Court Opinion

ID: 9394546
Source: CourtListenerOpinion
Date Created: 2023-05-15 19:01:16.051023+00
Date Added: 2024-06-11T17:18:59.574423
License: Public Domain

United States Tax Court

                              T.C. Memo. 2023-59

           DUANE WHITTAKER AND CANDACE WHITTAKER,
                          Petitioners

                                         v.

              COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

                                    —————

Docket No. 3147-21L.                                          Filed May 15, 2023.

                                    —————

Caleb B. Smith, for petitioners. 1

Lisa R. Jones and Paul A. George, for respondent.

                         MEMORANDUM OPINION

       HOLMES, Judge: Duane and Candace Whittaker offered to settle
their $33,000 tax bill for only $1,629. 2 The Whittakers argued that the
Commissioner should accept such a low offer because they were both
near retirement age and burdened with significant unpaid debt and loss
of their jobs during the pandemic. The IRS’s settlement officer rejected
the offer because she concluded that the Whittakers had enough income
and home equity to pay the tax bill in full.

       1 The Whittakers were clients of the University of Minnesota Ronald M.
Mankoff Tax Clinic, which gives students the opportunity to represent clients before
the IRS and the courts. The Court thanks them for their work on this case.
         2 In addition to the $33,000 bill stemming from 2015, the Whittakers intended

the $1,629 to also satisfy their liabilities from 2004, 2005, 2006, and 2018. Taken
together, the Whittakers total outstanding liability was around $50,000 at the time of
their offer. We focus on the sum from 2015 since that is the tax directly at issue.

                                Served 05/15/23
                                           2

[*2] The question in this case is whether this rejection was an abuse
of discretion.

                                    Background

      The Whittakers are hardworking people—Mrs. Whittaker was a
family and community-empowerment specialist for a local school district
who also worked part time as a tutor and as a mall security guard. Mr.
Whittaker is a veteran and self-employed personal trainer. The couple
have faced financial hardship long before 2015. They have significant
unpaid debts, including even unpaid student loans of more than
$60,000, and other personal debt of about $10,000.

      They also have tax troubles. They owe the IRS income tax for tax
years 2004–06 and 2018. And they owe Minnesota about $9,700 for their
2015 tax year.

       In 2018 the Commissioner sent them a notice of his intent to levy
to collect their 2015 tax debt. The Whittakers timely asked for a
collection due process (CDP) hearing under section 6330. 3 The
Whittakers wanted to compromise their tax debt, which triggered the
IRS to refer their case to an IRS offer examiner who told them that they
needed to fill out and return IRS Form 433–A (OIC), Collection
Information Statement for Wage Earners and Self-Employed
Individuals, if they wanted her to consider an alternative to forced
collection.

      After a telephone conference between one of their lawyers and the
examiner, the Whittakers submitted an offer-in-compromise (OIC) in
May 2019. By the time they submitted the OIC, the Whittakers were in
their mid-60s, and Mrs. Whittaker was less than a year away from
retirement from the Northwest Suburban Integration School District.

      The OIC included a completed Form 433–A, exhibits such as the
mortgage statement for their home, their county property-tax
statement, and a tax order from the Minnesota Department of Revenue.
They also included a copy of a retirement letter for Mrs. Whittaker, her
employment contract with the school district, her Social Security
benefits statement, pay stubs from her jobs with the school district and

        3 Unless otherwise indicated, all statutory references are to the Internal

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

[*3] the mall, and a list of her expenses that included her student-loan,
health-care billing, and personal credit-card statements to paint the full
picture of her financial situation. They included a copy of a money order
for an initial 20% payment of $325.80 for their OIC. 4 The OIC also
included a number of exhibits from Mr. Whittaker—a profit-and-loss
statement for his personal-training business, business checking-account
statements, and a military-pay letter from the Department of Defense.
The Whittakers noted that they could provide additional information to
support their claims in the OIC if the IRS so desired.

      In their OIC, the Whittakers stressed that their age and difficult
financial situation meant that they would very soon have to rely on their
retirement savings as a source of income rather than as a nest egg. They
also volunteered that they could not borrow against their home both
because it was in disrepair and because the terms of their mortgage
forbade it.

       The IRS usually shuffles the OICs that taxpayers send in to a
centralized unit unimaginatively called the Centralized Offer in
Compromise Unit. This part of the IRS bureaucracy rejected the
Whittakers’ OIC in February 2020. Someone at the Unit calculated that
the Whittakers could pay—or to use IRS jargon, had a reasonable
collection potential (RCP) of—about $250,000. The case-activity record
(the equivalent of timesheets for IRS employees) shows that the
Whittakers’ lawyer spoke with a settlement officer who explained that
“the special circumstances [that the Whittakers raised] were considered;
but did not warrant acceptance of the offer.” There was, however,
nothing in the activity record to suggest that the settlement officer
asked the Whittakers about their ability to access their equity in their
home.

        When the Unit thinks it should reject a taxpayer’s OIC, the IRS
still allows an appeal to a different part of the IRS, the IRS Office of
Appeals. (It has since been rechristened the IRS Independent Office of
Appeals. Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,
983 (2019).) The Whittakers’ timing couldn’t have been worse—their
appeal hit IRS Appeals just as the pandemic hit the country. After a
hearing in March 2020, the record shows that the settlement officer

       4 The IRS requires taxpayers who want an OIC to pay an application fee and

submit an initial partial payment. The Whittakers at first neglected to include the fee
along with the partial payment. After being notified of the error, the Whittakers’
attorney sent the required sum.
                                            4

[*4] reached out to one of the Whittakers’ lawyers to schedule a second
hearing. 5 But there were long gaps between her attempts to reach the
Whittakers’ lawyers, and their lawyers did not finally get in touch with
the settlement officer until September 2020.

       Their conversation seems to have been short. One of the lawyers
spoke with the settlement officer and asked for a call back to discuss the
case. Later that day, after looking through the files for about 15 minutes,
the settlement officer did call back to say that she agreed with the
rejection because the Whittakers had an RCP of about $250,000 against
a total liability of about $50,000. 6 The settlement officer reiterated that
the special circumstances that the Whittakers raised in their OIC were
considered, but that she thought their offer was way too low because the
Whittakers could fully pay without hardship. The settlement officer
pointed out, for instance, that the Whittakers could fully pay the liability
with “just one of the investment account[s,] leaving the other investment
and the equity in the home.” She did offer the Whittakers a streamlined
installment agreement 7 and gave their lawyer time to speak with the
Whittakers to see if that was what they wanted.

      Remember, though, that this was in the middle of the worst part
of the pandemic. The Whittakers responded with a five-page fax, in
which they again argued that the IRS should accept their OIC, but also

        5 The activity record shows a call made in February 2020, and another one in
September 2020. The notes from the voicemail left in September 2020 refer to a call
made in May 2020. If such a call was made, however, it is not logged in. According to
the activity record, the February 2020 call was not answered, but the settlement officer
left her number for a call back. The September 2020 call was returned the same day.
       The University of Minnesota Tax Clinic disputes that it received calls in either
February 2020 or May 2020. It claims that the first contact it received from the
settlement officer was September 2020, and it also states that in August 2020 it had
checked in with the IRS offer examiner about the status of the case and was told that
there was no activity log.
        The record does show that the clinic supervisor, Professor Caleb Smith, wrote
to the IRS offer examiner in December 2019. We do think that there was a failure to
communicate, but the entire world wasn’t operating under its standard procedures for
much of 2020. And in the end these delays don’t affect our analysis.
        6   This total includes $33,000 for 2015; the rest is from tax years 2004–06 and
2018.
         7 Streamlined installment agreements (SIAs) are installment agreements that

can last up to 72 months and are available to taxpayers with liabilities of $50,000 or
less. Internal Revenue Manual (IRM) 5.19.1.6.4(10) (Sept. 26, 2018).
                                           5

[*5] told the settlement officer that their circumstances had changed:
Mr. Whittaker was by then completely retired, and Mrs. Whittaker was
limited to working two weekends a month.

       The settlement officer acknowledged the fax a few days later, but
said it was not enough and that she “would not be accepting the offer as
a collection alternative.” She reiterated that she considered the
Whittakers’ ages but that they “did not warrant acceptance of the offer.”
She noted a small error that the Unit had made—calculating the
family’s monthly income as $740 instead of $764. She also observed that
Mrs. Whittaker held a separate retirement account at Charles Schwab
and speculated that she must be entitled to a pension from the school
system. Here we come to a gap in the record: There are two Forms
1099–Rs from Schwab, that show a total distribution of around $600,
but there is no other information about what these accounts are or how
much was in them. There’s also no evidence of a pension for Mrs.
Whittaker or its amount. (Though we also note that the Whittakers don't
deny that Mrs. Whittaker has earned a pension from her years with the
school district.)

       The settlement officer reasoned that Mrs. Whittaker’s school
pension would be more than the small pay she received from her part-
time job. As for Mr. Whittaker, the settlement officer claimed that
instead of the $1,394 per month pension that was reported, Mr.
Whittaker’s “true pension amount from the military and national
finance is $2,253.00.” 8 Because the Whittakers were neither living on a
fixed income nor disabled, she concluded that they did not qualify for
special circumstances under IRM 5.8.11.3.1(5), (6), and (7) (Oct. 4,
2019). 9 She did acknowledge that the pandemic had changed the
Whittakers’ circumstances, but she was willing to consider only a

        8This is a mistake but it’s harmless because the settlement officer did not
substitute this higher number in the RCP calculation. See Watchman v. Commissioner,
103 T.C.M. (CCH) 1620, 1624 (2012) (“Error is harmless when it causes no prejudice
or does not affect the ultimate determination.”).
         9 Unless otherwise noted, the Court cites to the provisions of the IRM that were

in effect November 2020, when the Appeals Office issued the notice of determination
that we review here. See Jones v. Commissioner, 104 T.C.M. (CCH) 364, 370 (2012)
(using IRM from year of the notice of deficiency (NOD)).
                                            6

[*6] postponement of collection until after July 15, 2021, 10 and made no
changes to the Unit’s worksheets.

       As for the Whittakers’ argument that they were unable to borrow
against the equity in their home because it was in serious disrepair and
their mortgage wouldn’t allow it, the settlement officer simply wrote
that she “also reviewed IRM 5.8.5.10(4) and IRM 5.8.5.13(5).” The
settlement officer also stated that if the Whittakers took money out of
their retirement accounts, then the settlement officer would list the
money as a dissipated asset since the Whittakers had been working in
2019.

       All this meant that there would be no agreement. The settlement
officer drafted a notice of determination that upheld the IRS’s decision
to proceed to forced collection. In the notice, she sustained the rejection
by stating that there were no special circumstances to justify the
Whittakers’ failure to propose an adequate OIC.

       The Whittakers lived in Minnesota when they filed their
petition. 11 The parties agreed to submit the case for decision under Rule
122.

                                      Discussion

       CDP hearings often lead to settlements because they allow a
taxpayer to suggest alternatives to the harsher methods the IRS can use
to collect debts. See § 6330(c)(2)(A)(iii). One such alternative is an offer
in compromise, a taxpayer’s request that the Commissioner settle old
tax debt for less than its face value. “Offer in compromise” is a generic
term that comes in three species: doubt as to liability, doubt as to
collectibility, or promotion of effective tax administration. Treas. Reg.
§ 301.7122-1(b). The IRS may accept an OIC for doubt as to liability
when there is a genuine dispute about the existence or amount of a
taxpayer’s debt. Id. subpara. (1). It may accept an OIC for doubt as to
collectibility when a “taxpayer’s assets and income are less than the full
amount of [his] liability.” Id. subpara. (2). And it may accept an OIC for
effective tax administration when it might be able to collect in full but

        10 The activity report states that the collection could be held off until July 15,
2020, but this entry is dated October 2020. We think this means that the IRS agreed
to hold off collection until July 2021.
        11 Appellate venue thus presumptively lies in the Eighth Circuit. See

§ 7482(b)(1)(G).
                                     7

[*7] only by causing a taxpayer to suffer economic hardship. Id.
subpara. (3).

       The Whittakers’ offer was based on doubt as to collectibility,
which means that they were saying that their assets and income weren't
enough to pay their tax debt in full. See id. para. (a)(1), (b)(2). The
Commissioner has discretion to accept or reject the offer. Id. para. (c).
We have jurisdiction to review any rejection of an OIC, even one that
includes liabilities for tax years in addition to those that were the subject
of the CDP hearing. See, e.g., Sullivan v. Commissioner, 97 T.C.M.
(CCH) 1010, 1014–15 (2009). That was the situation here—the
Whittakers’ CDP hearing was about their 2015 tax debt, but their OIC
proposed a settlement of their tax liabilities from 2004–06 and 2018 as
well. Our decision, however, is confined to the tax year before us.

       The Commissioner has guidelines to enable settlement officers to
evaluate offers and maintain some reasonable degree of uniformity. The
key concept under these guidelines is the calculation of a taxpayer’s
RCP, the IRS’s analysis of how much it thinks a taxpayer can pay. A
settlement officer’s calculation of an RCP depends on his estimate of the
taxpayers’ assets and likely future income. See IRM 5.8.4.3.1 (Apr. 30,
2015). The IRS typically calculates likely future income by multiplying
a taxpayer’s monthly disposable income (gross income minus necessary
living expenses) by a certain number of months. See id.

       The Commissioner’s discretion is very wide. We review his
determination, at least in cases like this one in which the amount of tax
owed is not in question, only for abuse of discretion. Sego v.
Commissioner, 114 T.C. 604, 610 (2000). We find an abuse of discretion
when a determination is based “on an erroneous view of the law or a
clearly erroneous assessment of the facts.” See Fargo v. Commissioner,
447 F.3d 706, 709 (9th Cir. 2006) (quoting United States v. Morales, 108
F.3d 1031, 1035 (9th Cir. 1997)), aff’g 87 T.C.M (CCH) 815 (2004). We
also find an abuse of discretion when the Commissioner applies “the
correct law to the facts which are not clearly erroneous but rule[s] in an
irrational manner.” Trout v. Commissioner, 131 T.C. 239, 245 (2008)
(quoting Indus. Inv. v. Commissioner, T.C. Memo. 2007-93). The Eighth
Circuit phrases the test a bit differently: We should disturb the
Commissioner’s determination only if it constituted “a clear abuse of
discretion in the sense of clear taxpayer abuse and unfairness by the
IRS.” Fifty Below Sales & Mktg., Inc. v. United States, 497 F.3d 828, 830
(8th Cir. 2007). We are also limited in our review to the reasoning set
out in the notice of determination and not what the IRS’s lawyer or we
                                     8

[*8] ourselves might come up with. See, e.g., Antioco v. Commissioner,
105 T.C.M. (CCH) 1234, 1240 (2013); Jones, 104 T.C.M. (CCH) at 369;
Salahuddin v. Commissioner, 103 T.C.M. (CCH) 1764, 1768 (2012).

      In cases appealable to the Eighth Circuit, we also limit what we
look at—our scope of review—to the administrative record, not a new
record made in court after a trial de novo. Robinette v. Commissioner,
439 F.3d at 459.

       In this case both parties make a great deal about various
provisions in the IRS’s IRM. The IRM is important here—it enables the
IRS itself to put some bounds on its employees’ exercise of discretion.
But the IRM “does not have the force of law and does not confer rights
on taxpayers.” Fargo v. Commissioner, 447 F.3d at 713. Its guidance is
usually quite reasonable, however, and we generally uphold a
determination to reject an offer if the settlement officer has followed it.
Atchison v. Commissioner, 97 T.C.M. (CCH) 1034, 1036 (2009).

       The question here is whether the Commissioner abused his
discretion by failing adequately to consider:

     •   The Whittakers’ reliance on their retirement account for income;

     •   the special circumstances that they raised (i.e., their nearing
         retirement and inability to borrow against their home); and

     •   the change in the Whittakers’ financial condition caused by the
         pandemic.

We address these issues in order.

I.       Retirement Account

       We first look at the question of how the Commissioner should look
at the Whittakers’ retirement accounts in calculating their RCP. The
Whittakers argue that, because they are nearing retirement, the money
in those accounts should be viewed as generating income over time, not
as an asset to be liquidated to pay their tax debt. When the Whittakers
submitted their OIC in May 2019, they reported that their monthly
household income was $740 in gross wages; $1,895 in Social Security;
$58 in other income for Mrs. Whittaker; $290 in net business income;
and a $1,394 pension for Mr. Whittaker. Even though Mrs. Whittaker
was earning $4,357 per month in gross wages from her primary job at
                                     9

[*9] the school district when they submitted their offer, she included
only the wages she earned as a part-time mall security guard because
her regular job was set to end when she retired in June 2019. If one
doesn’t include this income, the Whittakers monthly household
expenses—which they said totaled up to $4,512—would be higher than
their projected income.

       They argue that even while employed they had no disposable
income, and that due to Mrs. Whittaker’s imminent retirement, they
would have even less monthly income in the future. They specifically
cite IRM 5.8.5.10 (Mar. 23, 2018), which states that a taxpayer within
one year of retirement may have his retirement accounts treated as
income; and IRM 5.8.5.20(4) (Sept. 30, 2013), which states that
taxpayers who are retiring may have their future income and expenses
adjusted in calculating their RCP. They think these parts of the IRM
should have made the IRS increase their projected income a bit, but
taken the value of the accounts entirely off the asset-side of the RCP
computation—changes that they also say would make their OIC more
reasonable. They also point to an authority higher than the IRM that
both the IRS and we have to follow—there’s a Treasury Regulation that
says that the IRS may compromise a tax debt if a taxpayer has a
retirement account with sufficient funds to fully pay his liability, but
who would be unable to pay for basic living expenses afterwards if he
did so. Treas. Reg. § 301.7122-1(c)(3)(iii) (example 2).

       The settlement officer here included the Whittakers’ retirement
accounts as assets that they could liquidate. The Commissioner
emphasizes that neither the regulation nor the IRM requires a
settlement officer to treat retirement savings only as a source of income.
And he’s right about that—they both say that when a taxpayer is within
one year of retirement, the settlement officer may characterize
retirement funds as income when the income is required to provide
necessary living expenses. See Treas. Reg. § 301.7122-1(c)(3)(iii); IRM
5.8.5.10(4).

       When taxpayers like the Whittakers make an OIC and argue that
they have special circumstances, all agree that the IRS should consider
additional factors beyond income and basic living expenses. See IRM
5.8.11.2.1(2) (Aug. 5, 2015). Those additional factors include age,
employment status, the number and health of any dependents, their
medical condition, and their ability to earn a living. Id. (5), (6), and (7).
When specifically evaluating the taxpayer’s medical condition, we have
usually considered “medical catastrophe and . . . long-term illness . . . or
                                   10

[*10] disability that render a taxpayer incapable of earning a living.”
Leago v. Commissioner, 103 T.C.M. (CCH) 1210, 1215 (2012).

       In her activity record, the settlement officer noted that the
Whittakers “submitted the special circumstances,” that those
circumstances were “considered,” but that they “did not warrant
acceptance of the offer.” She noted that the Whittakers did not have any
long-term illnesses, were not disabled, and were not living on a fixed
income.

       We see here no erroneous view of the law and no clearly erroneous
assessment of the facts. It looks like the settlement officer considered
the additional factors noted in IRM 5.8.11.2.1(5), (6), and (7) that might
affect a taxpayer’s financial condition. The Commissioner is correct that
the settlement officer is not required to consider retirement savings only
as a source of income if a taxpayer is within one year of retirement. See
IRM 5.8.5.10(4). But there may be a problem for the Commissioner—
this reasoning didn’t make it into the notice of determination, no matter
that it is reasonably clear in the administrative record as a whole. There
is some ambiguity in the law here—we typically say that we confine our
review to the reasoning in the notice of determination, but
administrative-law cases more generally do let a reviewing court
“uphold a decision of less than ideal clarity if the agency’s path may
reasonably be discerned.” Bowman Transp., Inc. v. Ark.-Best Freight
Sys., Inc., 419 U.S. 281, 286 (1974) (citing Colo. Interstate Gas Co. v.
FPC, 324 U.S. 581, 595 (1945)).

II.   Home Equity

       We find less ambiguous problems with the exercise of discretion
on the second issue that the Whittakers raise: the treatment of the
equity in their home. In their OIC, the Whittakers explained that they
bought their home in 1984 but refinanced it under the Home
Affordability Refinance Program, which helps homeowners who owe
more than their property is worth. That refinancing requires a balloon
payment in 2034, and the Whittakers argue that this makes it
impossible for them to borrow against the property. Though their OIC
acknowledged that the county’s assessed value of their home was
$243,000, they also argued that its actual value was lower because of
serious structural issues that require repair. They contended that their
position meant that the value of their home in the RCP calculation
should have been zero. They also offered to provide the IRS more
                                          11

[*11] information on the loan terms, the home’s value, and the
unwillingness of banks to refinance.

       The Unit adopted the county’s assessed value of the Whittakers’
home in its analysis of the OIC. It figured that the quick sale value 12 of
the home was $194,400. The Whittakers had a mortgage for $85,237,
and so a net equity of $109,163. This analysis, however, ignored the
Whittakers’ contention that the home was worth less than its assessed
value due to its condition as well as their contention that they are unable
to tap that equity because of the restrictive terms of their mortgage. The
settlement officer did not address these arguments, but disregarded
them and adopted the Unit’s valuation.

       The Whittakers renew this argument here. And the IRM does
specifically mention that a taxpayer’s inability to borrow against equity
is a special circumstance. IRM 5.8.11.2.1(6)(3.).

       The Commissioner tries to tear it down. He first points to the
Whittakers’ mortgage-account statement. It shows an outstanding
principal balance of $108,762.35 as of October 3, 2018. That balance,
coupled with an assessed value of $243,000, the Commissioner argues,
means that their home is no longer under water. He surmises that there
is enough equity to fully pay their outstanding tax debt. To this the
Whittakers reply that they can’t refinance their home under their
peculiar circumstances and that it’s in such a state of disrepair that the
assessed value doesn’t reflect its fair market value. The Commissioner
responds that refinancing both regular and deferred principal balances
is not any more complicated than refinancing a loan with a first and
second mortgage, and he urges us to find no abuse of discretion by the
settlement officer in concluding that there was at least $50,000 worth of
available equity to fully pay the liability. The Commissioner also argues
that the Whittakers’ allegation that this home has serious structural
problems should be ignored for lack of specificity.

      The IRS does need to take problems with possible refinancing a
home seriously. For example, in Antioco, 105 T.C.M. (CCH) at 1236, the
taxpayer submitted proof of her attempts to refinance after the
settlement officer asked for such documents to help the officer make her
determination. Here, although the Whittakers didn’t submit such proof,

        12 The IRS defines the quick sale value to be “[t]he amount that could be

obtained if an asset is sold quickly, usually less than [fair market value].” IRM 5.8.1-1
(Nov. 8, 2018).
                                  12

[*12] they said that they would and could if the settlement officer had
only asked. The Whittakers have a point—there’s nothing in the
administrative record that states or even suggests that the examiner at
the Unit or the settlement officer during the CDP hearing asked for any
information in addition to the appraised value. The settlement officer
noted that she “advised [the Whittakers’ lawyer] that the special
circumstances were considered; but did not warrant acceptance of the
offer” and that she “was not going to remove the equity for the
investment because the taxpayers can fully pay with one of the
retirement accounts; plus, the taxpayers have over $100,000 in equity
in the home.” There’s no evidence in the record of any consideration of
the Whittakers’ arguments on this point.

      We therefore find that the settlement officer’s conclusion about
the Whittakers’ ability to tap the equity in their home was clearly
erroneous on this record. This makes her reliance on that equity in her
RCP calculations an abuse of discretion.

III.   COVID-19 Pandemic

       There is, however, a more serious problem with the determination
here: While the OIC was before the IRS, the pandemic hit. As it did for
so many Americans, the pandemic changed the Whittakers’ fortunes.
The record shows that the settlement officer received a fax from the
Whittakers’ lawyer specifying those changed circumstances—namely
that Mr. Whittaker had completely retired, and Mrs. Whittaker was
limited to working only two weekends a month. The settlement officer
acknowledged receipt of the fax but explained that she “would not be
accepting the offer as a collection alternative.” The settlement officer
instead offered to hold off on collection until July 2021. She reasoned
that Mrs. Whittaker had enough pension income and that a slight delay
in collection would be enough to reflect their changed circumstances
brought on by the pandemic. As for Mr. Whittaker, the settlement officer
reasoned that “his true pension amount from the military and national
finance is $2,253.” The Commissioner now concedes that the settlement
officer was mistaken and that Mr. Whittaker had a military pension of
only $1,394 per month. But he argues that the mistake is harmless since
the settlement officer didn’t substitute her higher numbers in the RCP
calculation. The settlement officer reasoned that the Whittakers should
still not receive an OIC because they were neither living on a fixed
income nor disabled.
                                          13

[*13] The Commissioner concedes that this response has not been “as
well documented in the administrative file as the other issues,” but
suggests that the abrupt collapse in the Whittakers’ income meant that
“the [settlement officer] should not have focused [solely] on delayed
collection” by “hold[ing] off on [the] collection until after 7/15/2[1].” 13 The
Commissioner claims that the settlement officer’s mistake was
harmless. See Watchman, 103 T.C.M. (CCH) at 1624. Because the
settlement officer still considered other factors, such as Mrs. Whittaker’s
pension accounts and Mr. Whittaker’s actual military pension of $1,394
per month to conclude that their financial condition during the
pandemic did not change, the calculus did not affect the ultimate
determination, and thus her error is harmless.

       Perhaps realizing the weakness of the settlement officer’s
reasoning on this issue, the Commissioner bolsters his argument by
asking us to note that the Mall of America reopened after being closed
for only three months. He also asks us to note that the lockdown inspired
a nationwide surge in the demand for fitness equipment, and given that
Mr. Whittaker’s business website in personal fitness was still up and
running as of May 2022, he may not in fact have been completely retired.

       We must decline the Commissioner’s suggestions. Evidence of
reopening of the Mall of America or increased sales of personal fitness
equipment during the pandemic aren’t in the administrative record. We
won’t consider them.

       Upholding the rejection of the Whittakers’ offer because Mrs.
Whittaker’s mall job may have resumed or Mr. Whittaker might be able
to run a training business using potential clients’ possible pandemic
purchases is entirely speculative. These post hoc rationalizations are
precisely what Chenery bars. See Antioco, 105 T.C.M. (CCH) at 1240.

      The settlement officer “did not think that the loss of the
Whittakers wage income or self-employment income [due to the
pandemic] sufficiently mattered to justify reworking the Offer
Worksheet.” Even in the Unit’s analysis of their original OIC, however,
the Whittakers’ net monthly income was calculated to be only $255.
Adjusting those calculations to reflect their income after the pandemic
hit would show a net income deficit. The settlement officer’s explicit

        13 As mentioned, the record states the promise to hold off collection was until

July 7. For the reasons explained supra note 10 we presume this was intended to mean
2021.
                                   14

[*14] refusal to rework the worksheet despite the very considerable
discrepancy in the calculation before and after the pandemic is a clear
error and thus an abuse of discretion.

IV.   NOD

      “[W]e can uphold the Appeals Office’s determination only on
grounds actually relied upon by the Appeals officer in the notice of
determination.” Jones, 104 T.C.M. (CCH) at 367 (citing Salahuddin, 103
T.C.M. (CCH) at 1768). The NOD issued by the Commissioner was
sparse and contained little if any rationale behind the determination. It
stated:

      After considering your [attorneys] statements by telephone
      and fax information, Appeals sustained the rejection of the
      offer because the tax is held to be legally due and an
      amount larger than the offer appears to be collectible. We
      have not found that an exceptional circumstance exists
      that allows our acceptance of your offer. We do not have
      authority of accept an offer in these circumstances.

      No mention of the retirement accounts, no mention of the equity
in the home or its condition, and no mention of the pandemic. Even
though our own review of the record as a whole shows enough for us to
conclude there were an abuse of discretion, the absence of reasoning on
the basis of that record in the NOD itself might well be decisive all on
its own.

       It is another ground for us to find that the IRS abused its
discretion.

V.    Remedy

        We can remand a CDP case to IRS Appeals when a settlement
officer has abused her discretion in some way, see Med. Prac. Sols., LLC
v. Commissioner, 98 T.C.M. (CCH) 242, 247 (2009); or didn’t develop the
record enough for us to properly review it, see Hoyle v. Commissioner,
131 T.C. 197, 205 (2008); Churchill v. Commissioner, 102 T.C.M. (CCH)
116, 118 (2011).

      We have also remanded where a taxpayer has experienced a
material change in circumstances between the time of the CDP hearing
and the time of trial in some way that affects the RCP calculation. Leago,
103 T.C.M. (CCH) at 1210 (remanding when the taxpayer developed
                                  15

[*15] medical issues); Churchill, 102 T.C.M. (CCH) at 116 (remanding
when RCP changed due to divorce); Harrell v. Commissioner, 86 T.C.M.
(CCH) 378 (2003) (remanding because of intervening Supreme Court
decision).

       The Whittakers lost their jobs in the middle of the CDP hearing.
Because their current income was important to the RCP calculation, this
was a material change of circumstances. On remand the Appeals Office
is directed to consider updated financial information that they should
provide to document any change in their ability to pay resulting from
their loss of income due to the pandemic, as well as other factors in
accord with this opinion.

      An appropriate order will be issued.