Court Opinion

ID: 802749
Source: CourtListenerOpinion
Date Created: 2012-06-20 19:37:43+00
Date Added: 2024-06-11T18:00:05.311636
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 11-2217

              ARTHUR DALTON, JR., AND BEVERLY DALTON,

                      Petitioners, Appellees,

                                v.

                 COMMISSIONER OF INTERNAL REVENUE,

                      Respondent, Appellant.

              APPEAL FROM THE UNITED STATES TAX COURT

                   [Hon. Thomas B. Wells, Judge]

                              Before

                        Lynch, Chief Judge,
                 Selya and Boudin, Circuit Judges.

     Bethany B. Hauser, Attorney, Tax Division, with whom Tamara W.
Ashford, Deputy Assistant Attorney General, and Thomas J. Clark,
Attorney, Tax Division, U.S. Department of Justice, were on brief,
for appellant.
     John W. Geismar, with whom Daniel L. Cummings and Norman,
Hanson & DeTroy, LLC were on brief, for appellees.

                           June 20, 2012
            SELYA, Circuit Judge. This appeal turns primarily on the

standard    of    review     that    courts   should     apply    when    examining

conclusions reached by the Internal Revenue Service (IRS) following

a collection due process (CDP) hearing.             See 26 U.S.C. § 6330(b).

While courts generally have agreed that review in this context is

for abuse of discretion, no court has had the occasion to parse

that   standard    and     analyze    how   it   plays   out     with    respect   to

subsidiary factual and legal determinations made by the IRS during

the CDP process.        We grapple with that issue today.

            The issue arises in a case in which the taxpayers offered

to settle their tax liability for pennies on the dollar.                    The IRS

determined that the taxpayers could afford to pay more because they

owned valuable real estate and, therefore, rejected the offer in

compromise.      In a first-tier appeal, the Tax Court reviewed the

IRS's underlying ownership determination de novo, found that the

taxpayers were not the owners of the real estate in question, and

directed the IRS to accept the offer in compromise.                        It later

ordered    the   IRS    to   pay    attorneys'   fees    to    the    taxpayers    as

prevailing parties.

            We hold that the Tax Court employed an improper standard

of review with respect to the IRS's subsidiary determinations.

Applying    a    more   deferential     standard    to    these      determinations

consistent with the nature and purpose of the CDP process, we

conclude that the IRS did not abuse its discretion when it rejected

                                        -2-
the taxpayers' offer in compromise.      The IRS acted reasonably in

determining that the taxpayers were the owners of the property and,

thus, the equity in the property was appropriately considered when

the IRS evaluated the compromise offer.     Consequently, we reverse

the Tax Court's judgment.

I.   BACKGROUND

             The taxpayers are a married couple: Arthur Dalton, Jr.,

and Beverly Dalton. In 1977 and 1980, respectively, they purchased

two adjacent lots abutting Thompson Lake in Poland, Maine.        In

1983, they deeded both lots, subject to an existing mortgage, to

Arthur Dalton, Sr. (the father of Arthur Dalton, Jr.) for $1.

Although the grantee agreed to assume the mortgage, the record

contains no evidence that the mortgagee released the taxpayers from

liability.

             In 1984, Arthur Dalton, Sr., purchased an abutting lot.

He then deeded all three lots (the Property) to a grantor trust of

his creation.     He appointed himself as the sole trustee, specified

that the trust would expire upon the death of the last survivor of

himself and the taxpayers, and designated the taxpayers' children

as the trust's beneficiaries.

             Notwithstanding these maneuvers, the record contains

substantial evidence suggesting that the taxpayers continued to

treat the Property as their own.    For one thing, they continued to

pay for the maintenance and upkeep of the Property.      For another

                                  -3-
thing, long after the trust had taken title, Beverly Dalton co-

signed a new mortgage on the Property and, in the mortgage papers,

represented herself to be an owner of the Property.1

          The Property contains a large house, and the taxpayers

moved into the house in 1997.    The impetus for the move was the

failure of their business and the consequent loss of their

Massachusetts home.    The Property has remained their principal

residence since that time.   The taxpayers have never had a written

lease, but they insist that they entered into an oral lease with

the trustee.   They assert that under the terms of the oral lease,

they agreed to care for the trustee's elderly wife, manage and

maintain the Property, and pay "rent" roughly equal to the amount

needed to defray mortgage payments and real estate taxes.

          Arthur Dalton, Sr., passed away in 1999.       The trust

indenture gave Arthur Dalton, Jr., the power to name a successor

trustee. He appointed Robert Pray (Beverly Dalton's brother). The

widow of Arthur Dalton, Sr., entered an assisted-living facility a

few years later.    Since then, the taxpayers have been the sole

inhabitants of the Property.      They continue to maintain the

premises and supply funds to the trust sufficient to cover the

mortgage payments and real estate taxes.   Beverly Dalton, who has

     1
       In the CDP proceedings, Beverly Dalton claimed to have co-
signed the mortgage as an "accommodation" to the mortgagee. She
also asserted that the mortgagee knew that she did not own the
Property.

                                -4-
the power to sign checks written on the trust's account, ensures

that mortgage and tax payments are kept current.

          The record also indicates that the trustees and the

taxpayers have been less than scrupulous in observing certain

formalities.    To cite one example, the trust did not file any tax

returns until 2001 (after the present controversy with the IRS was

under way).    To cite another example, the mortgagee, Key Bank, has

since 2000 forwarded paperwork to Arthur Dalton, Jr., indicating

that he is the payor of the mortgage and, thus, the person eligible

to take the concomitant interest deduction for tax purposes.

          In 2001, the taxpayers refinanced the mortgage.         The

bank's records anent the new mortgage list the taxpayers as the

owners of the Property.

          The current trustee, Pray, lives in Texas but insists

that he controls the trust corpus.     He claims that he speaks to the

taxpayers three to four times per year regarding the Property and

that he visits annually to ensure its condition.       He has kept no

records (or even notes) commemorating any of these meetings or

discussions.

          The taxpayers' troubles with the IRS began just before

their business went bankrupt.     The taxpayers owned and operated

Challenger Construction Corp., which in 1996 withheld payroll taxes

but never paid the retained amounts to the United States.     The IRS

determined that the taxpayers were personally liable for those

                                 -5-
amounts.         See 26 U.S.C. § 6672(a); Jean v. United States, 396 F.3d
449, 453-54 (1st Cir. 2005). With accrued interest, the taxpayers'

alleged indebtedness now exceeds $400,000.

                 In 2004 — perhaps eyeing the taxpayers' equity in the

Property — the IRS gave notice of its intent to levy.                            See 26

U.S.C. § 6330(a).              The taxpayers did not dispute the amount of

taxes owed but, rather, requested a pre-attachment CDP hearing and

offered to settle their debt for a total of $10,000.                         See id.

§ 6330(b), (c)(2)(A)(iii). They denied that they had any ownership

interest in the Property and asserted that, based on their assets

and income, they could never come close to satisfying their total

tax liability.

                 After    gathering     information    from    the    taxpayers     and

hearing their arguments, the IRS rejected the offer in compromise.2

In reaching this decision, the IRS applied principles gleaned from

federal case law and found that the taxpayers were the real owners

of the Property; that is, that the trust was merely a nominee for

the   taxpayers          and   held    naked   legal   title   purely      for    their

convenience.         Relying on this finding, the IRS concluded that the

offer       in   compromise      was   insufficient    because       the   taxpayers'

        2
       The decision to reject the offer was made by an appeals
officer. For ease in exposition, we attribute actions of specific
IRS employees to the agency itself.

                                           -6-
ownership interest in the Property could be liquidated to generate

substantially more funds.3

            The taxpayers appealed, and the Tax Court directed the

IRS to reconsider the nominee issue in light of Maine law.                      See

Dalton v. Comm'r, 96 T.C.M. 3 (2008).                  On remand, the IRS

concluded that a Maine court likely would borrow nominee principles

from federal law and reiterated its finding that the trust was a

mere nominee.     Accordingly, the IRS stood by its rejection of the

offer in compromise.

            The taxpayers again repaired to the Tax Court. Reviewing

the IRS's ownership finding de novo, the court determined that the

trust was not a nominee of the taxpayers under Maine law.                  Dalton

v. Comm'r, 135 T.C. 393, 407-15 (2010).                  The court added that

federal law would dictate the same result.                     Id. at 415-23.

Accordingly, the IRS had abused its discretion in rejecting the

taxpayers' offer because the IRS had premised that rejection on an

erroneous view of the law.            Id. at 423-24.          To add insult to

injury,   the    court   thereafter      awarded      attorneys'    fees   to   the

taxpayers   on    the    ground   that   the    IRS    was    not   substantially

justified in rejecting the offer.              Dalton v. Comm'r, 101 T.C.M.

(CCH) 1653 (2011) (citing 26 U.S.C. § 7430).                 This timely second-

tier appeal ensued.

     3
       The record indicates that the Property is likely worth far
more than the amount outstanding on the mortgage encumbrances.

                                      -7-
II.   ANALYSIS

             We begin our analysis by identifying the applicable

standards of review.        We then proceed to discuss the merits of the

Tax Court's rulings.

                           A.    Standards of Review.

             Where,   as    here,    the    amount    of   the   underlying      tax

liability is not in dispute, we review the IRS's disposition of an

offer   in    compromise        following   a   CDP   hearing     for    abuse    of

discretion,    ceding      no    special    deference      to   the   Tax   Court's

intermediate review.        See Murphy v. Comm'r, 469 F.3d 27, 32 (1st

Cir. 2006); Olsen v. United States, 414 F.3d 144, 150 (1st Cir.

2005); see also H.R. Rep. No. 105-599, at 266 (1998).                   The parties

agree with this paradigm.            They disagree, however, as to how a

court should review the preludial findings on which the IRS bases

its rejection of an offer in compromise.

             The taxpayers argue that any finding predicated on a

material error of law is a per se abuse of discretion.                   See, e.g.,

United States v. Walker, 665 F.3d 212, 223 (1st Cir. 2011).                      This

means, they say, that any abstract legal question that formed a

part of the IRS's decisional calculus must be accorded de novo

review.   The IRS argues for a more deferential standard.

             In the exercise of powers of judicial review, one size

does not fit all. The taxpayers' construct — that questions of law

engender de novo review even when a matter is committed to a lower

                                        -8-
court's (or an agency's) discretion, see, e.g., R & G Mortg. Corp.

v. Fed. Home Loan Mortg. Corp., 584 F.3d 1, 7-8 (1st Cir. 2009) —

can usefully be applied in many contexts.                  But the taxpayers'

attempt to impose that construct across the board overlooks the

peculiar nature of the CDP process. As we explain below, a court's

role in the CDP process is simply to confirm that the IRS did not

abuse its wide discretion and — as part and parcel of that inquiry

—   to   ensure    that    the   agency's    subsidiary    factual    and   legal

determinations were reasonable.

            The appropriate conception of the standard of review for

CDP cases flows naturally from the history and structure of the

legislation that created the CDP process.                 Congress inaugurated

this process in 1998 as part of a legislatively crafted "Taxpayer

Bill of Rights."          See Internal Revenue Service Restructuring and

Reform Act of 1998, Pub. L. No. 105-206, §§ 3000, 3401, 112 Stat.

685, 726, 746.            Prior to that time, the IRS could reach a

delinquent taxpayer's assets by lien or levy without providing any

sort of pre-attachment process.             See Phillips v. Comm'r, 283 U.S.
589, 593-97 (1931).         This one-sided model created a potential for

abuse. Congress recognized this risk, and its goal in establishing

the CDP process was to safeguard taxpayers by affording them a pre-

deprivation       opportunity    to   ward   off   harassment   and    to   avoid

groundless attachments.          See Olsen, 414 F.3d at 150; Living Care

                                       -9-
Alts. of Utica, Inc. v. United States, 411 F.3d 621, 629, 631 (6th

Cir. 2005).

          The CDP process has its own standards: there is no

obligation to conduct a face-to-face hearing, no formal discovery,

no requirement for either testimony or cross-examination, and no

transcript.   See Living Care, 411 F.3d at 624, 629; Treas. Reg.

§ 301.6330-1(d)(2), Q&A D6.       Rather, the "hearing" typically

comprises informal oral and written communications between the IRS

and the taxpayer.     See Treas. Reg. § 301.6330-1(d)(2), Q&A D6.

Following this exchange of information, which may include the

making of an offer in compromise, the IRS is tasked with deciding

whether it is reasonable to proceed with its intended collection

action.   See 26 U.S.C. § 6330(c); Olsen, 414 F.3d at 150; Living

Care, 411 F.3d at 625.

          To be sure, Congress did not give the IRS the final say

in the CDP process.    Instead, it provided for judicial review of

the IRS's determinations.      See 26 U.S.C. § 6330(d)(1).     But

Congress must have intended this direction for judicial review to

operate in light of the CDP process itself; and given the limited

scope of the CDP process and the "scant record" that it customarily

generates, Olsen, 414 F.3d at 150, a court cannot be expected to

conduct the same level of judicial review that would follow, say,

a bench trial or a more formal agency proceeding. See Living Care,

411 F.3d at 625.

                                -10-
           We conclude, therefore, that judicial review must be

tailored to effecting the purpose of the CDP process; that is, to

ensuring that the IRS's determinations, whether of fact or of law,

are not arbitrary.   See Murphy, 469 F.3d at 32; Christopher Cross,

Inc. v. United States, 461 F.3d 610, 612 (5th Cir. 2006); Robinette

v. Comm'r, 439 F.3d 455, 459 (8th Cir. 2006); Olsen, 414 F.3d at

150; Living Care, 411 F.3d at 631.        Thus, a court should set aside

determinations reached by the IRS during the CDP process only if

they are unreasonable in light of the record compiled before the

agency. See Murphy, 469 F.3d at 33 (finding no abuse of discretion

when the IRS reached a reasonable conclusion regarding a taxpayer's

ability to pay and, accordingly, rejected an offer in compromise).

Any more intrusive standard of review would result in the courts

"inevitably   becom[ing]   involved       on   a   daily   basis    with   tax

enforcement details that judges are neither qualified, nor have the

time, to administer." Olsen, 414 F.3d at 150 (quoting Living Care,

411 F.3d at 631) (internal quotation marks omitted).

           This case illustrates both the wisdom and the utility of

the   custom-tailored   standard   of     review   that    should   accompany

appeals from CDP dispositions.     The pivotal question in connection

with the appropriateness of the taxpayers' offer in compromise

relates to the actual ownership of the Property.            Especially when

a claim is made that one party is a nominee for another, such

questions are notoriously fact-intensive.          Oxford Capital Corp. v.

                                   -11-
United States, 211 F.3d 280, 284 (5th Cir. 2000) (per curiam). The

CDP process neither allows for discovery, nor does it bring before

the IRS all of the parties in interest — the trust, which holds

record title to the Property, is conspicuously absent.    And even

though the IRS had the benefit of some documentary evidence and a

few affidavits, it could not cross-examine any of the affiants,

compel production of other relevant documents, or subpoena third

parties.   See Treas. Reg. §§ 301.6330-1(d)(2), Q&A D6, 601.106(c).

These circumstances make it almost certain that not all of the

facts that will ultimately inform the determination of who actually

owns the Property were before the IRS.

           Congress knew about the incomplete nature of the record

that would be available to the IRS during the CDP process, and,

thus, Congress must have known that it would make little sense for

a court to undertake de novo review of subsidiary determinations

made during that process. See Olsen, 414 F.3d at 150; Living Care,

411 F.3d at 625.   The more sensible course — and the one that we

are confident that Congress envisioned — is for a reviewing court

to consider whether the factual and legal conclusions reached at a

CDP hearing are reasonable, not whether they are correct.

           This case is a poster child for the reasonableness

standard. Were we to decide definitively who owns the Property, we

would be adjudicating the rights of a third party (the trust) that

has had no opportunity to be heard.    The trust would not be bound

                                -12-
by our decision, see Cruz v. Melecio, 204 F.3d 14, 19 (1st Cir.

2000),   and    it    could   relitigate    the   ownership    issue   in    an

independent proceeding.        Such a duplication of effort would both

undermine    the     significant   public   interest   in   the   speedy    and

efficient resolution of disputes and open the door to inconsistent

decisions.     See Z & B Enters., Inc. v. Tastee-Freez Int'l, Inc.,

162 F. App'x 16, 21 (1st Cir. 2006).         That would, in turn, cast a

shadow over the integrity of the judicial system.             See Montana v.

United States, 440 U.S. 147, 153-54 (1979).

             De novo review would also give the taxpayers two bites at

the cherry.     For example, were we to rule that the trust is the

real owner of the Property, the taxpayers would carry the day. If,

however, we were to rule that the taxpayers are the real owners,

the Commissioner in all likelihood would have to relitigate the

point in a separate proceeding to which the trust is a party.               The

need for relitigation would, in effect, create a second opportunity

for the taxpayers to dispute ownership.             We do not think that

Congress could have intended so curious a result.

             In sum, a court's job is not to review the IRS's CDP

determinations afresh.         Rather, its job is twofold: to decide

whether the IRS's subsidiary factual and legal determinations are

                                     -13-
reasonable and whether the ultimate outcome of the CDP proceeding

constitutes an abuse of the IRS's wide discretion.4

                             B.   The CDP Hearing.

             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, §§ 3571-

3582   (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

                                C.   The Fee Award.

               We need not linger long over the Commissioner's challenge

to the imposition of attorneys' fees.             The Tax Court made a fee

award to the taxpayers as prevailing parties.                   See 26 U.S.C.

§ 7430(a).       We have held that the IRS's rejection of the offer in

compromise was unimpugnable.           See supra Part IIB.      Consequently,

the    taxpayers    are   not    prevailing    parties,   and   the   award   of

attorneys' fees cannot stand.

III.       CONCLUSION

               We need go no further.      The IRS's nominee determination

was reasonable and, therefore, should not be disturbed. It follows

that the IRS's rejection of the $10,000 offer in compromise was not

       6
       Of course, an absurd factual determination or a legal
determination that flies in the face of settled precedent will
never be reasonable and, thus, will always constitute an abuse of
the IRS's discretion.

                                        -21-
an abuse of discretion.   Accordingly, we reverse both the Tax

Court's contrary ruling and its concomitant award of attorneys'

fees.

Reversed.

                             -22-