On March 15, 2021, the Tax Court issued a Memorandum Opinion in the case of Siebert v. Commissioner (T.C. Memo. 2021-34). The primary issue presented in Siebert v. Commissioner was whether the settlement officer abused her discretion in sustaining the proposed collection action

A Note on Petitioner’s Appeal in Siebert v. Commissioner

I am a big believer in karma.  The petitioners may or may not have had this decision coming.  Here’s a brief summary of why Appeals denied their request for an installment agreement:

This decision was based on: (1) petitioners’ “egregious compliance history”; (2) petitioners’ high income and commensurate lifestyle; combined with (3) petitioners’ failure to turn over funds that would have been available to pay delinquent tax. Appeals repeated the observation that petitioners’ noncompliance spanned 15 years, including the last 8 consecutive years in which they had not paid Federal income tax. Appeals also noted that petitioners’ outstanding tax liability when they submitted their OIC was $645,314. Appeals stated in the supplemental notice of determination that petitioners were high-income earners who enjoyed a commensurate lifestyle during the period in which their tax was not paid, yet they neglected to pay tax even when they possessed the means to do so. In the notice, Appeals reviewed the prior instances in which the IRS had reached agreements with petitioners for payment of their tax liabilities but did not receive payment.

Well then…

Abuse of Discretion

In considering a taxpayer’s qualification for a collection alternative, such as an installment agreement, a settlement officer does not abuse her discretion by relying on guidelines set forth in the IRM. See Orum v. Commissioner, 123 T.C. 1, 13 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005); Margolis-Sellers v. Commissioner, T.C Memo. 2019-165, at *40; Aldridge v. Commissioner, T.C. Memo. 2009-276, 2009 WL 4282048, at *5. The Tax Court does not substitute its own judgment for that of the appeals officer, which is to say that the Tax Court does not conduct an independent determination of what would be an acceptable collection alternative. See, e.g., Johnson v. Commissioner, 136 T.C. 475, 488 (2011), aff’d, 502 F. App’x 1 (D.C. Cir. 2013).

Offer in Compromise

The IRS can compromise an outstanding tax liability on three grounds: (1) doubt as to liability, (2) doubt as to collectability, or (3) the promotion of effective tax administration. See IRC § 7122(a); Treas. Reg. § 301.7122-1(b). The IRS may execute a compromise based on doubt as to collectability—the ground that the petitioners advanced in their OIC—in situations in which the taxpayer’s assets and income are less than the full amount of the tax liability. See Treas. Reg. § 301.7122-1(b)(2).

Generally, an OIC based on doubt as to collectability will be accepted if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the IRS could obtain through other means. See Rev. Proc. 2003-71, § 4.02(2). The IRS created guidelines for settlement officers to follow when evaluating OICs. See id., § 2.02. Generally, the IRS will reject an offer based on doubt as to collectability when the taxpayer’s reasonable collection potential (RCP) exceeds the amount he proposes to pay, absent a showing of special circumstances. See id., § 4.02(2); see also Johnson v. Commissioner, 136 T.C. at 486.

Best Interest of the Government

The IRS may reject an OIC as not being in the best interest of the Government in certain circumstances. See IRM pt. 5.8.7.7.1(1); see also Hauptman v. Commissioner, 831 F.3d 950 (8th Cir. 2016), aff’g T.C. Memo. 2014-214; Elkins v. Commissioner, T.C. Memo. 2020-110, at *23. The IRS may consider public policy and tax administration concerns when evaluating whether an offer is acceptable. See IRM pt. 5.8.7.7.1.

Reasons for rejection under these IRS guidelines include a taxpayer’s “egregious history of past noncompliance, as evidenced by the taxpayer’s failure to report all of their income on recent tax years and by failing to pay the tax liability when they had the means to do so.” See id. at (3).

Rejection of an OIC as not in the best interest of the Government is not an abuse of discretion if Appeals has considered all of the facts and circumstances of the case and its reasoning is thoroughly explained in the notice of determination. Hauptman, T.C. Memo. 2014-214 at *20-*22 (citing Bennett v. Commissioner, T.C. Memo. 2008-251; Oman v. Commissioner, T.C. Memo. 2006-231); Treas. Reg. § 301.7122-1(c)(1).

A Note on the IRM Vis-à-Vis Abuse of Discretion

Although the IRM does not have the force of law, a settlement officer does not abuse his discretion if he follows the guidelines set forth in the IRM. See Orum v. Commissioner, 123 T.C. 1, 13 (2004), aff’d, 412 F.3d 819 (7th Cir. 2005).

Conclusion

The record establishes that the settlement officer considered all of the facts and circumstances in the documents petitioners submitted and thoroughly reviewed the revenue officer’s work. See Bennett v. Commissioner, T.C. Memo. 2008-251; Treas. Reg. § 301.7122-1(c)(1). The record further shows that the settlement officer followed the guidelines set forth in the relevant IRM provisions. As such, the Tax Court could not (and would not) find that there had been any abuse of discretion, whatsoever.

(T.C. Memo. 2021-34) Siebert v. Commissioner

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