends that only the Court of Federal Claims or a U.S. District Court may review this determination. We disagree.
In Roberts v. United States, 242 F.3d 1065 (Fed. Cir. 2001), the Court of Appeals for the Federal Circuit reversed and remanded the order of the U.S. District Court for the Eastern District of Missouri transferring the case to the Court of Federal Claims for lack of jurisdiction. The Court of Appeals held that the U.S. District Court did have jurisdiction over the taxpayer's claim for refund, even though the tax liability resulted from an offer-in-compromise that the IRS had defaulted. The Court of Appeals reasoned:
Roberts is not requesting, for example, damages from the government for breach of contract, which would constitute a claim based purely upon a government contract. Certainly, the district court does not have jurisdiction over additional contract claims Roberts may wish to assert against the government under the terms of the OIC .
Instead, Roberts has paid taxes that he alleges were illegally or erroneously collected. Tax cases heard in the district courts often involve offers in compromise . The fact that the alleged collection error stems from the cancellation of Roberts's OIC contract with the IRS does not negate the fact that the monies at issue were paid pursuant to the internal-revenue laws.
[Id. at 1069.]
The Court of Appeals found that the taxpayer had satisfied the jurisdictional requirements for a tax refund suit. Thus, the U.S. District Court could review whether the taxpayer's offer-in-compromise had been properly defaulted. See id,.
In this case, petitioner is not asserting a cause of action under contract law. See id. at 1068-1069. Petitioner seeks a finding from the Court that respondent abused his discretion in determining to proceed with collection, which is within our jurisdiction under section 6330. Respondent's determination to proceed with collection arises from defaulting petitioner's offer-in-compromise. Whether the offer-in-compromise was properly defaulted is a relevant issue relating to the unpaid tax or proposed levy. Sec. 6330(c)(2)(A). Respondent issued petitioner a notice of intent to levy on the basis of petitioner's unpaid tax liability.
2. Whether the Breach of the Offer-in-Compromise Was Material
a. Applicable Law
"An accepted offer in compromise is properly analyzed as a contract between the parties." Dutton v. Commissioner, 122 T.C. 133, 138 (2004). Offers-in-compromise are governed by "general principles of contract law." Id. "If the plaintiffs breach is material and sufficiently serious, the defendant's obligation to perform may be discharged. Not so, however, if the plaintiffs breach is comparatively minor." TXO Prod. Corp. v. Page Farms, Inc., 698 S.W.2d 791, 793 (Ark. 1985).
In determining whether a failure to perform is material, the following five circumstances are significant:
In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
[1 Restatement, Contracts 2d, sec. 241 (1981).]
Arkansas law adopts this analysis. See TXO Prod. Corp. v. Page Farms, Inc., supra; see also DHC Resort, LLC v. Razorback Entertainment Corp., 329 F.3d 974, 976 (8th Cir. 2003) (citing TXO Prod. Corp. v. Page Farms, Inc., supra, and section 241 of 1 Restatement, Contracts 2d when applying Arkansas law). The standard of materiality "is to be applied in the light of the facts of each case in such a way as to further the purpose of securing for each party his expectation of an exchange of performances." 1 Restatement, supra sec. 241, comment a.
Cases in which courts have found offers in compromise materially breached, and thus in default, generally involve taxpayers who either fail to make payments agreed to in the offer-in-compromise to pay off the amount compromised, or fail to pay taxes owed during the 5-year period after the offer has been accepted. See United States v. Feinberg, 372 F.2d 352, 356 (3d Cir. 1965) (decedent's installment payments of less than the amount due and estate's complete failure to make payments on offer constituted material breach of offer-in-compromise); United States v. Lane, 303 F.2d 1, 3-4 (5th Cir. 1962) (taxpayer's failure to comply with terms of collateral agreement by refusing to file annual statements and pay additional money constituted breach of offer-in-compromise); Roberts v. United States, 225 F. Supp. 2d 1138, 1148 (E.D. Mo. 2001) (taxpayer's delay in paying his 1995 tax liability of $246,354 was a material breach of the offer-in-compromise); Fortenberry v. United States, 49 AFTR 2d 82-1027, 82-1 USTC par. 9191 (S.D. Miss. 1981) (taxpayer's failure to pay additional amounts under collateral agreement was breach of the terms of the offer-in-compromise); United States v. Wilson, 182 F. Supp. 567, 570 (D.N.J. 1960) (taxpayer's failure to pay weekly installments caused IRS to terminate offer-in-compromise).
b. Analysis
Loss of benefit to injured party. In petitioner's late filing of his 1998 return, in which he was due a refund, the extent of the benefit that respondent was deprived of was not significant. Inherent in the requirement that taxpayers comply with the provisions of the Internal Revenue Code for 5 years is the IRS expectation that the taxpayer will pay the taxes owed on time. See Roberts v. United States, 225 F. Supp. 2d at 1148. In this case, however, petitioner was due a refund.
As stated supra, petitioner's return was not timely filed. Not every delay, however, constitutes a material breach. There must also be a causal connection between the delay and the damages suffered by respondent, in order for a material breach to be found on the basis of the delay. 23 Williston on Contracts, sec. 63:18 (4th ed. 2002). Respondent suffered no monetary damage from petitioner's late filing of the 1998 return. Under the facts of this case, the late filing, by itself, is not sufficient basis for a material breach of the contract.
Adequacy of compensation for loss. The IRS was adequately compensated for its "loss". Respondent suffered minimal, if any, damages, as he held petitioner's refund as security.
Forfeiture by party who fails. Under this factor, the comments in the Restatement explain: "[A] failure is less likely to be regarded as material if it occurs late, after substantial preparation or performance, and more likely to be regarded as material if it occurs early, before reliance." 1 Restatement, supra, sec. 241, comment d. In this case, petitioner had substantially performed under the terms of the offer-in-compromise at the time the offer was declared in default. Petitioner's untimely mailing of the return occurred in the fourth year of a 5-year agreement. Petitioner had already paid the full amount of the offer-in-compromise, with borrowed funds, within 60 days after the offer had been accepted. Petitioner had complied with the filing requirements for the first 3 years of the agreement. Further, at the time the Appeals officer determined to proceed with collection, petitioner had filed his 1998 return and complied with all other terms of the offer-in-compromise.
Uncertainty. Under this factor, the comments in the Restatement note:
To the extent that expectation is already reasonably secure, in spite of the failure, there is less reason to conclude that the failure is material. The likelihood that the failure will be cured is therefore a significant circumstance in determining whether it is material . The fact that the injured party already has some security for the other party's performance argues against a determination that the failure is material. [1 Restatement, supra sec. 241, comment e.]
As stated supra, respondent was reasonably secured. Respondent had possession of petitioner's 1998 refund, making it likely that petitioner would perform under the agreement by filing his 1998 return. Respondent also had received $100,000 within 60 days of his acceptance of the offer, which was the amount offered and accepted as payment of petitioner's outstanding tax liabilities from 1983 to 1991. Additionally, before the Appeals officer determined to proceed with collection, petitioner had cured the defect. Petitioner submitted his 1998 return to the Appeals officer, at the request of the Appeals officer, to be filed as an original return.
Absence of good faith or fair dealing. Petitioner acted in good faith. Petitioner signed his 1998 return on the due date and gave it back to Mr. Coy for mailing. This was the pattern and practice petitioner had used in filing the returns prepared by Mr. Coy. He paid the full amount of the offer-in-compromise within 60 days after acceptance of the offer, with borrowed funds. He timely filed his returns for 1995, 1996, 1997, 1999, and 2000. Except for 1995, petitioner's returns indicate that petitioner was entitled to refunds. For 1998, petitioner was entitled to a refund. Before respondent issued the notice of determination, petitioner had filed his 1998 return. Indeed, when petitioner received the notices from the IRS, he called Mr. Coy to discuss them and also forwarded the notices by fax to Mr. Coy, as he was "scared to death".
Additionally, Mr. Talbott did not have an open mind to the issues Mr. Coy presented at the hearing. He did not consider that petitioner had acted in good faith. Mr. Talbott did not consider petitioner's pattern of filing of returns on or about October 15, despite having looked at the transcripts for 1995, 1996, 1997, and 1999.
Mr. Talbott did not have an open mind regarding reinstatement. Moreover, he failed to independently analyze whether the terms of the offer-in-compromise had been materially breached. Mr. Talbott believed he had no authority to reinstate petitioner's offer-in-compromise. He believed only the National Office could reinstate the offer-in-compromise. Neither the Internal Revenue Code nor the Internal Revenue Manual, however, states that he could not reinstate the offer-in-compromise. Mr. Talbott reviewed the Internal Revenue Manual. The manual was silent as to whether he could reinstate the offer-in-compromise.
On the basis of the facts and circumstances of this case, we conclude that petitioner did not materially breach the terms of the offer-in-compromise. As the offer-in-compromise was not in default, it was an abuse of discretion for respondent to determine to proceed with collection of petitioner's tax liability.
In reaching all of our holdings herein, we have considered all arguments made by the parties, and to the extent not mentioned above, we find them to be irrelevant or without merit.
To reflect the foregoing,
An appropriate order and decision will be entered.
Reviewed by the Court.
Gerber, Cohen, Swift, Wells, and Laro, JJ., agree with this majority opinion.
Chiechi, J., dissents.
Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure. All amounts are rounded to the nearest dollar.
The trust fund recovery penalties to be compromised under sec. 6672 were $102,030. By order dated Oct. 21, 2002, the Court granted respondent's motion to dismiss for lack of jurisdiction and to strike as to the trust fund penalties. The parties agree:
The doctrine of collateral estoppel will apply to prohibit the Respondent, as well as the Petitioner, from re-litigating the Petitioner's appeal of the Notice of Determination in the District Court if the Tax Court decides whether the Respondent abused his discretion in proceeding with collection of tax liabilities previously compromised prior to a decision of that issue by the District Court.
As additional consideration, petitioner signed a Form 2261, Collateral Agreement, in which he also agreed to pay 40 percent of his annual income in excess of $100,000 and not in excess of $130,000; 50 percent of annual income in excess of $130,000 and not in excess of $150,000; and 60 percent of annual income in excess of $150,000. Petitioner's annual income was less than $100,000 for 1995, 1996, 1997, 1998, and 1999. Accordingly, petitioner was not required to pay additional consideration.
Additionally, in numerous instances, we have noted the taxpayer's failure to present evidence at trial. This failure to present evidence supported our conclusion that the Appeals officer did not abuse his or her discretion. See, e.g., Dorn v. Commissioner, T.C. Memo. 2003-192 ("Petitioner did not offer sufficient evidence at his section 6330(b) hearing or before this Court to show he is entitled to prevail" when petitioner did not offer any evidence at trial related to the issues raised at his hearing); Maloney v. Commissioner, T.C. Memo. 2003-143 ("Petitioners did not present any evidence that their excess withholdings for 1984 exceeded [the stipulated amount of credits for increased Federal income tax withholdings, including FICA taxes]", and "they presented no evidence that they made deposits or that any FICA taxes were assessed after the applicable period of limitations had expired"), affd. 94 Fed. Appx. 969 (3d Cir. 2004); Schulman v. Commissioner, T.C. Memo. 2002-129 (settlement officer did not abuse her discretion where "petitioners presented no evidence at trial or on brief to otherwise substantiate their expenses" and where "petitioners did not introduce any evidence of any meaningful ties to Ozaukee County, other than the relative proximity of their residence"); Howard v. Commissioner, T.C. Memo. 2002-81 ("Petitioner also did not present any evidence at trial or otherwise show any irregularity in the assessment procedure.").
On remand, the U.S. District Court held that the taxpayer's failure to timely pay his 1995 taxes was a material breach of the offer-in-compromise. Further, the court held that "the doctrine of substantial performance has no relevance in this case as the Plaintiff completely failed to timely pay his 1995 federal income tax liability, and instead waited to pay it until April 10, 1997, so that he could offset his tax liability for 1995 with his losses in 1996." Roberts v. United States, 225 F. Supp. 2d 1138, 1149 (E.D. Mo. 2001).
We note that by the terms of the offer-in-compromise, the offer-in-compromise did not apply to 2000.