The opinion
T.C. Memo. 2008-30
UNITED STATES TAX COURT
JOHN E. AND SANDRA L. WEST, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5376-06L. Filed February 13, 2008.
Stephen L. Christian, for petitioners.
Spencer T. Stowe, for respondent.
MEMORANDUM OPINION
SWIFT, Judge: Under section 6330, petitioners challenge
respondent’s notice of determination sustaining respondent’s levy
notice.
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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The primary issue for decision is whether respondent’s
Appeals Office abused its discretion in sustaining a notice of
intent to levy relating to petitioners’ outstanding 1993 Federal
income taxes.
Background
The facts of this case have been submitted fully stipulated
under Rule 122 and are so found.
At the time the petition was filed, petitioners resided in
Orange County, California.
Petitioners have a history of failing to timely pay
estimated Federal income taxes due and failing to timely file
their Federal income tax returns.
On April 24, 1998, petitioners and respondent agreed on an
offer-in-compromise (OIC) on the grounds of doubt as to
collectibility relating to approximately $148,350 in petitioners’
unpaid 1993 Federal income taxes.1 Among other things,
respondent’s acceptance of petitioners’ OIC was contingent on
petitioners’: (1) Paying, within 60 days of respondent’s
acceptance of the OIC, to respondent $10,000 (OIC amount);
(2) timely filing Federal income tax returns that became due
during the 5-year period subsequent to their entering into the
1
Because of a credit offset, petitioners’ outstanding
Federal income tax liability for 1995 (including interest,
penalties, additions to tax, and interest) has been paid in full,
and any issue herein relating to 1995 is now moot.
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OIC or until the OIC amount was paid in full, whichever was
longer (5-year compliance period); and (3) timely paying the
taxes reported due on their Federal income tax returns filed
during the 5-year compliance period. Specifically, paragraph (d)
on petitioners’ Form 656, Offer in Compromise, stated: “I/We
will comply with all provisions of the Internal Revenue Code
relating to filing my/our returns and paying my/our required
taxes for 5 years from the date the IRS accepts the offer”.
Under the express terms of the OIC, if petitioners failed to
meet any of the express conditions of the OIC, respondent had the
right to revoke the OIC and to attempt to collect from
petitioners the full amount of petitioners’ unpaid 1993 Federal
income taxes.
On May 7, 1998, petitioners paid to respondent the $10,000
OIC amount. Petitioners’ 5-year compliance period thus began
when respondent accepted the OIC on April 24, 1998.
During the 5-year compliance period, petitioners, among
other things, failed to pay estimated taxes, failed to timely
file their tax returns, and/or failed to timely pay taxes
reported due on their filed Federal income tax returns, as
follows:
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Year Petitioners Failed To
1998 Timely file their return
Timely pay the tax liability stated on the return
1999 Timely pay estimated taxes
Timely pay the tax liability stated on the return
2000 Timely pay the tax liability stated on the return
2001 Timely file their return
Timely pay the tax liability stated on the return
2002 Timely pay estimated taxes
Timely pay the tax liability stated on the return
In April 2000, petitioners moved to a new address, but
petitioners did not notify respondent of their change of address.
Before this move, petitioners filed with respondent IRS Form
2848, Power of Attorney and Declaration of Representative, in
which petitioners directed respondent to send to petitioners’
representative copies of any correspondence sent to petitioners.
Petitioners’ 2000, 2001, and 2002 Federal income tax returns
filed with respondent continued to show petitioners’ old address
and did not show the new address to which petitioners moved in
April 2000. Petitioners did not otherwise notify respondent of
their new address until sometime after March 2004.
From November 2002 through January 2004, respondent sent to
petitioners (at the old address shown on petitioners’ 2000, 2001,
and 2002 Federal income tax returns; namely, 23382 Via Chirpia,
Mission Viejo, CA) at least seven notices relating to various
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late filing and late payment additions to tax and penalties that
respondent had assessed against petitioners relating to
petitioners’ 2000, 2001, and 2002 Federal income tax returns and
warning petitioners of the potential for default on the OIC that
had been entered into if petitioners did not pay the various
additions to tax and penalties that had been assessed against
them.
Specifically, in November 2003, respondent mailed to
petitioners at their Via Chirpia, Mission Viejo, address a notice
alerting petitioners that the OIC was subject to likely
termination if petitioners’ outstanding additions to tax and
penalties for 2001 and 2002 were not paid.
In January 2004, respondent mailed to petitioners (at the
Via Chirpia, Mission Viejo, address) a notice of default on the
OIC, informing petitioners that the OIC was terminated.
On June 18, 2005, respondent mailed to petitioners a notice
of intent to levy and a notice of petitioners’ right to a hearing
relating to the approximate $148,350 balance of petitioners’
unpaid 1993 Federal income taxes.
On July 21, 2005, petitioners filed a Form 12153, Request
for a Collection Due Process Hearing, with regard to respondent’s
notice of intent to levy, in which petitioners requested that
respondent reinstate the OIC.
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On January 6, 2006, an Appeals Office hearing was held by
telephone conference among respondent’s Appeals Office,
petitioners, and petitioners’ attorney.
On February 8, 2006, respondent’s Appeals Office issued to
petitioners a notice of determination sustaining respondent’s
levy notice.
In the notice of determination, respondent’s Appeals Office
indicated that because petitioners had defaulted on the OIC and
because petitioners had not provided any financial or other
information applicable to other collection alternatives,
respondent’s levy notice was sustained.
Discussion
Because the underlying tax liability is not in dispute, we
review the actions of respondent’s Appeals Office for abuse of
discretion. See Goza v. Commissioner, 114 T.C. 176, 182 (2000).
Abuse of discretion occurs where the actions of the
Commissioner’s Appeals Office are arbitrary or capricious, lack
sound basis in law, or are not justifiable in light of the facts
and circumstances. Woodral v. Commissioner, 112 T.C. 19, 23
(1999).
Pursuant to section 6330(c)(3), respondent’s Appeals Office
must verify that the requirements of applicable law and
administrative procedure have been met, consider issues raised by
petitioners, and consider whether the proposed collection action
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balances the need for the efficient collection of taxes with
petitioners’ legitimate concern that respondent’s collection be
no more intrusive than necessary.
In reviewing whether respondent’s Appeals Office abused its
discretion in sustaining respondent’s notice of intent to levy,
our analysis is governed by “general principles of contract law.”
See Dutton v. Commissioner, 122 T.C. 133, 138 (2004).
Under the “material breach of contract” analysis applied in
Robinette v. Commissioner, 123 T.C. 85, 108 (2004), revd. 439
F.3d 455 (8th Cir. 2006), “If * * * [petitioners’] breach is
material and sufficiently serious, * * * [respondent’s]
obligation to perform may be discharged. * * * Not so, however,
if * * * [petitioners’] breach is comparatively minor.”
On appeal, the Court of Appeals for the Eighth Circuit noted
that the failure to comply with an express condition of an OIC is
itself grounds for the Commissioner to revoke the OIC, regardless
of materiality. Robinette v. Commissioner, 439 F.3d at 462.
Generally, for purposes of section 6330, a notice mailed to
the taxpayer’s “last known address” is proper and sufficient.
Tadros v. Commissioner, 763 F.2d 89, 91 (2d Cir. 1985); Buffano
v. Commissioner, T.C. Memo. 2007-32. In determining petitioners’
last known address, unless otherwise notified respondent may rely
upon petitioners’ most recently filed return. See Abeles v.
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Commissioner, 91 T.C. 1019, 1025 (1988); Brown v. Commissioner,
78 T.C. 215, 219 (1982).
Petitioners argue that petitioners’ failure timely to file
tax returns, to pay estimated taxes, and to pay the various
additions to tax and penalties assessed against them during the
5-year compliance period did not constitute a material breach of
the OIC and did not justify respondent’s revocation of the OIC
and therefore that respondent’s Appeals Office abused its
discretion in sustaining respondent’s notice of intent to levy.
We disagree. The numerous instances of petitioners’ failure
to keep their tax obligations current during the 5-year
compliance period constitute, under any standard, a significant
and material breach of the requirements of the OIC.
We need not address different standards that, in other
cases, might be considered and that might be applicable. See Ng
v. Commissioner, T.C. Memo. 2007-8.
Respondent mailed to petitioners a number of notices
alerting petitioners to the potential for default on the OIC and
giving petitioners opportunity to bring current their tax and
other payments due.
Although petitioners moved to a new address, petitioners
failed to apprise respondent of their new address, and respondent
cannot now be faulted for mailing the notices to the address
shown on petitioners’ tax returns. Petitioners, not respondent,
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must bear the consequences of petitioners’ failure to properly
file their tax returns with, or otherwise apprise respondent of,
petitioners’ new address.
Petitioners argue that respondent should have, but did not,
mail to petitioners’ representative a copy of the various dunning
letters. Failure of respondent to mail to petitioners’
representative a copy of a notice that was mailed to petitioners
provides no basis to reject respondent’s collection action in
this case. See Amsler v. Commissioner, T.C. Memo. 1993-114
(notice generally will be valid even when a copy is not mailed to
a taxpayer’s representative so long as properly mailed to the
taxpayer); Foster v. Commissioner, T.C. Memo. 1982-115 (citing
Houghton v. Commissioner, 48 T.C. 656, 661 (1967)).
Because of petitioners’ repeated violations of the
conditions of the OIC, respondent’s Appeals Office did not abuse
its discretion in sustaining the notice of intent to levy. Other
arguments petitioners make herein have been considered and
rejected.
To reflect the foregoing,
Decision will be entered
for respondent.