OFFER IN COMPROMISE DEFAULT UNDER SECTION 7122 - The IRS's finding that an individual had defaulted on his offer in compromise (OIC) and its decision to impose a levy for his original tax liability was not an abuse of discretion. The terms of the OIC required the individual to timely pay all required taxes; therefore, his breach of that condition discharged the IRS's obligation to set aside the original tax liability. His belated payment satisfied the liability, but did not retroactively undo the breach. The IRS properly considered other collection alternatives, accounted for the individual's hardships and weighed whether the levy action was the least intrusive means of collection. Despite being given the opportunity to file a new OIC based on doubt as to collectibility or to pursue an installment plan so as to avoid levy, the individual insisted only on an OIC based on doubt as to liability. Because liability was not at issue, and with no alternative recourse available, the IRS properly proceeded with the levy.


Michael Poindexter, Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee.

U.S. Court of Appeals, 10th Circuit; 08-9008, April 15, 2009.

Unpublished opinion affirming the Tax Court, 95 TCM 1378, Dec. 57,404(M), TC Memo. 2008-99.





Before: Lucero, Porfilio and Anderson, Circuit Judges.


ORDER AND JUDGMENT *


ANDERSON, Circuit Judge: Michael Poindexter settled his delinquent tax liability but later defaulted under the terms of his agreement. His default prompted the Commissioner of Internal Revenue to impose a levy for Mr. Poindexter's entire original tax liability. The Tax Court upheld the Commissioner's decision, and Mr. Poindexter appealed. We have jurisdiction under 26 U.S.C. § 7482(a)(1) and now affirm.


I


Mr. Poindexter failed to pay his federal income taxes from 1990 to 1995. Although his total delinquency exceeded $280,000, the Commissioner accepted an offer-in-compromise (OIC) of $120,000. The OIC, accepted on November 21, 1997, required Mr. Poindexter to remain current on his taxes for the next five years or until the deficiency was satisfied. In 2000 and 2001, however, he again fell behind on his taxes. Consequently, the Commissioner notified him on October 22, 2003, that he had thirty days to pay the deficiency or be found in default of the OIC. The Commissioner warned that failure to timely pay the deficiency would result in reinstatement of the entire original tax liability, less payments received. One day after the deadline, Mr. Poindexter requested a six-month extension; the Commissioner answered with a finding of default.

On September 9, 2004, Mr. Poindexter received a "Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing" concerning his tax liability from 1993 through 1995. Mr. Poindexter requested a collection due process (CDP) hearing under 26 U.S.C. § 6330, but before the hearing paid his 2000 and 2001 taxes. He therefore urged the Commissioner to reinstate the OIC or accept a new one based on doubt as to liability. The Commissioner refused and on July 14, 2005, issued a final notice of determination. The Commissioner concluded that Mr. Poindexter had defaulted under the OIC and that collection by levy of his unpaid tax liabilities from 1993, 1994, and 1995 was appropriate.

Mr. Poindexter subsequently petitioned the United States Tax Court for review, arguing, among other things, that the Commissioner's finding of default and collection by levy was an abuse of discretion. He claimed that he should have been granted an extension to cure the default and that his breach was immaterial. He also claimed the Commissioner should have accepted a new OIC based on doubt as to liability. The Tax Court rejected these arguments and upheld the Commissioner's decision. In this court, Mr. Poindexter reasserts his arguments that he should have been granted an extension, that there was no material breach, and that the Commissioner refused to consider a new OIC.


II


"We review the Tax Court's conclusions of law de novo and its factual findings for clear error." Lewis v. Comm'r, 523 F.3d 1272, 1274 (10th Cir. 2008). Because the validity of Mr. Poindexter's underlying tax liability was not at issue, the Tax Court reviewed the Commissioner's administrative determinations for an abuse of discretion. See Goza v. Comm'r, 114 T.C. 176, 181-82 (2000). Thus, we, too, evaluate the Commissioner's decisions for an abuse of discretion.

Mr. Poindexter first claims he should have been granted a six-month extension to cure the default. He argues that the Internal Revenue Manual affords defaulting taxpayers six months to cure, but he never received that opportunity. This argument fails for at least four reasons. First, the Internal Revenue Manual does not have the force of law and it confers no rights upon taxpayers. See United States v. Lockyer, 448 F.2d 417, 421 (10th Cir. 1971); see also Wheeler v. Comm'r, 91 T.C.M. (CCH) 1194, at *3 n.9 (2006) (noting that the manual "was designed to aid in the internal administration of the Internal Revenue Service, not for the protection of taxpayers; thus, it is not binding upon and confers no rights to taxpayers"). Second, the manual does not require the Commissioner to grant defaulting taxpayers a six-month extension; it simply permits extensions under appropriate circumstances. 1 Third, Mr. Poindexter failed to timely request an extension within thirty days of the Commissioner's warning of default. And fourth, despite his untimely request for an extension of six months, Mr. Poindexter waited more than a year - until December 21, 2004 - to pay his deficiency. Under these circumstances, we perceive no abuse of discretion. Mr. Poindexter's insistence that the Commissioner failed to even consider granting an extension is belied by the record. See, e.g., Ex. 22-J at 2 ("Had the taxpayer paid [the taxes] within 6 months as was requested, I would have considered reinstating the OIC.").

Mr. Poindexter also asserts his breach of the OIC was immaterial because he paid his 2000 and 2001 taxes before the CDP hearing. He acknowledges that timely payment of these liabilities was an express condition of the agreement, but nevertheless contends that no harm was done. This is a meritless argument. The parties agree that timely payment of Mr. Poindexter's taxes was an express condition of the OIC. Consequently, his failure to timely perform discharged the Commissioner's obligation to set-aside the original tax liability. See Robinette v. Comm'r, 439 F.3d 455, 462 (8th Cir. 2006), rev'g 123 T.C. 85 (2004). The question of materiality is relevant only to the extent that timely performance was not an express condition of the agreement, id., which is simply not the case here. Mr. Poindexter's suggestion that we ought to disregard Robinette because his Tax Court petition predated Robinette is patently meritless, as is his contention that we ought to follow the Tax Court's decision reversed by Robinette. And, it is of no consequence that Mr. Poindexter later paid his taxes, because the breach occurred when the taxes were not timely paid. His belated payment did not retroactively undo the breach or render it harmless; it simply satisfied the liability.

Finally, Mr. Poindexter contends the Commissioner failed to consider collection alternatives before imposing the levy. Under the Internal Revenue Code, prior to approving a levy action, the Commissioner must consider proposed collection alternatives such as the substitution of other assets, an installment agreement, or an offer-in-compromise. 26 U.S.C. § 6330(c); see Cox v. Comm'r, 514 F.3d 1119, 1124 (10th Cir. 2008). The Commissioner must also consider "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." 26 U.S.C. § 6330(c)(3)(C); Cox, 514 F.3d at 1124. Mr. Poindexter asserts that despite these provisions, the Commissioner refused to consider his proposed OIC based on doubt as to liability "arising out of [the] purported default." Aplt. Br. at 14.

It is worth noting, however, that Mr. Poindexter never actually submitted a new OIC. Instead, his contention concerns the Commissioner's unwillingness to accept an OIC based on doubt as to liability, see 26 C.F.R. § 301.7122-1(b)(1), because liability was not at issue, see R., Doc. 22 at 23-24. Mr. Poindexter stresses that doubt as to liability remained a sound basis for a new OIC since he was contesting his liability flowing from the default. But "a challenge to the Commissioner's determination that a taxpayer was properly deemed in default on an OIC is not a dispute of the underlying tax liability." Ng v. Comm'r, 93 T.C.M. (CCH) 675, at *3 (2007). Hence, the Commissioner correctly recognized that an OIC based on doubt as to liability was unacceptable. To the extent Mr. Poindexter complains that the Commissioner improperly dissuaded him from submitting his OIC based on doubt as to liability, there was no abuse of discretion in discouraging a meritless proposal. See Robinette, 439 F.3d at 464.

In any event, the record amply demonstrates that the Commissioner properly considered other collection alternatives and weighed the propriety of the levy action. Indeed, notes from an appeals officer indicate that the Commissioner considered reinstating the OIC but declined because Mr. Poindexter failed to timely respond to the warning notice, failed to pay his delinquent taxes within the six months he requested, and failed to pay his taxes from 2002, 2003, and 2004. Further, the record indicates that the Commissioner encouraged Mr. Poindexter to file a new OIC based on doubt as to collectibility, see 26 C.F.R. § 301.7122-1(b)(2), due to his divorce, fluctuating income, and bankruptcy petition, but he refused. Similarly, the Commissioner encouraged Mr. Poindexter to pursue an installment plan so as to avoid levy, but Mr. Poindexter insisted only on an OIC based on doubt as to liability. With no remaining alternatives, the Commissioner was compelled to proceed with the levy. In short, we are satisfied that the Commissioner considered collection alternatives, accounted for Mr. Poindexter's hardships, and weighed whether the levy action was the least intrusive means of collection. Accordingly, we find no abuse of discretion in the Commissioner's finding of default and imposition of levy.

The judgment of the Tax Court is AFFIRMED.

* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

1 Mr. Poindexter relies on Internal Revenue Manual pt. 5.8.9.4(5) (2001), which provides in part:

If compliance [with an OIC] is not immediately secured, the offer will be evaluated in light of all information submitted by the service center and a decision will be made whether to terminate the offer or to consider temporary adjustment of its terms. If ... [t]he taxpayer can pay the potential defaulted amount in 6 months or less ... [t]hen ... [t]he revenue officer can grant an extension of time to pay for no longer than 6 months. Future deferred payments must be made on time.

Breach of agreement. --Compromises: Breach of agreement

Where the taxpayer failed to plead in the District Court the three-year statute of limitations on assessment as a defense to the Government's suit on an assessment to collect taxes, after the taxpayer had defaulted on payments to be made under a compromise agreement entered into after the three-year limitations period had passed, he could not raise for the first time on appeal the question of whether the compromise agreement was an effective waiver of the limitations period. A waiver of the statute of limitations found in the compromise agreement was fully effective against the taxpayer.

B. Feinberg, CA-3, 67-1 USTC ¶9176, 372 F2d 352.

Similarly, where the taxpayer failed to meet the monthly installment payments under an agreement for compromise of his tax liability. The doctrines of estoppel and modification of contract by subsequent conduct were not applicable merely because the Government did not bring action immediately after the breach of the first installment and before the taxpayer made any other payments.

S. Saladoff, CA-3, 65-2 USTC ¶9645.

On retrial, the trial court properly entered summary judgment for the Government for the amount of taxes proved to be due, where the taxpayer offered no counter proof, and also properly dismissed a separate injunction suit.

R.C. Lane, CA-5, 64-1 USTC ¶9273, 328 F2d 602.

Where the taxpayer failed to file sworn statements of annual income pursuant to the terms of a collateral income agreement which accompanied an agreement for compromise of his tax liability, the compromise agreement was breached and the Government was entitled to revive the original tax liability, subject to credit for previous payments made under the compromise agreement.

R.C. Lane, CA-5, 62-1 USTC ¶9467, 303 F2d 1.

The IRS was not liable for a breach of contract claim with respect to a settlement agreement because the individual bringing suit failed to show the existence of an enforceable contract to settle his outstanding tax liabilities. The IRS agent's written reply to the individual's offer did not constitute a valid offer or counteroffer that could be accepted by the individual to create a binding contract with the IRS. Moreover, the IRS agent was not authorized to enter into any such contract with the individual.

D.W. Jordan, FedCl, 2007-2 USTC ¶50,601.

The IRS properly terminated an offer in compromise (OIC) submitted by the president and majority shareholder of S corporations in connection with his delinquent taxes for five tax years and a trust fund recovery penalty imposed with respect to one of the entities. The taxpayer materially breached his obligation under the OIC when he incurred a delinquent tax liability for a subsequent tax year. As a result, the government was authorized, under the terms of the OIC, to declare the taxpayer in default of the agreement and to pursue collection activities against him. The substantial performance doctrine was irrelevant because the taxpayer failed to timely pay his taxes in order to offset his tax liability for that year with his losses from the following year.

M.J. Roberts, DC Mo., 2002-1 USTC ¶50,173, 225 FSupp2d 1138.

The mere fact that the IRS had cashed money orders tendered by a taxpayer was insufficient to support his claim that the government had breached a settlement agreement. A letter from his counsel indicating that an IRS agent had requested a payment in the amount of those money orders was insufficient to state a claim for breach of settlement agreement absent proof that the taxpayer had been notified in writing of the IRS's acceptance of his offer of compromise.

L.R. Ousley, DC Nev., 98-2 USTC ¶50,827.

A taxpayer who breached the payment terms of his compromise agreement was not entitled to notice of the amount due thereunder before the IRS collected the balance of his original liability. The agreement specifically stated that he would not be entitled to notice in this situation.

D.J. Fortenberry, DC Miss., 82-1 USTC ¶9191.

The government was awarded summary judgment in the suit brought by the taxpayer who protested that taxes he owed were collected after the running of the statute of limitations. The government and the taxpayer had entered into a compromise agreement as to the amount of taxes owed by the taxpayer. A provision of the agreement provided that the statute of limitations would be extended if the taxpayer missed a payment, and the court concluded that, since the taxpayer showed no detriment suffered, the provision was not void as against public policy.

A.J. Parenteau, DC N.J., 74-1 USTC ¶9270.

Although a later, independent decision changed the time for which interest would be payable on accumulated earnings tax deficiencies, the Attorney General had authority to settle three pending cases on the understanding that other suits not filed would be disposed of on the same basis. The compromise settlement could not be abrogated.

D.D.I. Inc., CtCls, 72-2 USTC ¶9703, 467 F2d 497. Cert. denied, 414 US 830.

Taxpayer was estopped from seeking recovery of a payment made in a compromise settlement of income tax assessments against it and some fourteen other parties which was assigned to the extinguishment or abatement of various tax assessments against the taxpayer as transferee. The taxpayer was barred by equitable estoppel from violating the compromise agreement since the agreement represented a so-called package deal, involving several taxpayers in addition to the taxpayer, and the Government, in reliance on the settlement, had permitted the statute to run against the claims against the other taxpayers involved in the settlement and could not recoup, through its right of set-off, against these taxpayers. There was no merit to the taxpayer's contention that all unabated assessments against it were paid in full and not compromised or settled because the Government, at the taxpayer's request, allocated the payment to all unabated transferee claims against the taxpayer.

Cooper Agency, DC S.C., 69-2 USTC ¶9560, 301 FSupp 871. Aff'd, per curiam, CA-4, 70-1 USTC ¶9321, 422 F2d 1331; DC S.C., 71-1 USTC ¶9490, 327 FSupp 948.

The taxpayer failed to fulfill his obligations under an agreement collateral to an executed offer in compromise --where the agreement called for additional consideration to be based on graduated percentages of annual income --by transferring income-producing property held at the time of the agreement without consideration. Contract rules under Tennessee law permit the implication of terms in a contract. Were the promise not to transfer income-producing property held at the time of the agreement not to be implied, the taxpayer could have effectively destroyed the value of the collateral agreement. However, the implied promise did not apply to income-producing property acquired after execution of the collateral agreement.

R.C. Hoskins, DC Tenn., 69-1 USTC ¶9407, 299 FSupp 1229. Aff'd, per curiam, CA-6, 70-1 USTC ¶9382, 425 F2d 1301.

An IRS Appeals officer did not abuse her discretion by sustaining the default of a married taxpayer's offer in compromise (OIC) and determining to proceed with collection. The taxpayer failed to comply with the terms of the OIC, which required him to timely pay all required taxes for five years following its acceptance. Further, the taxpayer failed to timely respond to an IRS letter notifying him that failure to pay the balances due within 30 days would result in a default of the OIC. Finally, the taxpayer did not propose any collection alternatives during his Collection Due Process (CDP) hearing.

M. Poindexter, 95 TCM 1378, Dec. 57,404(M), TC Memo. 2008-99.

The IRS Appeals office did not abuse its discretion by sustaining a levy against a married couple whose repeated violations of the terms of their offer-in-compromise (OIC) resulted in the offer's termination. The couple's failure to keep their tax obligations current during the compliance period was a significant and material breach of the OIC. Moreover, the IRS's failure to send copies of correspondence to the couple's representative did not provide a basis to reject the collection action because the notices were sent to the couple's last know address.

J.E. West, 95 TCM 1116, Dec. 57,333(M), TC Memo. 2008-30.

The IRS did not abuse its discretion in determining that an individual had defaulted on an offer in compromise (OIC) and proceeding with collection of his unpaid tax liability. The taxpayer materially breached the terms of the OIC by incurring a delinquent tax liability for a subsequent tax year. The taxpayer failed to comply with the express terms of the agreement by failing to pay his tax liability for well over a year after it was due, thereby depriving the government of a material financial benefit. The record did not indicate that requiring the taxpayer to strictly comply with the terms of the agreement would result in a disproportionate forfeiture or penalty. Therefore, because the condition that the taxpayer timely pay his taxes was a material part of the OIC agreement, it could not be excused.

W.K. Ng, 93 TCM 675, Dec. 56,809(M), TC Memo. 2007-8.

The IRS may not unilaterally default a joint offer in compromise in the case of a taxpayer-husband that breached his obligations under a separate, but related, offer in compromise on the basis of an oral agreement tying the two offers together. The regulations specifically require that offers in compromise be reduced to writing and thus cannot be altered by an oral agreement.

Field Service Advice Memorandum 200130043, June 25, 2001.

An Appeals officer did not abuse his discretion in cancelling an offer-in-compromise (OIC) agreement, reinstating a taxpayer's original tax bill and sustaining a levy, based on the taxpayer's breach of the OIC. The federal common law of contracts applied in determining whether a taxpayer breached his offer-in-compromise agreement. The OIC agreement required that the taxpayer timely file returns and pay tax for a period of five years. His failure to do so was a breach of an express condition of the agreement that required strict performance. Even without relying on principles of contract law, other federal courts have upheld the IRS's right to cancel an OIC when the taxpayer is in default because of the express language in the agreement. Finally, the IRS provided the taxpayer with several opportunities to become compliant and the only consideration for forgiveness of 95 percent of his tax debt was to timely file and pay his taxes for five years. Thus, the Appeal's officer's decision not to excuse the breach and reinstate the OIC was not an abuse of discretion.

D.W. Trout, Dec. 57,615, 131 TC --, No. 16.