Opinion ID: 802749
Heading Depth: 2
Heading Rank: 2

Heading: The CDP Hearing.

Text: We turn next to the reasonableness of the IRS's subsidiary determinations and the appropriateness of its ultimate decision. We start with some background. There are three sets of circumstances that may induce the IRS to accept a taxpayer's offer in compromise following a CDP hearing. These include doubt about the taxpayer's liability, doubt about the collectability of the tax indebtedness, or a finding that the proffered compromise would promote effective tax administration. Treas. Reg. § 301.7122-1(b). In this case, the taxpayers say that doubts about collectability should have prompted the IRS to accept their settlement offer. Cf. John Heywood, Dialogue Prouerbes Eng. Tongue (1546) (explaining that [f]or better is half a loaf than no bread). The IRS does not abuse its discretion when it rejects an offer in compromise premised on doubts about collectability as long as it reasonably determines that more than the proferred amount may 4 This deferential standard of review by no means leaves a taxpayer at the mercy of the IRS. There are almost always other legal channels through which a taxpayer may develop a complete record and secure a definitive legal ruling on a contested point of law or fact. Here, for instance, if the IRS attaches the Property, the taxpayers can attempt to secure a court order dissolving the attachment. By the same token, the trust can bring either a wrongful levy action or a suit to quiet title. -14- be collectable. See Murphy, 469 F.3d at 33. The IRS rejected the taxpayers' proferred compromise because it concluded that their perceived ownership interest in the Property represented a significant source of additional funds. We explain briefly why we do not think that the IRS abused its discretion in formulating this rationale. The IRS has broad powers to levy against property and rights to property belonging to taxpayers in order to collect delinquent debts. 26 U.S.C. § 6331(a). An ownership interest in land is attachable property within the meaning of the levy statute. See G.M. Leasing Corp. v. United States, 429 U.S. 338, 349-50 (1977). Here, however, the taxpayers assert that they have no ownership interest in the Property. Whether a particular asset belongs to a taxpayer is a question of state law. See Drye v. United States, 528 U.S. 49, 58 (1999). In the case at hand, Maine law provides the substantive rules of decision. See Sunderland v. United States, 266 U.S. 226, 232-33 (1924). In connection with real property, Maine recognizes the nominee doctrine. See Atkins v. Atkins, 376 A.2d 856, 859 (Me. 1977). This doctrine allows for the possibility that the true owner of a parcel of land may be someone other than the record owner. See id.; see also Holman v. United States, 505 F.3d 1060, 1065 (10th Cir. 2007); William D. Elliott, Federal Tax Collections, Liens, and Levies, at 9-93 to 9-94 (2d ed. 2008). The IRS argues -15- that this doctrine applies here because the trust holds title to the Property as a proxy for the taxpayers. The taxpayers argue that the nominee doctrine is not applicable because the trust owns the Property in its own right. Maine case law does not fully delineate the contours of the nominee doctrine. The only decision on point is Atkins, in which the Maine Supreme Judicial Court (the Law Court) mentioned three factors that may tend to indicate the existence of a nominee relationship. See 376 A.2d at 859. Atkins, however, does not aspire to spell out the totality of the nominee inquiry. Given this dearth of precedent, the IRS looked elsewhere for guidance as to how the Maine courts might flesh out the nominee doctrine. This entailed canvassing cases from other jurisdictions (primarily federal cases). It is not our role, as a court reviewing findings made in the course of a CDP hearing, to determine whether the IRS applied the correct rule of law. In the last analysis, we need only determine whether the IRS applied a reasonable view of what the law is or might be. In this instance, we believe that the IRS acted reasonably in looking to case law from other jurisdictions to fill the void and illuminate Maine's nominee doctrine. Cf. Andrew Robinson Int'l, Inc. v. Hartford Fire Ins. Co., 547 F.3d 48, 51-52 (1st Cir. 2008) (explaining that a federal court tasked to determine state law in a diversity case and finding no controlling -16- decision may consider, among other things, precedents in other jurisdictions). The taxpayers suggest that Maine cases discussing fraudulent conveyance, constructive trust, and resulting trust would have better informed the IRS's nominee inquiry. This case law might have been helpful if the IRS's theory were that the taxpayers either had conveyed the Property for the purpose of avoiding their tax liability, see Me. Rev. Stat. tit. 14, §§ 35713582 (Uniform Fraudulent Transfer Act), or had abused a confidential relationship in order unjustly to retain an interest in the Property, see Christman v. Parrotta, 361 A.2d 921, 925 (Me. 1976). But the IRS's theory is of a different character; it posits that, given the taxpayers' dominion over the Property, they should be treated as the real owners. This difference renders inapposite the cases on which the taxpayers rely. See Oxford Capital, 211 F.3d at 284 (explaining that the nominee doctrine differs from other ownership theories and provides an independent bas[i]s for attaching the property of a third party in satisfaction of a delinquent taxpayer's liability). Almost universally, courts weigh the existence of a nominee relationship by balancing a series of factors, including but not limited to whether the consideration paid by the putative nominee was adequate, whether the property was transferred in anticipation of liability, whether a close relationship exists -17- between the transferor and putative nominee, whether the transferor retains possession and/or use of the property notwithstanding the transfer, and whether the transferor continues to enjoy the benefits of the property. See, e.g., Holman, 505 F.3d at 1065 n.1; Spotts v. United States, 429 F.3d 248, 253 n.2 (6th Cir. 2005); Oxford Capital, 211 F.3d at 284 n.1. Courts also have viewed as relevant whether the transferor furnishes the funds used to purchase the property, whether the transferor is providing the wherewithal needed to maintain the property post-transfer, and whether the transferor continues to treat the property as his own. See United States v. Callahan (In re Callahan), 442 B.R. 1, 6 n.5 (D. Mass. 2010); Richards v. United States (In re Richards), 231 B.R. 571, 579 (E.D. Pa. 1999). Virtually without exception, courts focus on the totality of the circumstances without regarding any single factor as the sine qua non of a nominee relationship. See Elliott, supra, at 9-95. Viewed against this backdrop, the IRS's decision to apply a balancing test to resolve the nominee question appears reasonable. Atkins bolsters this conclusion. There, the Law Court deemed as indicative of a nominee relationship three of the factors commonly weighed in the balancing test. See Atkins, 376 A.2d at 859 (noting that transferor had furnished down payment, claimed depreciation for tax purposes, and continued to pay taxes and insurance). -18- The IRS's execution of the balancing test was equally reasonable. Numerous circumstances in this case point unerringly to the existence of a nominee relationship. The taxpayers sold the major part of the Property to the grantor of the trust for nominal consideration ($1); they nonetheless continue to enjoy sole possession of the Property; they alone are responsible for the Property's maintenance and upkeep; they defray all mortgage payments and real estate taxes and pay no rent as such; they have from time to time continued to hold themselves out as owners; and the beneficiaries of the trust are the taxpayers' children. What is more, one of the taxpayers hand-picked the present trustee (who is a sibling of the other taxpayer); the taxpayers and the trust have no written lease or other documentation of their asserted relationship; and the trust itself habitually has operated with minimal attention to records or other indicia of independent existence. These and other undisputed facts are sufficient to ground a reasonable inference that the trust is nothing more than a proxy for the taxpayers. We do not gainsay that there are some facts that point in the opposite direction. But the existence of these contradictory facts is not enough to tip the scales in a reasonableness analysis. After all, the question is not the correctness vel non of the IRS's determination that the taxpayers actually own the Property. Rather, the question is whether the IRS's determination, correct or -19- not, falls within the wide universe of reasonable outcomes. Because the evidence before the IRS was ample to justify its conclusion that the taxpayers' valuable ownership interest in the Property had to be considered when evaluating their $10,000 offer in compromise, the IRS acted within its discretion in refusing to accept that offer. See Murphy, 469 F.3d at 33 (finding no abuse of discretion when IRS rejected offer in compromise after reasonably determining that taxpayers could afford more than compromise amount). In this context, reviewing factual and legal determinations for reasonableness does not present an undue risk of an erroneous deprivation. The taxpayers will have the opportunity to challenge the substantive correctness of the IRS's ownership determination in subsequent judicial proceedings (say, by a motion to dissolve a wrongful attachment). By the same token, the trust — which was not a party to the proceeding before the IRS — will have an opportunity to assert its ownership of the Property and to litigate that question in an appropriate forum.5 We add a coda. Although this appeal presents a question involving the IRS's determination of a mixed question of fact and law, our analysis has broader implications. Whether an IRS 5 Indeed, the trust already has brought an action to quiet title in the United States District Court for the District of Maine. See Me. Rev. Stat. tit. 14, §§ 6651-6662. That case has been stayed pending the adjudication of this appeal. -20- determination reached during the CDP process rests upon a purely factual question, a purely legal question, or a mixed question of fact and law, a reviewing court's mission is the same: to evaluate the reasonableness of the IRS's subsidiary determination. The CDP process presents no occasion for a reviewing court to demand incontrovertibly correct answers to subsidiary questions, whatever their nature. Rather, the IRS acts within its discretion as long as it makes a reasonable prediction of what the facts and/or the law will eventually show.6