Court Opinion

ID: 9958279
Source: CourtListenerOpinion
Date Created: 2024-04-08 19:01:57.053412+00
Date Added: 2024-06-11T08:18:08.265087
License: Public Domain

United States Tax Court

                            162 T.C. No. 8

                          RAJU J. MUKHI,
                             Petitioner

                                   v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                              —————

Docket No. 4329-22L.                                Filed April 8, 2024.

                              —————

             P filed a petition with this Court challenging R’s
      notice of determination related to approximately
      $11 million of foreign reporting penalties under I.R.C.
      §§ 6038(b) and 6677. The parties filed cross-motions for
      summary judgment on the issues of whether the settlement
      officer violated P’s right to due process under the Fifth
      Amendment to the U.S. Constitution, whether the
      settlement officer abused his discretion in rejecting
      collection alternatives, and whether the penalties violated
      the Excessive Fines Clause of the Eighth Amendment to
      the U.S. Constitution.

            Held: The settlement officer did not violate P’s Fifth
      Amendment due process rights or his rights under I.R.C.
      § 6320 or 6330.

             Held, further, the settlement officer did not abuse
      his discretion in rejecting P’s collection alternatives that
      were significantly below his reasonable collection
      potential.

            Held, further, R lacked authority to assess the
      penalties under I.R.C. § 6038(b) and therefore cannot
      proceed with collection actions as they relate to these
      penalties.

                           Served 04/08/24
                                             2

              Held, further, penalties imposed under I.R.C. § 6677
        are not fines and therefore do not implicate the Excessive
        Fines Clause.

                                       —————

Sanford J. Boxerman and Michelle F. Schwerin, for petitioner.

Randall L. Eager, Alicia H. Eyler, and William Benjamin McClendon,
for respondent.

                                       OPINION

       GREAVES, Judge: This collection due process (CDP) case is
before the Court on petitioner’s Motion for Summary Judgment, filed
December 29, 2022, and respondent’s Motion for Partial Summary
Judgment, filed January 4, 2023.           The parties seek summary
adjudication of the following issues: (1) whether the settlement officer
violated petitioner’s right to due process under the Fifth Amendment,
(2) whether the settlement officer abused his discretion in rejecting
petitioner’s offers-in-compromise, and (3) whether the section 6038(b)
and 6677 penalties violated the Excessive Fines Clause of the Eighth
Amendment. 1 For the reasons set forth below, we answer the first two
questions and the third question as it relates to the section 6677
penalties in the negative. We do not reach the Excessive Fines Clause
analysis as it relates to the section 6038(b) penalties.

                                      Background

      The following facts are based on the parties’ pleadings and motion
papers, the attached declarations and exhibits, and the administrative
record. See Rule 121(c). They are stated solely for purposes of deciding
the parties’ motions and not as findings of fact in this case. See
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17
F.3d 965 (7th Cir. 1994). Petitioner resided in Missouri when he timely

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
and Rule references are to the Tax Court Rules of Practice and Procedure.
                                           3

filed the petition. The parties have stipulated that this case is
appealable to the U.S. Court of Appeals for the Eighth Circuit.

        On May 20, 2022, respondent filed a Motion to Consolidate this
case with petitioner’s related deficiency case at Docket No. 15315-19.
On July 21, 2022, we granted the motion and consolidated the cases for
trial, briefing, and opinion. Petitioner’s Motion for Summary Judgment
and respondent’s Motion for Partial Summary Judgment relate
exclusively to the collection due process case.

I.      Penalty Determination

       Between November 2001 and September 2005 petitioner created
three entities: Sukhmani Partners II Ltd., a foreign corporation for U.S.
tax purposes; Sukhmani Gurkukh Nivas Foundation, a foreign trust for
U.S. tax purposes; and Gurdas International Ltd., a foreign trust for
U.S. tax purposes. Through these entities, petitioner opened several
foreign brokerage accounts. From 2005 through 2007 petitioner
personally and through foreign entities transferred at least $9,729,249
to Gurdas International Ltd. From 2006 through 2008 petitioner
withdrew at least $4,763,464 from Gurdas International Ltd. 2

       On June 5, 2014, petitioner was indicted on two counts of
subscribing to false U.S. individual income tax returns and four counts
of willful failure to file reports of foreign bank and financial accounts
(FBAR) related to the above-described transactions. Petitioner entered
a guilty plea, admitting to one count of subscribing to false U.S.
individual income tax returns and one count of failure to file an FBAR.
The plea agreement expressly stated that it did not limit the rights of
the U.S. Government to take any civil or administrative actions against
petitioner, except as agreed regarding civil liability for failure to file an
FBAR.

       After the guilty plea, respondent began an examination of
petitioner’s liability for civil tax penalties related to the foreign entities.
During the examination, petitioner filed under protest various
international information returns related to his foreign investments.
Between July 21, 2015, and January 13, 2016, petitioner filed Forms
5471, Information Return of U.S. Persons With Respect to Certain

        2 The facts in this paragraph have been alleged by respondent and challenged

by petitioner. The issues in this opinion do not implicate the veracity of transactions
leading to the civil tax penalties. These alleged facts are stated solely for explanatory
purposes.
                                         4

Foreign Corporations, related to his interest in Sukhmani Partners II
Ltd. for tax years 2005 through 2013. On September 29, 2016, petitioner
filed Forms 3520, Annual Return To Report Transactions With Foreign
Trusts and Receipt of Certain Foreign Gifts, related to contributions
petitioner made and distributions he received from Sukhmani Gurkukh
Nivas Foundation for tax years 2005 through 2013. On the same day,
petitioner filed Forms 3520–A, Annual Information Return of Foreign
Trust With a U.S. Owner, disclosing his interest in Sukhmani Gurkukh
Nivas Foundation for tax years 2005 through 2013.

       At the conclusion of the examination, respondent issued a notice
letter, dated September 6, 2017, informing petitioner that respondent
assessed $5,072,449 in penalties under section 6677 for failure to timely
file Form 3520 for tax years 2005 through 2008. 3 Respondent also
assessed $5,920,419 in penalties under section 6677 for failure to timely
file Form 3520–A for tax years 2005 through 2010. The next day
respondent issued an additional letter informing petitioner that he
assessed $120,000 in penalties under section 6038(b) for failure to timely
file Form 5471 for tax years 2002 through 2013. This opinion will refer
to the penalties under sections 6038(b) and 6677 collectively as foreign
reporting penalties. Both letters informed petitioner of his right to a
postassessment conference. Petitioner filed a protest with the IRS
Office of Appeals (Appeals Office). 4

II.    Postassessment Conference

       The case was assigned to an Appeals officer (AO) in the Appeals
Office, Area 11 (International Operations). AO verified that he had no
prior involvement with petitioner. Between April 4, 2018, and March
25, 2019, AO reviewed petitioner’s challenge to the foreign reporting
penalties. His review included correspondence with petitioner and
research related to petitioner’s underlying liability challenge.

       AO concluded his review and on May 9, 2019, issued two Letters
1277, Penalty Appeal Decision, which stated that there were no grounds
for penalty abatement and that petitioner’s case with the Appeals Office
was closed. Respondent attached to the letters a copy of the Appeals

       3 All dollar amounts are rounded to the nearest dollar.

        4 On July 1, 2019, the Internal Revenue Service Office of Appeals was renamed

the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25,
§ 1001, 133 Stat. 981, 983 (2019).
                                    5

Case Memorandum, detailing AO’s determinations regarding each of
petitioner’s arguments.

III.   CDP Notices and Hearing

       During the postassessment conference, respondent began taking
collection actions related to the foreign reporting penalties. Respondent
issued CP90, Final Notice–Notice of Intent to Levy and Notice of Your
Right to a Collection Due Process Hearing, dated July 9, 2018.
Petitioner timely filed Form 12153, Request for a Collection Due Process
or Equivalent Hearing, requesting a CDP hearing related to this notice.
Petitioner checked the boxes on Form 12153 indicating that he was
interested in an installment agreement and that he could not pay the
balance. Petitioner also indicated that he wanted to challenge the
underlying liability.

       Respondent issued Letter 3172, Notice of Federal Tax Lien Filing
and Your Rights to a Hearing under IRC 6320, dated November 27,
2018, related to the foreign reporting penalties. Petitioner timely filed
Form 12153, requesting a CDP hearing based on this notice. On his
request, petitioner indicated that he was interested in an installment
agreement and withdrawal of the lien. Petitioner also sought to
challenge his underlying liability for the foreign reporting penalties.
The two CDP requests were consolidated into one CDP hearing and
assigned to a settlement officer (SO1). SO1 reviewed petitioner’s
requests and determined that he had no prior involvement with
petitioner.

       On June 6, 2019, SO1 issued Letter 4837, Appeals Received Your
Request for Collection Due Process Hearing, confirming receipt of
petitioner’s CDP hearing request and scheduling a telephone conference
for July 8, 2019. The letter also requested that petitioner submit
financial information related to the requested collection alternatives. At
the request of petitioner, the CDP hearing was rescheduled for August
14, 2019.

        Before the CDP hearing, SO1 determined that the underlying
liability challenge would need to be referred to International Operations
for technical advice because the penalties related to foreign information
reporting. At the CDP hearing, SO1 informed petitioner of this referral
and delayed discussion of the underlying liability until he received
International Operations’ recommendation. The parties agreed to defer
consideration of collection alternatives until the receipt of this
                                   6

recommendation.    After the conference, petitioner submitted a
completed Form 433–A, Collection Information Statement for Wage
Earners and Self-Employed Individuals.

       Before International Operations’ recommendation was received,
the case was reassigned to another settlement officer (SO2). SO2
received a message from International Operations that it had already
considered petitioner’s underlying liability and would not consider the
arguments again. SO2 attempted to schedule an additional conference
for November 7, 2019, but petitioner did not appear. On November 13,
2019, SO2 held a conference with petitioner. SO2 explained the
International Operations message and requested financial information
that would allow him to consider collection alternatives.

       After this meeting, petitioner offered an installment agreement
of $2,000 per month, which SO2 rejected because he was not aware of
the submission of any financial information. SO2 later discovered that
petitioner had provided financial information to SO1 and reviewed the
submitted information in the light of petitioner’s installment agreement
offer. On Form 433–A, petitioner reported that his individual equity in
his assets, adjusted down to 80% of the value for potential tax
consequences and withdrawal penalties, was $3,860,533. Petitioner
reported that his total household income was $22,761 and his total
monthly household expenses were $20,479. Thus, petitioner reported a
net difference between his income and expenses of $2,282. After
considering this financial information and petitioner’s substantial
assets, SO2 rejected petitioner’s installment offer. Petitioner did not
offer an alternative installment offer. Rather, petitioner informed SO2
that he would like to be considered for an offer-in-compromise (OIC),
and SO2 agreed to consider such an offer.

       Petitioner submitted two alternative OICs. On Form 656, Offer
in Compromise, petitioner proposed a one-time payment of $1,000,000
and withdrawal of 22 refund lawsuits. In a letter to SO2, petitioner
submitted an alternative OIC, which sought a global settlement of all
outstanding tax issues by offering to liquidate specific assets and
transfer the proceeds to the IRS, valued at approximately $2,672,717,
and to withdraw 22 refund lawsuits. As part of the alternative OIC,
petitioner also sought to be absolved from any income tax generated
from the liquidation of these assets. The OICs were sent to the
Centralized Offer in Compromise Unit (COICU) for review.
                                    7

        After petitioner sent his OICs, the CDP hearing was assigned to
a new settlement officer (SO3). SO3 determined that he had no prior
involvement and reviewed the casefile. After receiving the entire
administrative file, SO3 determined that there were outstanding issues
relating to the underlying liability.        SO3 referred the case to
International Operations, and it was assigned to AO to review the case.
AO contacted SO3 and explained that he had already considered the
issues and directed SO3 to the Appeals Case Memorandum. SO3
reviewed the Appeals Case Memorandum and conducted independent
research of the cited sources and petitioner’s file to determine whether
he agreed with AO’s determinations on the liabilities. SO3 determined
that he agreed with AO’s determinations regarding the underlying
liability.

       After this determination and the receipt of updated financial
information, SO3 considered petitioner’s OICs. SO3 reviewed COICU’s
recommendation on the OICs. COICU determined that petitioner’s
reasonable collection potential (RCP) was $4,266,334. COICU also
determined that petitioner’s monthly income was $23,166. On the basis
of this information, COICU recommended rejecting petitioner’s OICs.

       Considering the new financial information, SO3 determined that
petitioner’s RCP was $4,682,596. SO3 considered arguments petitioner
raised to reduce the equity in the assets, including current inability to
withdraw funds, but rejected these arguments because the discount
applied to the Form 433–A accounted for these arguments. Averaging
petitioner’s last three years of income, SO3 determined that petitioner’s
monthly income was $20,214. Using the lower COICU RCP, SO3
determined that the OICs were insufficient because of the large equity
petitioner had in assets.

       SO3 scheduled a conference for November 11, 2021, which was
rescheduled to November 17, 2021, in observation of Veterans Day. SO3
explained to petitioner his analysis regarding the adequacy of the OICs
and the merits of the underlying liability challenges. After providing
petitioner additional time to submit other financial documents, SO3
sustained the collection actions. SO3 issued a notice of determination,
dated February 9, 2022.

       Petitioner timely filed a petition in this Court asking for review
of the notice of determination. In his petition he alleged a jurisdictional
defect in that the notice of determination he received failed to include
two attachments referenced in the notice: the Appeals Case
                                        8

Memorandum, detailing the resolution of the underlying liability
challenges; and the calculations of his RCP. Additionally, petitioner
contended that SO3 violated his Fifth Amendment due process rights by
engaging with AO during the CDP hearing, that SO3 erred in concluding
that he was liable for the foreign reporting penalties and the calculation
of such penalties, that SO3 erred in denying his proposed collection
alternatives, and that the foreign reporting penalties violated the
Excessive Fines Clause.

       On December 29, 2022, petitioner filed a Motion for Summary
Judgment, asking this Court to decide as a matter of law that
respondent violated his right to due process under the Fifth Amendment
because SO3 was not independent. On January 4, 2023, respondent
filed a Motion for Partial Summary Judgment. Respondent asked this
Court to find as a matter of law that (1) the notice of determination was
valid, (2) SO3 did not violate petitioner’s Fifth Amendment due process
rights, (3) SO3 did not abuse his discretion in rejecting petitioner’s OICs,
and (4) the foreign reporting penalties do not violate the Excessive Fines
Clause. 5 On February 7, 2023, respondent filed a Response to Motion
for Summary Judgment. After an extension of time, petitioner
submitted a Response to Motion for Partial Summary Judgment.
Therein, he conceded that the notice of determination was valid but
reserved the right to later challenge whether the attachments were
included.

       After the parties filed their respective motions, we held in a
separate case that the IRS lacks the authority to assess the section
6038(b) penalty. See Farhy v. Commissioner, No. 10647-21L, 160 T.C.,
slip op. at 5–14 (Apr. 3, 2023). The IRS later appealed Farhy to the U.S.
Court of Appeals for the District of Columbia Circuit. See Farhy v.
Commissioner, No. 23-1179 (D.C. Cir. filed July 24, 2023). Respondent
filed a Notice of Judicial Ruling acknowledging the Farhy decision;
however, neither party sought to supplement its respective motion.

       On December 14, 2023, we ordered the parties to file briefs on the
implication of Farhy for the current case and the necessity to reach the
Excessive Fines Clause issue as it relates to the section 6038(b) penalty.
In his brief, respondent argued that we should overrule Farhy and hold
that he has the authority to assess penalties under section 6038(b).
Following that approach, respondent argues we should resolve the

        5 Because both parties ask for summary adjudication on the Fifth Amendment

claim, we will consider the motions together on this issue.
                                    9

Excessive Fines Clause issue. In contrast, petitioner argues that, if
affirmed, Farhy resolves this case with respect to the section 6038(b)
penalties. Petitioner has indicated his intent to request the Court to
determine that respondent cannot proceed with the collection actions as
they relate to the section 6038(b) penalties if Farhy is affirmed by the
D.C. Circuit. Both parties agree that Farhy does not prevent this Court
from determining whether the penalties under section 6677 violate the
Excessive Fines Clause.

                               Discussion

I.    Jurisdiction to Review the Notice of Determination

       We are a court of limited jurisdiction, and we may exercise our
jurisdiction only to the extent authorized by Congress. See § 7442;
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). In a CDP case our
jurisdiction is predicated upon the issuance of a valid notice of
determination. See LG Kendrick, LLC v. Commissioner, 146 T.C. 17, 28
(2016), aff’d, 684 F. App’x 744 (10th Cir. 2017). A valid notice of
determination is “a written notice that embodies a determination to
proceed with the collection of the taxes in issue.” Lunsford v.
Commissioner, 117 T.C. 159, 164 (2001). The notice of determination
must specify the taxable period, liability, and collection action to which
the notice relates. See LG Kendrick, LLC, 146 T.C. at 28. The notice
must also include the settlement officer’s determination as to whether
the collection actions may proceed. See Lunsford, 117 T.C. at 165. A
technical error in the notice of determination will not render it invalid
unless the taxpayer is prejudiced or misled by the error. See LG
Kendrick, LLC, 146 T.C. at 29; John C. Hom & Assocs., Inc. v.
Commissioner, 140 T.C. 210, 213 (2013) (“Mistakes in a notice will not
invalidate it if there is no prejudice to the taxpayer.”).

       Although petitioner conceded that the notice of determination
was valid for purposes of these motions, we have an independent
obligation to consider whether the notice of determination is valid
because the parties may not confer jurisdiction on this Court by
agreement or concession. See LG Kendrick, LLC, 146 T.C. at 27. The
notice of determination specifies that the determination relates to the
foreign reporting penalties, properly lists the years at issue, and
specifies the lien and levy actions considered.        The notice of
determination expressly sets out that SO3 sustained the collection
actions. These details alone make the notice of determination valid,
regardless of whether the notice mailed to petitioner included the
                                   10

attachments. See id. at 28. Further, petitioner timely filed his petition
with this Court and therefore was not prejudiced by any alleged error.
See Blue Lake Rancheria Econ. Dev. Corp. v. Commissioner, 152 T.C. 90,
102 (2019) (holding that addressing a notice of determination to only one
taxpayer did not prejudice the other taxpayers covered by the notice
because they timely filed a petition for review). Thus, the notice of
determination is valid, and we have jurisdiction to review respondent’s
determination to sustain collection actions.

II.   Motion for Summary Judgment and Motion for Partial Summary
      Judgment

      A.     Summary Judgment Standard

       The purpose of summary judgment is to expedite litigation and
avoid costly, unnecessary, and time-consuming trials. See FPL Grp.,
Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant
summary judgment where there is no genuine dispute of material fact
and a decision may be rendered as a matter of law. See Rule 121(a)(2);
Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). Furthermore,
we construe the facts and draw all inferences in the light most favorable
to the nonmoving party to decide whether summary judgment is
appropriate. See Bond v. Commissioner, 100 T.C. 32, 36 (1993). The
nonmoving party may not rest upon the mere allegations or denials of
his pleading but must set forth specific facts showing that there is a
genuine dispute for trial. See Rule 121(d); Bond, 100 T.C. at 36.

       Our decision in this case is appealable to the Eighth Circuit. See
§ 7482(b)(1)(G)(i), (2). That court has held that, where de novo review is
not applicable, the scope of review in a CDP case is confined to the
administrative record. See Robinette v. Commissioner, 439 F.3d 455,
459–62 (8th Cir. 2006), rev’g 123 T.C. 85 (2004). To the extent that our
consideration is limited to the administrative record, as discussed below,
“summary judgment serves as a mechanism for deciding, as a matter of
law, whether the agency action is supported by the administrative
record and is not arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” Belair v. Commissioner, 157 T.C.
10, 17 (2021) (quoting Van Bemmelen v. Commissioner, 155 T.C. 64, 79
(2020)).

      B.     Standard of Review

      Section 6320(b) permits a taxpayer to challenge an IRS lien filing
before the Appeals Office, and section 6320(c) (incorporating section
                                    11

6330(d)) provides for Tax Court review of an Appeals Office
determination. Section 6330(b) permits a taxpayer to challenge a
proposed levy before the Appeals Office, and section 6330(d) provides for
Tax Court review of an Appeals Office determination. The Code does
not prescribe the standard of review that this Court should apply in
reviewing an IRS administrative determination in a CDP case; rather,
we are guided by our precedents.

        Where the validity of a taxpayer’s underlying tax liability is
properly at issue, we review the determination regarding the underlying
liability de novo. See Sego v. Commissioner, 114 T.C. 604, 609–10
(2000). We review all other determinations for abuse of discretion. See
id. at 610. Abuse of discretion exists when a determination is “arbitrary,
capricious, or without sound basis in fact or law.” Murphy v.
Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.
2006). Section 6330(c)(2) permits a taxpayer to challenge “the existence
or amount of the underlying tax liability” in a CDP hearing if he did not
previously receive a notice of deficiency and did not have a prior
opportunity to challenge the tax liability.

        Neither the Code nor the regulations define “underlying tax
liability.” See Montgomery v. Commissioner, 122 T.C. 1, 7 (2004).
Underlying tax liabilities include any amounts owed by the taxpayer
pursuant to the tax laws, including the tax deficiency, additions to tax,
and statutory interest. See Katz v. Commissioner, 115 T.C. 329, 339
(2000).

       There is no dispute that petitioner was entitled to challenge his
underlying liability because his postassessment conference had not
concluded before his request for a CDP hearing. See Perkins v.
Commissioner, 129 T.C. 58, 66–67 (2007). To determine whether to
apply a de novo or an abuse of discretion standard of review to each
issue, we must determine which, if any, of the issues relate to his
underlying tax liability.

       Petitioner’s Fifth Amendment challenge to SO3’s independence is
not a challenge to his underlying tax liability. See id. at 69–71.
Similarly, petitioner’s challenge to SO3’s rejection of his collection
alternatives does not relate to his underlying tax liability. See Robinette
v. Commissioner, 439 F.3d at 462–63; Pough v. Commissioner, 135 T.C.
344, 350 (2010). We will review these determinations for abuse of
discretion and our review is limited to the administrative record. See
Robinette v. Commissioner, 439 F.3d at 459–62; Sego, 114 T.C. at 610.
                                    12

       As for petitioner’s Excessive Fines Clause argument, it is not
necessary to determine the standard of review. “Where, as here, we are
faced with a question of law . . . , our holding does not depend on the
standard of review we apply. We must reject erroneous views of the
law.” Manko v. Commissioner, 126 T.C. 195, 199 (2006); see also Farhy,
160 T.C., slip op. at 4–5; Freije v. Commissioner, 125 T.C. 14, 32–37
(2005) (setting aside a determination to proceed with collection because
the Appeals officer’s verification that the requirements of applicable law
were met was “incorrect” because of an “error as a matter of law,”
specifically an assessment that was “simply invalid,” and holding that a
taxpayer’s ability to dispute his underlying tax liability pursuant to
section 6330(c)(2)(B) does not cure an invalid assessment).

      C.     Due Process Rights Under the Fifth Amendment

       The Fifth Amendment provides that “[n]o person shall . . . be
deprived of life, liberty, or property, without due process of law.”
Petitioner alleges that respondent violated his Fifth Amendment due
process rights by (1) failing to provide a hearing in front of an impartial
settlement officer as required by sections 6320(b)(3) and 6330(b)(3) and
(2) taking a position in this litigation inconsistent with prior criminal
proceedings.

       As a preliminary matter, it should be noted that the Due Process
Clause does not require respondent to conduct a hearing before his
collection actions where there is an adequate opportunity for later
judicial review. See Phillips v. Commissioner, 283 U.S. 589, 595–99
(1931); Robinette v. Commissioner, 439 F.3d at 458. However, with the
enactment in 1998 of sections 6320 and 6330, Congress created certain
pre-collection rights and privileges. Therefore, petitioner’s Fifth
Amendment challenges are more properly characterized as challenges
to respondent’s compliance with sections 6320 and 6330.

       Sections 6320(b)(3) and 6330(b)(3) provide that a CDP hearing
“shall be conducted by an officer or employee who has had no prior
involvement with respect to the unpaid tax specified . . . before the first
hearing.” The Code does not define “no prior involvement.” See Harrell
v. Commissioner, T.C. Memo. 2003-271, slip op. at 16, supplemented by
T.C. Memo. 2003-312. However, the regulations provide that prior
involvement includes “participation or involvement in a matter (other
than a CDP hearing held under either section 6320 or section 6330) that
the taxpayer may have had with respect to the tax and tax period shown
                                    13

on the CDP notice.” See Treas. Reg. §§ 301.6320-1(d)(2), Q&A-D4,
301.6330-1(d)(2), Q&A-D4.

       It is undisputed that SO3 had no prior involvement related to the
tax liabilities for the years at issue. Further, the parties do not dispute
that SO3 was required to refer this matter to International Operations
because petitioner’s challenge to his underlying liability involved
international reporting penalties. See Internal Revenue Manual (IRM)
8.7.3.7 (Oct. 1, 2012). Rather, the parties dispute whether AO’s
communication with SO3 during the CDP hearing violated sections
6320(b)(3) and 6330(b)(3). AO clearly had prior involvement in the
dispute of the foreign reporting penalties via his participation in the
postassessment conference. AO was the Appeals officer assigned to
petitioner’s postassessment conference and rendered the final decision
not to abate the foreign reporting penalties. We must determine
whether AO is deemed to have “conducted” the CDP hearing as
contemplated by sections 6320(b)(3) and 6330(b)(3).

       We have considered a similar situation in which an OIC was
reviewed by an attorney who had prior involvement. See Isley v.
Commissioner, 141 T.C. 349, 367 (2013). In that case a settlement
officer referred a proposed OIC to the IRS Office of Chief Counsel as
required by policy. Id. The attorney in the IRS Office of Chief Counsel
who received the proposed OIC had previously worked on tax issues
related to the taxpayer’s prior bankruptcy. Id. After reviewing the OIC,
the attorney recommended denying the OIC in a memorandum to the
settlement officer. Id. We determined that the attorney’s involvement
did not cause him to become “the de facto Appeals officer” conducting
the hearing, and thus section 6330(b)(3) did not apply to him. Id. We
went on to hold that even if the attorney was the de facto Appeals officer,
he did not have prior involvement with the specific tax years at issue.
Id.

       The rationale in Isley is equally compelling in this case. AO was
not present during any of the conferences with petitioner, and the record
does not indicate that he had extensive conversations with SO3. After
SO3 was informed that AO was assigned to the underlying liability
issue, communication between the two appears limited to AO informing
SO3 that he had previously considered the issues and directing SO3 to
the memorandum he had previously drafted. AO logged a mere 45
minutes in his case activity report once he was assigned to the CDP
hearing. As with the attorney in Isley, we do not find that this limited
involvement with the CDP hearing made AO the “de facto Appeals
                                    14

Officer” conducting the hearing. Rather, SO3 was the settlement officer
to which section 6330(b)(3) applies.

      Furthermore, there is no evidence that AO’s involvement impeded
SO3’s impartiality. After SO3 received the memorandum, he compared
the issues in the memorandum to those raised by petitioner and
determined that they were identical. SO3 then reviewed AO’s analysis
and researched the law AO had relied upon and consulted the record.
Only after this research, SO3 determined that he agreed with AO’s
findings on the underlying liability. SO3 exercised his independent
authority to determine whether the foreign reporting penalties were
properly assessed. Therefore, any involvement by AO did not bear on
SO3’s impartiality.

       Petitioner asserts that SO3 could not have performed a complete
review of the underlying liability challenges because he logged three
hours on the issue. In addition to the three hours that petitioner
highlights, SO3 made other entries into his case report indicating he
worked on the underlying liability issue but reported the time as zero.
SO3’s consideration of the issues, rather than the time spent, is the focus
of our analysis. SO3’s case report details how he considered each issue
raised by petitioner and made a determination based on his research
confirming AO’s determination. Thus, petitioner’s Fifth Amendment
and CDP rights were not violated because of AO’s limited involvement.

       Petitioner raises one additional Fifth Amendment argument in
his petition. Petitioner vaguely asserts: “Respondent’s assertion of the
Penalties was improperly inconsistent with its position in a prior
proceeding involving Petitioner.” Petitioner had an opportunity to
further expand on this allegation in either his Motion for Summary
Judgment or his Response to Motion for Partial Summary Judgment but
failed to do so. Assuming petitioner is arguing that his plea agreement
precludes respondent’s assertion of the foreign reporting penalties, we
reject this argument because petitioner’s guilty plea specifically stated
that it did not limit the rights of the Government to pursue civil action
against petitioner. Accordingly, respondent did not violate petitioner’s
Fifth Amendment due process rights or his rights under sections 6320
and 6330.

      D.     Collection Alternatives: OICs

       Section 7122(a) authorizes the IRS to compromise an outstanding
tax liability, and the regulations set forth three grounds for such a
                                        15

compromise: (1) doubt as to liability; (2) doubt as to collectibility; or
(3) promotion of effective tax administration.         See Treas. Reg.
§ 301.7122-1(b). Petitioner proposed to compromise his liability based
on doubt as to collectibility. The Secretary may compromise a tax
liability based on doubt as to collectibility where the taxpayer’s assets
and income render full collection unlikely. See id. para. (b)(2).
Conversely, the IRS may reject an OIC where the taxpayer’s RCP is
greater than the amount he proposes to pay. See Johnson v.
Commissioner, 136 T.C. 475, 486 (2011), aff’d, 502 F. App’x 1 (D.C. Cir.
2013). RCP is generally calculated by multiplying a taxpayer’s monthly
income available to pay taxes by the number of months remaining in the
statutory period for collection and adding to that product the realizable
net equity in the taxpayer’s assets. See id. at 485.

       A settlement officer is generally directed to reject offers
substantially below the taxpayer’s RCP. See Rev. Proc. 2003-71,
§ 4.02(2), 2003-2 C.B. 517, 517. In some cases, the Secretary will accept
an offer of less than the RCP of the case if there are special
circumstances. See id. Special circumstances are (1) circumstances
demonstrating that the taxpayer would suffer economic hardship if the
IRS were to collect from him an amount equal to the RCP 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. See
Murphy, 125 T.C. at 309; IRM 5.8.11.3.1 (Oct. 4, 2019), 5.8.11.3.2.1 (Oct.
4, 2019).

       SO3 did not abuse his discretion in rejecting petitioner’s OICs
because petitioner’s offers were significantly less than his RCP as
determined by COICU and SO3. 6 COICU determined petitioner had an
RCP of $4,266,334. SO3 reviewed this calculation, and based on
updated financial information, increased petitioner’s RCP to $4,682,596.
SO3 determined that even using the lower COICU RCP, petitioner’s
OICs, valued at $1,000,000 and $2,672,717 respectively, were
significantly lower than his RCP.

     Petitioner argues that SO3 did not meaningfully review the OICs;
however, the administrative record does not support this argument.
SO3 performed an in-depth review of petitioner’s financial

         6 Respondent also alleges that SO3 did not have to consider the alternative

OIC because it was not submitted on the proper form. However, we could find no basis
for this argument in SO3’s case activity report.
                                        16

documentation to determine his RCP. In reviewing petitioner’s offers,
SO3 adopted the RCP proposed by the COICU, which allotted petitioner
$416,263 of net equity in assets from which to pay living expenses. SO3
communicated to petitioner his intent to reject the OICs and allowed
petitioner additional time to submit a revised OIC or additional
supporting documents. Petitioner did not provide either. SO3 also
considered petitioner’s arguments that he could not liquidate certain
assets and needed to retain assets for his support but determined that
liquidity issues were already factored into the RCP calculation by Form
433–A. Although petitioner takes issue with this “mechanical” review
of his OICs, this review is not arbitrary or capricious as it complies with
the applicable IRS guidance relevant to analyzing an OIC. See Rev.
Proc. 2003-71, § 4.02(2), 2003-2 C.B. at 517. Therefore, SO3 did not
abuse his discretion in rejecting petitioner’s OICs because petitioner’s
RCP greatly exceeded his OICs.

       E.      Eighth Amendment Excessive Fines

       Section 6038(b)(1) imposes a penalty of $10,000 for each tax year
for which a United States person does not file an information return
disclosing ownership of a foreign corporation. Section 6677 imposes
penalties for failure to file information returns related to foreign trusts.
Section 6677 imposes a penalty for failure to file an information return
disclosing ownership 7 of a foreign trust as required by section 6048(b).
See § 6677(a) and (b). For returns required to be filed by December 31,
2009, the penalty is equal to 5% of the gross value of the portion of the
trust assets that a United States person is treated as owning. For
returns required to be filed after December 31, 2009, the penalty is equal
to the greater of $10,000 or 5% of the gross value of the portion of the
trust assets that a United States person is treated as owning.

       Section 6677 also imposes a penalty for failure to file an
information return disclosing the transfer of money to a foreign trust as
required by section 6048(a). See § 6677(a). For returns required to be
filed by December 31, 2009, the penalty is equal to 35% of the gross value
of property transferred. For returns required to be filed after that date,
the penalty is equal to the greater of $10,000 or 35% of the gross value
of property transferred.

         7 A person may be deemed the owner of a trust under the grantor trust rules

of sections 671 through 679. See § 6048(b)(1).
                                    17

      Petitioner contends that the penalties imposed under sections
6038(b) and 6677 violate the Excessive Fines Clause of the Eighth
Amendment of the U.S. Constitution. We consider the challenge to each
penalty in turn.

             1.     Section 6038(b) Penalties

       Petitioner asks that we find section 6038(b) unconstitutional;
however, it is a well-established principle of constitutional law that we
should “avoid[] unnecessary adjudication of constitutional issues.” See
United States v. Nat’l Treasury Emps. Union, 513 U.S. 454, 478 (1995);
see also Siler v. Louisville & Nashville R.R. Co., 213 U.S. 175, 193 (1909)
(“Where a case in this court can be decided without reference to
questions arising under the Federal Constitution, that course is usually
pursued and is not departed from without important reasons.”); United
States v. Allen, 406 F.3d 940, 946 (8th Cir. 2005) (“When we are
confronted with several possible grounds for deciding a case, any of
which would lead to the same result, we choose the narrowest ground in
order to avoid unnecessary adjudication of constitutional issues.”).
While a court need not contort the law to find a nonconstitutional ground
for deciding a case, we also cannot ignore a clear statutory ground for
resolving the issue when it is looking us right in the face. See Citizens
United v. Fed. Election Comm’n, 558 U.S. 310, 329 (2010) (“It is not
judicial restraint to accept an unsound, narrow argument just so the
Court can avoid another argument with broader implications. Indeed, a
court would be remiss in performing its duties were it to accept an
unsound principle merely to avoid the necessity of making a broader
ruling.”); City of Mesquite v. Aladdin’s Castle, Inc., 455 U.S. 283, 294
(1982) (“[T]his self-imposed limitation on the exercise of this Court's
jurisdiction has an importance to the institution that transcends the
significance of particular controversies.”).

       Here, there is an independent, nonconstitutional basis to resolve
the issue of whether respondent’s determination to sustain collection
actions related to section 6038(b) was an abuse of discretion: respondent
lacks the authority to assess penalties under section 6038(b). See Farhy,
160 T.C., slip op. at 5–14. Respondent assessed penalties under section
6038(b) against petitioner without the authority to do so, which
consequently means that respondent may not proceed with the collection
of the section 6038(b) penalties from petitioner via the proposed levy or
lien. See Farhy, 160 T.C., slip op. at 14. Therefore, there is no need to
reach the constitutional issue of whether the penalties under section
6038(b) violate the Excessive Fines Clause.
                                        18

       Respondent argues that we should revisit and overrule our
holding in Farhy because he believes it was decided incorrectly. We
adhere to the doctrine of stare decisis and thus afford precedential
weight to our prior reviewed and division opinions. See Sanders v.
Commissioner, No. 15143-22, 161 T.C., slip op. at 6 (Nov. 2, 2023).
Respondent’s argument that Farhy was decided incorrectly is not
sufficient justification alone to warrant reconsideration of its holding.
See Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 266
(2014).

       Moreover, the mere fact that Farhy is currently on appeal at the
D.C. Circuit is insufficient. This case is appealable to the Eighth Circuit,
and therefore any ruling from the D.C. Circuit would not be binding on
this proceeding. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970)
(stating that when a “squarely [o]n point” decision of the appellate court
to which an appeal would lie contradicts our own precedent, we will
follow the appellate court’s decision), aff’d, 445 F.2d 985 (10th Cir. 1971).
The Eighth Circuit has not spoken as to the question of whether the IRS
has the authority to assess section 6038(b) penalties. Where we are not
constrained by precedent of the pertinent court of appeals, we follow
stare decisis and apply our own precedent. 8              See Lawrence v.
Commissioner, 27 T.C. 713, 716–17 (1957), rev’d per curiam on other
grounds, 258 F.2d 562 (9th Cir. 1958).

       We further see no reason to delay resolution of this issue until the
resolution of the appeal in Farhy by the D.C. Circuit. Rule 121(g)(2)
permits the Court to grant a motion for summary judgment on grounds
not raised by the parties after notice and a reasonable time to respond.
Our order to brief the implications of Farhy gave adequate notice of the
possibility that we may grant partial summary judgment for petitioner
on this issue, and both parties had reasonable time to respond in the
form of their briefs. Respondent could not assess the penalties under
section 6038(b), and therefore as a matter of law respondent may not
proceed with the collection of the section 6038(b) penalties from
petitioner via the proposed levy or lien. We will grant partial summary
judgment on this issue in favor of petitioner.

        8 To the extent the IRS had the authority to assess penalties under section

6038(b), the analysis on the Excessive Fines Clause issue would be identical to the
section 6677 penalties analysis infra.
                                   19

             2.     Section 6677 Penalties

       The Eighth Amendment to the Constitution provides: “Excessive
bail shall not be required, nor excessive fines imposed, nor cruel and
unusual punishments inflicted.” The Excessive Fines Clause “limits the
government’s power to extract payments, whether in cash or in kind, ‘as
punishment for some offense.’” Austin v. United States, 509 U.S. 602,
609–10 (1993) (quoting Browning-Ferris Indus. of Vt., Inc. v. Kelco
Disposal, Inc., 492 U.S. 257, 265 (1989)). The touchstone of whether a
fine violates the Excessive Fines Clause is the “principle of
proportionality: The amount of the forfeiture must bear some
relationship to the gravity of the offense that it is designed to punish.”
United States v. Bajakajian, 524 U.S. 321, 334 (1998). Therefore, we
must first determine whether the section 6677 penalties are fines and
then if they are fines, whether they are excessive.

       To determine whether a penalty is a fine, we must examine
whether the penalty serves the purpose of punishing the offense. See
Austin, 509 U.S. at 610. This Court has consistently found that the
purpose of civil tax penalties and additions to tax is to encourage
voluntary compliance, and therefore they are not punitive. See
Thompson v. Commissioner, 148 T.C. 59, 66 (holding that the civil fraud
penalty under section 6662A is not punitive); Ianniello v. Commissioner,
98 T.C. 165, 187 (holding that the addition to tax under section 6653 is
not punitive); Bell Cap. Mgmt., Inc. v. Commissioner, T.C. Memo. 2021-
74, at *18 (holding that the civil fraud penalty under section 6663(a) is
not punitive); Gorra v. Commissioner, T.C. Memo. 2013-254, at *63–64
(holding that gross valuation misstatement penalty under section 6662
is not punitive); Mason v. Commissioner, T.C. Memo. 2001-58, slip op.
at 8 (holding that additions to tax under section 6651(a)(1) and (2) are
not punitive).

       Various other courts have agreed. In Helvering v. Mitchell, 303
U.S. 391, 401 (1938), the Supreme Court analyzed whether a civil fraud
penalty under the Revenue Act of 1928 was punishment or purely
remedial in character. The Court found the penalty to be remedial,
stating:

      The remedial character of sanctions imposing additions to
      a tax has been made clear by this Court in passing upon
      similar legislation. They are provided primarily as a
      safeguard for the protection of the revenue and to
      reimburse the Government for the heavy expense of
                                     20

      investigation and the loss resulting from the taxpayer’s
      fraud.

Id.; see also Little v. Commissioner, 106 F.3d 1445, 1454 (9th Cir. 1997)
(declining to find that negligence and substantial understatement
additions to tax under former sections 6653(a) and 6661 were fines
because “[t]he additions to tax . . . are purely revenue raising because
they serve only to deter noncompliance with the tax laws by imposing a
financial risk on those who fail to do so”), aff’g T.C. Memo. 1993-281. In
considering penalties under sections 6038(b) and 6677, other trial courts
have found that the penalties serve a remedial purpose and are not
fines. See Dewees v. United States, 272 F. Supp. 3d 96, 100–01 (D.D.C.
2017) (holding that penalties under section 6038(b) are not fines), aff’d,
767 F. App’x 4 (D.C. Cir. 2019); In re Wyly, 552 B.R. 338, 613 (Bankr.
N.D. Tex. 2016) (determining that penalties under sections 6038(b) and
6677 are not fines).

        Similarly, the U.S. Court of Appeals for the First Circuit has
found that penalties related to failure to file an FBAR with the IRS are
not fines. See United States v. Toth, 33 F.4th 1, 19 (1st Cir. 2022). The
First Circuit reasoned that the FBAR penalties are not related to any
criminal sanction but rather are imposed after the IRS determines that
a taxpayer has failed to report a foreign bank account. Id. at 16.
Additionally, FBAR penalties are related to fraud on the United States
and loss to the public fisc. Id. at 17. The loss to the public fisc is caused
not only by the lost tax revenue when these secret accounts are used for
transactions but also by the great difficulty of law enforcement
investigations into these accounts. Id. Finally, the fact that the penalty
may be higher than the amount of tax owed on the concealed activity did
not make the penalty a punishment. Id. at 18; see also Mitchell, 303
U.S. at 401 (finding that the government could require an individual
who had failed to pay his taxes to both pay the amount owed in taxes
that had not been paid as well as impose a 50% penalty for willfully
failing to pay those taxes).

       Petitioner does not cite any relevant cases in support of his
assertion that the section 6677 penalties violate the Excessive Fines
Clause. Nothing in the text of the statute indicates that we should treat
the section 6677 penalties differently from the other civil penalties. Like
the civil penalties discussed above, the section 6677 penalties clearly
serve the purposes of protecting revenue and reimbursing the
Government for the heavy expense of investigation and fraud. The
section 6677 penalties are primarily a method to safeguard the collection
                                   21

of revenue as without such reporting many foreign entities having U.S.
tax effects would be difficult to find and monitor. The purposes of these
penalties are clear in petitioner’s case. As evident from the consolidated
deficiency case related to the tax years and transactions that form
respondent’s basis for the penalties, petitioner’s failure to comply with
his reporting obligations allegedly allowed him to avoid his federal
income tax liabilities for years.

       Finally, petitioner attempts to stave off summary judgment by
arguing that we should allow a trial on this issue to fully develop the
record because the Eighth Circuit has not ruled whether the section
6677 penalties are fines and the law is unclear on the issue. While the
Eighth Circuit has yet to rule on this precise issue, it has continued to
apply Mitchell to determine that civil tax penalties are not punitive.
See, e.g., Morse v. Commissioner, 419 F.3d 829, 835 (8th Cir. 2005)
(determining in a Double Jeopardy case that section 6663 civil fraud
penalties serve a remedial purpose), aff’g T.C. Memo. 2003-332.
Additionally, we find the overwhelming volume of precedent holding
that civil tax penalties are not fines compels our determination that the
section 6677 penalties are not fines. Further, petitioner has not
indicated what relevant facts he wishes to further develop for appeal.

       Assuming arguendo that the Excessive Fines Clause is
implicated, the section 6677 penalties are not so grossly
disproportionate as to violate the Eighth Amendment. To pass the
constitutional proportionality inquiry under the Excessive Fines Clause,
the amount of the forfeiture or fine must bear some relationship to the
gravity of the offense that it is designed to punish. See Bajakajian, 524
U.S. at 334. A fine violates the Excessive Fines Clause if “the amount
of the forfeiture is grossly disproportional to the gravity of the
defendant’s offense.” Id. at 337.

       We have consistently held that similar penalties are not
disproportionate to the fraud on the government and harm caused on
the public fisc. See Thompson, 148 T.C. at 67–68 (holding that penalties
under section 6662A were not fines and in the alternative that the 30%
penalty was not grossly disproportionate); Gorra, T.C. Memo. 2013-254,
at *62–63 (determining that the 40% gross misstatement penalties
under section 6662(h) were not fines and in the alternative that the
penalty was not grossly disproportionate); see also United States v.
Bussell, 699 F. App’x 695, 696 (9th Cir. 2017) (holding without analysis
that even if penalties for failure to report foreign bank accounts were
fines, $1.2 million of penalties that represented 50% of the value of the
                                   22

undisclosed bank account were not grossly disproportionate to the fraud
on the government and harm to the public fisc). Accordingly, even if the
section 6677 penalties are fines, they do not violate the Excessive Fines
Clause.

       We conclude that the notice of determination is valid, and
therefore we have jurisdiction to review the notice of determination.
SO3 did not violate petitioner’s Fifth Amendment due process rights or
CDP rights through his interactions with AO. SO3 also did not abuse
his discretion in rejecting petitioner’s OIC proposals. Further, the IRS
lacks assessment authority related to the section 6038(b) penalties and
therefore cannot proceed with the collection actions as they relate to
these penalties. Finally, the section 6677 penalties do not violate the
Excessive Fines Clause.

       Accordingly, we will grant respondent’s Motion for Partial
Summary Judgment, filed January 4, 2023, in part. We will deny
petitioner’s Motion for Summary Judgment, filed December 29, 2022.
Independent of the motions, we will grant partial summary judgment in
favor of petitioner on the issue of whether respondent may proceed with
the collection actions as they relate to the section 6038(b) penalties.

      To reflect the foregoing,

      An appropriate order will be issued.