Tuesday, July 31, 2007

Back Taxes: Offer in Compromise - abuse of discretion

Edward F. Murphy, Petitioner, Appellant v . Commissioner of Internal Revenue, Respondent, Appellee.U.S. Court of Appeals, 1st Circuit; 06-1109, November 20, 2006, 469 F3d 27.Affirming the Tax Court, 125 TC 301.

2005-1 USTC ¶50,395], 411 F.3d 621, 624 (6th Cir. 2005). During the hearing, a taxpayer may raise "any relevant issue relating to the unpaid tax or the proposed levy, including ... offers of collection alternatives, which may include an offer-in-compromise." 26 U.S.C. §6330(d)(1) (as amended by Pub. L. No. 109-281, §855(a)).2
A. Extra-Record EvidenceDuring the evidentiary hearing before the Tax Court, Murphy testified about the circumstances that made him unable to offer a larger settlement payment, and the appeals officer testified concerning the process that she employed to evaluate Murphy's offer-in-compromise. The IRS objected to the introduction of this testimony on the basis that the Tax Court should not consider evidence that was not part of the administrative record of the CDP hearing. The court rejected this argument but still excluded the evidence as irrelevant. The IRS urges us to affirm this ruling on an alternative ground: Tax Court review should be limited to the administrative record.We recently considered this issue in the context of a taxpayer appeal to the district court from the denial of an offer-in-compromise made during a CDP hearing. See Olsen [
2005-2 USTC ¶50,637], 414 F.3d at 155. The reasons supporting application of the administrative record rule in district court CDP hearing appeals have equal force where the appeal takes place in the Tax Court. The Tax Court, like the district court, is charged with determining whether the IRS's rulings during a CDP hearing were within its discretion. Thus, judicial review normally should be limited to the information that was before the IRS when making the challenged rulings. See Robinette [

B. Conduct of the HearingMurphy contends that the IRS abused its discretion in the conduct of his CDP hearing. He argues that the appeals officer acted "with a clear predisposition toward an inflexible and expeditious determination of ... the matter" by declining to grant him additional extensions to file more information.The relevant regulations do not provide a time period within which a CDP hearing must be concluded. Rather, they instruct the IRS to complete the hearing "as expeditiously as possible under the circumstances." 26 C.F.R. §301.6330-1(e)(3). Thus, there is no requirement that an appeals officer "wait a certain amount of time before rendering [a] determination as to a proposed levy." Clawson v. Comm'r [
In exercising this discretion, the IRS must consider all the facts and circumstances of the taxpayer's case, including whether they warrant acceptance of an amount that might not otherwise be acceptable under the IRS's policies and procedures. Id. There is no dispute that Murphy established a doubt as to collectability and therefore was eligible to compromise his debt. The only question is whether the IRS abused its discretion in declining to accept Murphy's proposed compromise.
Murphy argues that the IRS's determination that the reasonable collection value of his case exceeded $10,000 was unreasonable.Based on information provided by Murphy, the appeals officer calculated that, after expenses, Murphy had a monthly surplus of $1,128. The officer multiplied this figure by 60 months (a reasonable period until Murphy could expect to retire) for a total of $67,680 in available income.
The officer then added realizable equity to conclude that Murphy could offer to pay $82,164 to settle his tax liability.Murphy has never mounted a serious challenge to these calculations. After complaining to the appeals officer that her proposed compromise figure was too high, Murphy never offered an explanation for why the officer's calculations were unreasonable. Even now, Murphy offers only a conclusory allegation that the appeals officer's calculation was "preposterous."
3 Affirmed.* Of the District of Rhode Island, sitting by designation.1 The court did admit testimony from the appeals officer explaining the meaning of certain notes and symbols that appeared in the record.2 Prior to the enactment of Pub. L. No. 109-281, appeals from CDP hearings were heard in federal district court if the Tax Court did not have jurisdiction over the underlying tax liability. See 26 U.S.C. 3 Murphy has not presented a developed argument that the IRS abused its discretion by declining to accept his offer-in-compromise because of special circumstances. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).

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