Flynn v. Commissioner
T.C. Memo. 2022-5

On February 3, 2022, the Tax Court issued a Memorandum Opinion in the case of Flynn v. Commissioner (T.C. Memo. 2022-5). The primary issue presented in Flynn was whether the settlement officer abused her discretion in rejecting an offer-in-compromise based on reporting housing expenses which deviated from the IRS’s standard housing amount allowance.

Background to Flynn v. Commissioner

As of February 2018, Mr. Flynn’s outstanding 2012–14 tax liabilities totaled $15,557. To collect this amount, the IRS sent Mr. Flynn a levy notice informing him of its intent to seize his assets and apprising him of his right to a hearing. Mr. Flynn timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing, expressing his interest in either an offer-in-compromise (OIC) or an installment agreement.

The case thereafter was assigned to a settlement officer. The settlement officer held a telephone CDP hearing with Mr. Flynn in June 2018. After the settlement officer discussed with Mr. Flynn the liabilities at issue, the conversation turned to Mr. Flynn’s desire for an OIC in the interest of giving him “a fresh start.” In response, the settlement officer advised Mr. Flynn to submit Form 656, Offer in Compromise, for evaluation

Flynn v. Commissioner

Mr. Flynn reported $3,321 in expenses, including $770 monthly for food, clothing, and miscellaneous items and $1,800 per month that he paid to his wife for household expenses. In total, Mr. Flynn’s Form 433-A showed $1,652 in monthly income in excess of his expenses. However, he proposed an OIC of $3,600. Mr. Flynn premised his OIC on doubt as to collectibility, indicating that he would pay $150 monthly for 24 months if the OIC were accepted.

Comparing Mr. Flynn’s monthly income to his expenses, the centralized offer-in-compromise (COIC) unit determined that his net monthly income was $2,752. In reaching this conclusion, the COIC unit found that Mr. Flynn’s monthly income was $5,293, which is more than what he had reported.

The COIC unit concluded that Mr. Flynn had a reasonable collection potential (RCP) of $330,206 over the following ten years, based on his net monthly income and assets of $800. Noting that Mr. Flynn’s disposable monthly income would allow him to pay his total outstanding tax liability of $63,821 (which included the years at issue in this case but additionally included years as far back as 2007) in 25 months, the COIC unit recommended rejection of Mr. Flynn’s $3,600 OIC.

After receiving the COIC recommendation, the settlement officer called Mr. Flynn and proposed an installment agreement for $750 per month. Mr. Flynn refused to enter into an installment agreement or pay more than $250 per month, arguing that he could not afford to pay more. Concluding that they had reached an impasse, the settlement officer issued a notice of determination rejecting Mr. Flynn’s proposed OIC and sustaining the proposed levy action for tax years 2012 through 2014.

Legal Background

Flynn CompromiseIRC § 7122(a) authorizes the IRS to compromise an outstanding tax liability on grounds that include doubt as to collectibility, which is the ground that Mr. Flynn asserted.[1] The IRS may compromise a tax liability on this basis where the taxpayer’s assets and income are less than his full amount of liability.[2] Conversely, the IRS may reject an OIC when the taxpayer’s RCP exceeds the amount he proposes to pay.[3] Generally, settlement officers will reject any offer substantially below the taxpayer’s RCP unless special circumstances justify acceptance of such an offer.[4]

In reviewing the settlement officer’s determination, the Tax Court does not decide for itself what would be an acceptable collection alternative.[5] Its review, instead, is limited to determining whether the settlement officer abused her discretion—that is, whether her decision to reject Mr. Flynn’s offer was arbitrary, capricious, or without sound basis in fact or law.[6] The Tax Court has jurisdiction to review a settlement officer’s rejection of an OIC that encompasses liabilities for both CDP years and non-CDP years.[7]

Deviation from the Standards

Flynn Fair

Mr. Flynn asserted that he spent (via payments to his wife) $2,000 per month on household expenditures and that the settlement officer abused her discretion by failing to consider the full amount in determining his net monthly income.

However, as the Tax Court rather succinctly points out, “she had no obligation to do so.”

Why you may ask? Well, the Tax Court had a pretty good answer for that…

Pursuant to Congress’ directive, the IRS has published ‘national and local allowances’ to ensure that taxpayers entering into collection alternatives have adequate means to provide for basic living expenses.[8]

It goes without saying, then, that the Tax Court has upheld many a settlement officer’s use of those standards to calculate basic living expenses when considering whether to accept a proposed OIC.[9] Further, the IRM directs that (generally) a taxpayer is allowed the lesser of the applicable local standards or the amounts that he actually paid monthly with respect to housing and utility expenses.[10]

In Mr. Flynn’s case, the settlement officer took into account $1,315 for housing expenses, which was consistent with the applicable local standard in effect at the time. Thus, the Tax Court saw no abuse of discretion in the settlement officer’s decision to follow the IRS standards.[11]

Mr. Flynn asserts that the allowances were insufficient because, and I quote, “they did not support his particular lifestyle.”

Flynn v. Commissioner

Flynn SpecificDeviations from the national and local allowances set by the IRS, however, are permitted only upon a showing that the standard amounts are “inadequate to provide for a specific taxpayer’s basic living expenses.”[12] The taxpayer bears the burden of providing sufficient information to justify a deviation from local standards.[13]

Mr. Flynn rather spectacularly failed to point to any specific facts indicating that the standard housing amount was inadequate to accommodate for his basic living expenses.

Decision for the IRS.

(T.C. Memo. 2022-5) Flynn v. Commissioner

  1. See Treas. Reg. § 301.7122-1(b)(2).
  2. Id.
  3. See Johnson v. Commissioner, 136 T.C. 475, 486 (2011).
  4. See Mack v. Commissioner, T.C. Memo. 2018-54, *10; Rev. Proc. 2003-71, § 4.02(2).
  5. Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Murphy, 125 T.C. at 320; see Randall v. Commissioner, T.C. Memo. 2018-123, at *9 (observing that the Tax Court does “not recalculate a different amount for an acceptable installment agreement or OIC”).
  6. See Thompson, 140 T.C. at 179; Murphy, 125 T.C. at 320.
  7. See, e.g., Sullivan v. Commissioner, T.C. Memo. 2009-4, *8-*9.
  8. Ansley v. Commissioner, T.C. Memo. 2019-46, at *16 (quoting IRC § 7122(d)(1) and (2)(A)).
  9. Id. at *16-17 (citing Speltz v. Commissioner, 124 T.C. 165, 179 (2005), aff’d, 454 F.3d 782 (8th Cir. 2006)).
  10. See IRM pt.; IRM pt.
  11. See Walker v. Commissioner, T.C. Memo. 2016-75, at *17-18; Glossop v. Commissioner, T.C. Memo. 2013-208, at *13-14; Ramdas v. Commissioner, T.C. Memo. 2013-104, at *30-31.
  12. IRM pt.; see Ansley, T.C. Memo. 2019-46, at *18.
  13. Ansley, T.C. Memo. 2019-46, at *18; Thomas v. Commissioner, T.C. Memo. 2015-182, at *27.


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