Court Opinion

ID: 4474917
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:12.620322+00
Date Added: 2024-06-11T15:08:36.994318
License: Public Domain

Marvel, J., concurring in the result: I agree with the result reached by the majority. I write separately, however, to emphasize the obligation of the Appeals Office of the IRS to verify whether applicable administrative procedures governing the default of an offer-in-compromise (OIC) were followed in a section 6330 proceeding involving a defaulted OIC for an alleged breach of the Oic’s timely filing/payment provision (compliance provision). Although petitioner clearly breached his OIC and the IRS properly exercised its discretion in reinstating petitioner’s original tax liability, there have been and no doubt will be other cases where that conclusion is not so evident. The majority points out that an express condition is subject to strict performance. See majority op. p. 252. It then examines the language of the OIC and concludes that petitioner’s obligation to file timely returns and to pay all required taxes for a 5-year period beginning on the date the OIC is accepted is an “express condition” of the IRS’s obligation to perform under the OIC. The majority holds “that the Appeals officer committed no error of law in concluding that * * * [petitioner’s] timely-filing-and-paying requirement was an express condition of his contract with the IRS, and that it required strict compliance to avoid breach — making the question of whether his breach was material irrelevant.” Majority op. p. 254. The majority quotes from the OIC to which petitioner and the IRS agreed to be bound. The relevant language of the OIC states that (1) if the taxpayer fails to meet any of the terms and conditions of the offer, “the offer is in default”;1 and (2) the IRS may take certain actions because of the taxpayer’s failure, including reinstating and collecting the compromised liability. See 2 Administration, Internal Revenue Manual (irm) (CCH), pt. 5.19.7.3.26(1), at 18,537 (Dec. 5, 2006).2 However, the OIC does not state that the IRS must terminate it (or that the OIC automatically terminates) in the event of a breach. Rather, the OIC states that the IRS may terminate it (by reinstating the original liability and collecting it). I construe this language as giving the IRS discretion to terminate an OIC if the taxpayer breaches one of the oic’s terms and conditions. The discretion that I believe the OIC confers on the IRS to deal with a breach of the compliance provision is also reflected in the procedures that IRS personnel are expected to follow in monitoring an OIC and determining a course of action in the event of an alleged breach. The IRM contains provisions that instruct IRS personnel how to proceed with potential default cases. For example, 1 Administration, IRM (cch), pt. 5.8.9.3(1)(B), at 16,404 (Sept. 23, 2008), states that an offer can reach “potential default status” if “The taxpayer has not adhered to the compliance provisions of the offer”. In such cases, the “Campus MOIC [Monitoring Offer in Compromise] units have responsibility and authority to make determinations on potential offer default cases”, id. pt. 5.8.9.3(2), at 16,404, pursuant to procedures currently set forth in 2 Administration, IRM (CCH), pt. 5.19.7.3.26.5, at 18,544-18,550 (Dec. 5, 2006). The irm further states: The MOIC unit will make an attempt to secure compliance. If the taxpayer fails to comply with any requests for delinquent returns or payments, the MOIC unit will default the offer. After all appropriate letters have been sent, generate a * * * [Taxpayer Delinquent Investigation] or * * * [Taxpayer Delinquent Account], as appropriate and close the case as a default. [1 Administration, IRM (CCH), pt. 5.8.9.3(3), at 16,404 (Sept. 23, 2008).] The procedures that the MOIC units are expected to follow when a potential default is attributable to the taxpayer’s alleged failure to file a required return include sending a letter to the taxpayer about the missing return. See 2 Administration, IRM (CFCH), pt. 5.19.7.3.26.5(7), at 18,544-18,545 (Dec. 5, 2006). Under IRM procedures the taxpayer is supposed to be given an opportunity to explain why a return is not due and/or to file the delinquent return if one is due and unfiled. See id. pt. 5.19.7.3.26.5(8), at 18,545-18,548. Only after IRS employees have followed the procedures governing “Failure to Adhere to Compliance Terms” are the employees instructed to process a default in accordance with the provisions of the irm. See, e.g., id. pt. 5.19.7.3.26.5(7) and (8). The IRM recognizes that it may not always be in the best interests of the IRS to terminate an OIC even though the taxpayer has breached one of the Oic’s terms and conditions. See, e.g., id. pt. 5.19.7.3.27(3), at 18,552. The majority points out that section 6330(c)(3)(C) requires the Appeals Office, in making its determination, to take into consideration “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.” The majority’s analysis on this point distinguishes the factual situation in Robinette v. Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455 (8th Cir. 2006), and emphasizes that “the Commissioner did not lightly default the OIC and reinstate the liability for a de minimis fault, but made several efforts to bring * * * [petitioner] back into the taxpaying fold.” Majority op. p. 255. The “Discussion and Analysis” attached to the notice of determination issued to petitioner summarily states that “All legal and procedural requirements are concluded to have been met in this case” without specifying whether the Appeals Office verified that the procedures specified in the IRM for terminating an agreed OIC for noncompliance with the oic’s compliance provision were followed. Nevertheless, the facts recited in the attachment to the notice of determination and as found by the majority confirm that the Appeals officer verified the IRS had warned petitioner about his missing returns and had given him an opportunity to file the missing returns before the IRS terminated the OIC and decided to proceed with collection by levy. The facts recited in the attachment to the notice of determination also confirm that unlike the taxpayer in Robinette who had missed one filing deadline by only a few hours, see majority op. p. 256, petitioner had an extended post-OlC record of noncompliance that the Appeals Office took into account in deciding whether the levy could proceed. In addition, petitioner did not offer any collection alternative other than the reinstatement of the original OIC.3 Consequently, I agree with the majority’s conclusion that the Appeals Office did not abuse its discretion in determining that the proposed levy can proceed. I remain concerned, however, about how the Appeals Office articulates, and will continue to describe, its obligations under section 6330 in a case involving the termination of an OIC where the IRS does not attempt to notify a taxpayer of an alleged failure to satisfy the Oic’s compliance provision or to provide the taxpayer with a reasonable opportunity to cure an alleged breach of that provision, or where the totality of the facts and circumstances reveals an immaterial breach in Robinette parlance. See Robinette v. Commissioner, supra at 108-112. Although this Court and others have held that procedures set forth in the IRM “do not have the force or effect of law” and a failure to adhere to them does not rise to the level of a constitutional violation, see, e.g., Vallone v. Commissioner, 88 T.C. 794, 807-808 (1987) (checks obtained in violation of IRM not a constitutional violation requiring suppression); Riland v. Commissioner, 79 T.C. 185 (1982) (failure to abide by IRM procedures not a violation of due process), and that the IRM does not create any enforceable rights for taxpayers, see Fargo v. Commissioner, 447 F.3d 706, 713 (9th Cir. 2006), affg. T.C. Memo. 2004-13, section 6330(c)(1) specifically requires that the Appeals officer at the section 6330 hearing shall obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Moreover, section 6330(c)(3) provides that the determination by an Appeals officer under section 6330(c) shall take into consideration the verification presented under section 6330(c)(1). In Chief Counsel Notice CC-2006-019 (Aug. 18, 2006), respondent’s Office of Chief Counsel describes what an Appeals officer dealing with a collection due process case is expected to do regarding the section 6330(c)(1) verification requirement: IV. Sections 6320 and 6330 5. Matters considered at hearing a. Section 6330(c)(1) verification Sections 6320(c) and 6330(c)(1) require the appeals officer to obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Verification can be obtained at any time prior to the issuance of the determination by Appeals. Treas. Reg. §§ 301.6320-l(e)(l), 301.6330-l(e)(l). The requirements the appeals officer [is] verifying are those things that the Code, Treasury Regulations, and the IRM require the Service to do before collection can take place. [Emphasis added.] The quoted language recognizes that in enacting section 6330, Congress clearly expressed its intention (1) that the IRS present verification during the section 6330 hearing that it followed all applicable administrative procedures before enforced collection action may proceed and (2) that the Appeals officer conducting the section 6330 hearing take that verification into account in deciding whether to proceed with collection. See sec. 6330(c)(1), (3). Although there may be an unresolved issue of statutory interpretation regarding the meaning of “any applicable * * * administrative procedure” under section 6330(c),4 the IRM contains procedures that the IRS expects its personnel to follow in administering Federal tax law. See 1 Administration, IRM (CCH), pt. 1.11.2.1.1(1), at_(Apr. 1, 2007).5 More precisely, the IRM contains procedures that IRS personnel are expected to follow before terminating an agreed oic after a breach of the Oic’s compliance provision. These procedures regarding potential OIC defaults are sensible and reflect the fact that an Oic authorizes but does not require the IRS to terminate the Oic if a taxpayer allegedly fails to comply with his filing obligation under the compliance provision. The IRM procedures instruct IRS employees monitoring Oics to investigate the alleged failure to comply and, if there is such a failure, to give the taxpayer a chance to correct it before a decision is made to default (terminate) the offer. These procedures (which have been in place for many years in one form or another) reflect a wise and balanced approach to monitoring existing OlCs and dealing with potential defaults. When the IRS takes the very serious step of terminating an OIC and reinstating a taxpayer’s original tax liability, the Appeals Office should verify that the IRS’s administrative procedures for defaulting (terminating) the OIC were followed before it sustains a determination to proceed with collection. Sensible tax administration and section 6330(c) would appear to require it. Colvin, Cohen, Vasquez, Gale, Haines, Wherry, and Paris, JJ., agree with this concurring opinion.  The IRM seems to use the term “default” in two different contexts. It uses the term “default” to describe the situation when a taxpayer reaches potential default status by not adhering to the compliance provisions of the offer. See, e.g., 1 Administration, IRM (CCH), pt. 5.8.9.3(1)(B), at 16,404 (Sept. 23, 2008). It also uses the term “defaulted” to describe the process of reinstating the original liability. See, e.g., 2 Administration, IRM (CCH), pt. 5.19.7.3.27(1), at 18,551 (Dec. 5, 2006). For purposes of this concurrence, I use the term “breach” to mean a failure to comply with the OIC’s compliance provision and “terminate” or its derivative to refer to the process of reinstating the original liability because of a breach.    References to the IRM are to the current CCH edition.    The part in the IRM captioned “Actions on Defaults Offers” contains a provision that states: “The Service may accept a compromise of a compromise” and “There is no standard form for such a proposal.” 4 Administration, IRM (CCH), pt. 8.23.3.13(7), at 27,997 — 487 (Oct. 16, 2007). A taxpayer who has breached the compliance provision of an OIC might propose a new OIC containing substantially the same terms as the previous OIC or different terms (e.g., an enhanced compliance period, a collateral agreement, an additional lump-sum payment or deferred payment) designed to convince the IRS that it is still in the best interests of the IRS to compromise the liability despite the taxpayer’s breach. A taxpayer might also propose other collection alternatives such as an installment agreement, a third-party payment or transfer of an asset that is otherwise unavailable to the IRS. In this case, the only collection alternative apparently presented by petitioner was the reinstatement of the original OIC. The IRS, however, has taken the position that “If the hearing officer determines that there was a default, the termination of the OIC was legally authorized; neither Headquarters nor the Office of Appeals can ‘reinstate’ the OIC.” 4 Administration, IRM (CCH), pt. 8.22.2.2.9(1), at 27,997-366 (Dec. 1, 2006); see also Chief Counsel Advice 200113031 (Mar. 30, 2001).    Compare Drake v. Commissioner, T.C. Memo. 2006-151, affd. 511 F.3d 65 (1st Cir. 2007), with Carlson v. United States, 394 F. Supp. 2d 321, 329 (D. Mass. 2005).    1 Administration, IBM (CCH), pt. 1.11.2.1.1(1), at_(Apr. 1, 2007), states in pertinent part as follows: The IRM serves as the single, official source of IRS “instructions to staff” relating to the administration and operation of the Service. The IRM provides a central repository of uniform guidelines on operating policies and procedures for use by all IRS offices. It contains guidance on IRS policies and directions our employees need to carry out their responsibilities in administering the tax laws or other agency obligations. Before its amendment in 2007, 1 Administration, IRM (CCH) pt. 1.11.2.1(2), at 5,027 (Oct. 10, 2003), stated in pertinent part as follows: The IRM outlines business rules and administrative procedures and guidelines used by the agency to conduct business. It contains policy, direction and delegations of authority that are necessary to carry out IRS responsibilities to administer tax law and other legal provisions. The business rules, operating guidelines and procedures and delegations guide managers and employees in carrying out day to day responsibilities. [Emphasis added.]