Court Opinion

ID: 4338011
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:40:06.290978+00
Date Added: 2024-06-11T14:47:50.994368
License: Public Domain

T.C. Memo. 2010-32

                      UNITED STATES TAX COURT

                LYLE E. HOTCHKISS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 23421-04L.              Filed February 23, 2010.

     Paul R. Tom, for petitioner.

     William F. Castor, for respondent.

                          MEMORANDUM OPINION

     KROUPA, Judge:   This collection review matter is before the

Court in response to a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 63301

(determination notice).    The sole issue for decision is whether

     1
      All section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure, unless otherwise indicated.
                                  -2-

the Appeals officer engaged in a prohibited ex parte

communication.   We conclude that he did not.

                            Background

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Petitioner is a dentist who

resided in Florida at the time he filed the petition.

     Petitioner failed to file income tax returns for 1993, 1994,

1995, and 1996, and respondent issued petitioner deficiency

notices.   Respondent assessed the deficiencies in tax after

petitioner failed to file a petition contesting the tax

liabilities.   Petitioner filed returns for 1997, 1998, and 1999,

but he failed to pay all of the reported tax due.    Respondent

examined the returns and proposed additional tax.    Petitioner

consented to assessment of the additional tax.

     Respondent sent petitioner a Letter 1058, Final Notice--

Notice of Intent to Levy and Notice of Your Right to a Hearing,

and a Letter 3172, Notice of Federal Tax Lien Filing and Your

Right to a Hearing, regarding the unpaid liabilities for taxable

years 1993 through 1996 in early October 2003.    Petitioner timely

submitted a written request for a collection due process (CDP)

hearing.   In addition, respondent sent petitioner a levy notice

for the 1997 through 1999 taxable years, and again petitioner

timely requested a CDP hearing.
                                -3-

     Respondent granted petitioner’s requests for a CDP hearing

to address petitioner’s $2.5 million outstanding tax liability

for taxable years 1993 through 1999 (years at issue).   Petitioner

submitted a Form 656, Offer in Compromise, during the course of

the CDP hearing.   Petitioner offered to pay $175,000 as a

collection alternative to lien and levy action for the years at

issue and to settle any deficiency for 2000 and 2001.   In support

of his offer-in-compromise (OIC), petitioner submitted a Form

433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals, for himself, and a Form 433-B,

Collection Information Statement for Businesses, for his

dentistry practice, Island Dental.    Petitioner did not challenge

the existence or amount of the underlying tax liability.

     The Internal Revenue Service (IRS) assigned Appeals Officer

Frank Andreacchi (AO Andreacchi) to handle petitioner’s

collection review matters for the years at issue.   AO Andreacchi

forwarded the OIC and petitioner’s supporting information to an

offer specialist for recommendation.   The offer specialist

examined petitioner’s Forms 433-A and 433-B and their attachments

(financial documents) and calculated a reasonable collection

potential (RCP) of $591,2752 with a future income component of

$315,936.

     AO Andreacchi separately reviewed the administrative file in

petitioner’s case and learned that petitioner had been convicted

for failure to file under section 7203 for 1993 and for three

     2
      All amounts are rounded to the nearest dollar.
                                -4-

counts of income tax evasion under section 7201 for 1994 through

1996.   The administrative file also included records concerning a

nominee lien filed in petitioner’s case.    The nominee lien

involved real property owned by petitioner’s ex-wife in Sanibel,

Florida (Sanibel property).   The administrative file included

detailed information concerning petitioner’s continued control

over the Sanibel property, which he transferred to his ex-wife

for $1 shortly before their divorce.    AO Andreacchi separately

calculated an increased RCP of $1,094,095 after reviewing this

information.   The increase of $502,820 reflected the Sanibel

property’s value.

     AO Andreacchi faxed these computations to petitioner’s

counsel on October 27, 2004, and requested a response by November

1, 2004.   AO Andreacchi received a phone call from petitioner’s

counsel within a few hours after the fax was sent.    AO Andreacchi

explained that the OIC was significantly below the RCP as

determined by the offer specialist.    He further explained that

even if petitioner increased the offer to nearly $591,275, he

would require an independent offer examination because the offer

specialist examined only the data provided by petitioner which

did not include the Sanibel property’s value.    AO Andreacchi

again requested that petitioner’s counsel contact him by November

1, 2004, if petitioner intended to increase the OIC.

Petitioner’s counsel failed to submit an increased OIC or to

provide any new or updated information.
                                 -5-

     AO Andreacchi received a voice mail message from Special

Agent Miguel Rivera of the IRS Criminal Investigation Division on

November 1, 2004.    He returned Special Agent Rivera’s call later

that day.   The parties stipulated that Special Agent Rivera asked

AO Andreacchi to provide copies of petitioner’s financial

documents filed with the OIC.    The parties further stipulated

that AO Andreacchi asked if he could continue to contact

petitioner or petitioner’s counsel, and Special Agent Rivera

informed him that petitioner was not the “subject” of a criminal

investigation at that time.    AO Andreacchi then faxed

petitioner’s financial documents to Special Agent Rivera.

     AO Andreacchi did not accept petitioner’s $175,000 OIC

because it was significantly less than petitioner’s RCP of

$1,094,095.    Accordingly, he sustained the proposed collection

action to satisfy petitioner’s unpaid tax liabilities for the

seven years at issue in the determination notice issued November

5, 2004.    Petitioner timely filed a petition to contest the

determination notice.

                              Discussion

     We now decide whether we should uphold the determination

notice.    Petitioner contends that the phone conversation between

AO Andreacchi and Special Agent Rivera constituted a prohibited

ex parte communication.    We first discuss the CDP hearings

generally and then turn to rules concerning ex parte

communications.
                                -6-

     The Commissioner may collect a tax by levy upon the property

of the taxpayer liable therefor if the taxpayer neglects or

refuses to pay the tax liability within 10 days after notice and

demand for payment.   Sec. 6331(a).   The Commissioner generally

must provide the taxpayer written notice of the right to a

hearing before the levy is made.   Sec. 6330(a).   Upon a timely

request, the taxpayer is entitled to an administrative hearing

before an impartial officer or employee of the Appeals Office.

Sec. 6330(b).   Following the hearing, the Appeals officer must

determine whether the collection action is to proceed, taking

into account the verification the Appeals officer has made, the

issues raised by the taxpayer at the hearing, and whether the

collection action balances the need for the efficient collection

of taxes with the legitimate concern of the taxpayer that any

collection action be no more intrusive than necessary.    Sec.

6330(c)(3).

     We have jurisdiction to review the determination if we have

jurisdiction over the type of tax involved in the case.     Sec.

6330(d)(1); Iannone v. Commissioner, 122 T.C. 287, 290 (2004).

We review under an abuse of discretion standard when the

underlying tax liability is not in issue.3   Goza v. Commissioner,
114 T.C. 176, 182 (2000).   Under the abuse of discretion

standard, petitioner is required to show that respondent’s

     3
      Petitioner did not contest the existence or amount of his
underlying tax liabilities at the CDP hearing, so we need not
consider that issue. See Giamelli v. Commissioner, 129 T.C. 107
(2007).
                                 -7-

actions were arbitrary, capricious, or without sound basis in

fact.    See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

Respondent’s determination to proceed with collection was based

on petitioner’s failure to increase his OIC, which was

significantly lower than petitioner’s RCP.    Petitioner contested

the reasonableness of the RCP in his petition but has since

abandoned the argument.4   Instead, petitioner argues only that

the conversation between AO Andreacchi and Special Agent Rivera

was a prohibited ex parte communication requiring that

petitioner’s case be remanded to Appeals for a new hearing.      We

have held the Commissioner abused his discretion when Appeals’

independence was compromised by prohibited ex parte

communications.    Drake v. Commissioner, 125 T.C. 201, 210 (2005);

Moore v. Commissioner, T.C. Memo. 2006-171.    Accordingly, we

focus on whether any prohibited ex parte communication occurred

that compromised AO Andreacchi’s independence.

     Congress mandated that the IRS prohibit ex parte

communications between Appeals officers and other IRS employees

to the extent that such communications appear to compromise the

independence of the Appeals officers.   Internal Revenue Service

Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.

1001(a)(4), 112 Stat. 689.   The Commissioner has issued guidance

to fulfill that congressional mandate and ensure an independent

     4
      Petitioner’s opening and reply briefs failed to address the
reasonableness of the RCP. Accordingly, arguments concerning the
RCP have been abandoned. See, e.g., Nicklaus v. Commissioner,
117 T.C. 117, 120 n.4 (2001).
                                  -8-

Appeals Office.    See Rev. Proc. 2000-43, 2000-2 C.B. 404.   This

guidance defines ex parte communications as communications

between IRS Appeals and another IRS function without the

participation of the taxpayer or the taxpayer’s representative.

See Rev. Proc. 2000-43, sec. 3, Q&A-1, 2000-2 C.B. at 405.    Not

all ex parte communications are prohibited, however.    Ex parte

communications are allowed when the communications involve

matters that are ministerial, administrative, or procedural in

nature and do not address the substance of the issues or

positions taken in the case. Id., Q&A-5 and -6, 2002-2 C.B. at

405-406.

     Petitioner argues that the conversation between AO

Andreacchi and Special Agent Rivera was a prohibited ex parte

communication.     He further argues that all semblance of

impartiality in the Appeals process disappeared when AO

Andreacchi spoke to Special Agent Rivera and became, in effect, a

criminal investigator allied with the IRS Criminal Investigation

Division.   He cites several cases where we have remanded matters

to Appeals after improper ex parte communications concerning the

merits of the case or the character of the taxpayer.    See Drake
v. Commissioner, supra; Indus. Investors v. Commissioner, T.C.

Memo. 2007-93; Moore v. Commissioner, supra.     All these cases are

distinguishable.    Moreover, even petitioner fails to suggest that

the communications between AO Andreacchi and Special Agent Rivera

were similar in nature to the communications in those cases.

Instead, he suggests that any communications between a “gun-
                                -9-

carrying” special agent and an Appeals officer would

automatically negate impartiality.

     The communications in the cases petitioner cites are

materially different from the communications at issue.    AO

Andreacchi and Special Agent Rivera did not discuss the substance

of the issues or positions taken in the CDP case or their

perceptions of the demeanor or credibility of petitioner or

petitioner’s representative.   Rather, AO Andreacchi carefully

restricted his communication with Special Agent Rivera to mere

administrative, ministerial, or procedural matters.    Special

Agent Rivera requested petitioner’s financial documents, and AO

Andreacchi agreed to fax the documents.   The mere request for

information received from the taxpayer is an administrative,

ministerial, or procedural matter.    See Rev. Proc. 2000-43, sec.

3, Q&A-5.

     In addition, AO Andreacchi asked if he could continue

communicating with petitioner or petitioner’s counsel.    The

dialogue concerning the status of the criminal investigation was

relevant to whether AO Andreacchi could proceed with petitioner’s

CDP case in accordance with respondent’s procedures for

coordinating and handling parallel civil and criminal cases.      It

has long been the policy of the IRS to defer civil assessment and

collection until the completion of criminal proceedings.       Taylor

v. Commissioner, 113 T.C. 206, 212 (1999) (citing Badaracco v.

Commissioner, 693 F.2d 298, 302 (3d Cir. 1982), revg. T.C. Memo.

1981-404 and Deleet Merch. Corp. v. United States, 535 F. Supp.
-10-

402 (D.N.J. 1981), affd. 464 U.S. 386 (1984)), affd. 9 Fed. Appx.
700 (9th Cir. 2001); see Lee v. Commissioner, 113 T.C. 145, 151

n.5 (1999).   AO Andreacchi was only complying with this policy

when he asked if he could continue speaking to petitioner or

petitioner’s counsel.   Congress did not “[mandate] a major

redesign of the fundamental processes Appeals has traditionally

followed” when it directed the IRS to address ex parte

communications.    Rev. Proc. 2000-43, sec. 2, 2000-2 C.B. at 404.

Accordingly, we find the ex parte communication in which AO

Andreacchi learned from Special Agent Rivera that petitioner was

not then under criminal investigation to be an administrative,

ministerial, or procedural matter.

     Petitioner argues, however, that any call from a special

agent of the IRS Criminal Investigation Division would alert an

Appeals officer that the taxpayer in question might be a criminal

and would “appear to compromise” the independence of Appeals.

See Rev. Proc. 2000-43, sec. 3, Q&A-1.   Petitioner provides no

support for creating such a sweeping general rule, and we find no

indication that IRS Criminal Investigation Division employees are

to be treated differently from other IRS employees.

     In addition, we find petitioner’s argument unpersuasive

given the facts.   AO Andreacchi’s independence was not

compromised, nor did it give the appearance of having been

compromised, by his communication with Special Agent Rivera.    AO

Andreacchi had already informed petitioner’s counsel that he was

rejecting the OIC because it was significantly below the RCP
                               -11-

calculated by the offer specialist.   He had also alerted

petitioner’s counsel that the value of the Sanibel property

should be included in the RCP and an independent offer

investigation would be necessary if petitioner increased his OIC.

Petitioner did not increase the OIC or further communicate with

AO Andreacchi before the deadline.    Accordingly, AO Andreacchi

issued the determination notice to petitioner on November 5,

2004, rejecting petitioner’s OIC and sustaining the proposed

collection activity.   We fail to see how AO Andreacchi’s

independence was compromised or appeared to be compromised by his

communication with Special Agent Rivera.

     Further, AO Andreacchi was aware of petitioner’s criminal

convictions for several of the years at issue before speaking

with Special Agent Rivera.   He was also aware of the questions in

connection with the nominee lien on the Sanibel property, and he

included the value of the Sanibel property in the RCP.     In

addition, AO Andreacchi and Special Agent Rivera did not discuss

the purpose of Special Agent Rivera’s request.   We again fail to

see how AO Andreacchi’s independence was or appeared to be

compromised.

     We have reviewed the entire record and find that the

communication between AO Andreacchi and Special Agent Rivera did

not constitute an impermissible ex parte communication because it

was ministerial, administrative, or procedural in nature and did

not compromise, nor give the appearance of compromising, AO

Andreacchi’s independence.   Accordingly, we sustain the
                                 -12-

determinations in the determination notice that collection may

proceed.

     To reflect the foregoing,

                                             Decision will be entered

                                        for respondent.