Johnson v. Commissioner

STEPHEN J. JOHNSON, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket No. 11556–09L. Filed May 31, 2011.

P had taxable income of $1.7 million in 1999 and $1.8 mil-

lion in 2000. P filed income tax returns for those years in

2002 but paid no income tax. The Internal Revenue Service

(IRS) assessed tax of $514,164 for 1999 and $565,268 for 2000

and then served on P notice of the filing of a notice of Federal

tax lien (NFTL) and a notice of proposed levy to collect P’s

liabilities that (with interest and penalties) totaled

$1,586,952.45. P requested a collection due process (CDP)

hearing, during which he proposed an offer-in-compromise

(OIC), which he amended several times during 2008 and 2009

while the CDP hearing was in process. During the pendency

of the CDP proceeding, P received, from sales of investments,

proceeds that he did not pay to the IRS. In December 2008

P amended his OIC to propose payments totaling $400,000,

but in April 2009 P advised that he could not afford to make

the payments and that he would amend his offer downward

to $140,000. R rejected the OIC and issued a notice of deter-

475

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476 136 UNITED STATES TAX COURT REPORTS (475)

mination sustaining the notices of lien and proposed levy. P

filed a petition for review of the determination under I.R.C.

sec. 6330(d). During a remand, R’s settlement officer deter-

mined that P’s reasonable collection potential (RCP) was more

than three times the amount he had informally proposed,

which was based solely on the value of one asset he owned.

In calculating RCP, R also took into account, as dissipated

assets, certain of the proceeds of P’s investment assets that he

did not pay to the IRS. After remand R issued a supplemental

notice of determination to proceed with collection by lien and/

or levy of assessed income tax liabilities, plus interest and

penalties, for taxable years 1999 and 2000. Held: Where P

amended or withdrew an OIC, R’s Office of Appeals did not

abuse its discretion in declining the terms previously offered

in that OIC. Held, further, in declining P’s informal proposal

on the grounds that it offered less than his RCP, R’s Office

of Appeals did not abuse its discretion by including, in its cal-

culation of P’s RCP, certain dissipated assets and the settle-

ment officer’s final projection of P’s future earnings.

Babcock Maclean and Marshall J. Gluck, for petitioner.

Justin L. Campolieta, for respondent.

OPINION

GUSTAFSON, Judge: This is an appeal, pursuant to section

6330(d)(1), 1 by which petitioner Stephen Johnson seeks this

Court’s review of a determination by the Office of Appeals of

the Internal Revenue Service (IRS) to reject Mr. Johnson’s

proposed offer-in-compromise (OIC) and to sustain the filing

of a notice of Federal tax lien (NFTL) and notice of intent to

levy, in order to collect Mr. Johnson’s unpaid Federal income

taxes for tax years 1999 and 2000. That determination was

made after the Office of Appeals had conducted a collection

due process (CDP) hearing pursuant to section 6330(c) and a

supplemental CDP hearing pursuant to a remand by this

Court. This matter is currently before the Court pursuant to

the parties’ joint motion to submit this case on a stipulated

record under Rule 122.

The issue for decision is whether the Office of Appeals’

rejection of Mr. Johnson’s OIC was an abuse of discretion. We

hold that the Office of Appeals did not abuse its discretion

1 Unless otherwise indicated, all section references are to the Internal Revenue Code (26

U.S.C.) as amended, and all Rule references are to the Tax Court Rules of Practice and Proce-

dure.

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(475) JOHNSON v. COMMISSIONER 477

by rejecting Mr. Johnson’s OIC and sustaining the proposed

collection action.

Background

This case was submitted fully stipulated pursuant to Rule

122, and the facts are so found. The stipulations of the par-

ties, with accompanying exhibits, are incorporated herein by

this reference. At the time he filed the petition, Mr. Johnson

resided in the Republic of Singapore.

Mr. Johnson’s background

Stephen Johnson earned a degree in business from the

University of Pennsylvania School of Business and worked as

an investment banker with UBS AG. Mr. Johnson left UBS AG

and in 1999 established Asiawerks Global Investment Group,

Pte., Ltd. (Asiawerks), in Singapore. Asiawerks is an invest-

ment firm in which Mr. Johnson held a 50-percent ownership

interest. In 1999 and 2000, Mr. Johnson’s primary sources of

regular income were his Asiawerks salary and certain tribal

income he received annually as a member of the Saginaw

Chippewa Indian Tribe.

Mr. Johnson’s 1999 and 2000 liabilities

During 1999 and 2000, Mr. Johnson liquidated a number

of investments. 2 The gain realized from the liquidation of

these investments, combined with his other earnings,

resulted in AGI of $1,740,936 in 1999 and $1,809,767 in 2000

and in Federal income tax liabilities of $514,164 for 1999 and

$565,268 for 2000. Mr. Johnson filed returns for the years

1999 and 2000 in December 2002, but he did not make any

payments towards his outstanding liabilities for those

years. 3

2 In his briefs Mr. Johnson stresses the stipulated fact that he liquidated the investments in

order to fund a divorce settlement. However, as respondent points out, Mr. Johnson paid $1.25

million to his former wife, whereas his combined adjusted gross income (AGI) for the two years

totaled over $3.5 million. In general, when calculating a taxpayer’s RCP, a settlement officer

may allow an expense for court-ordered payments (e.g., alimony, child support) where the pay-

ments are reasonable. Internal Revenue Manual (IRM) pt. 5.15.1.10(3) (Oct. 2, 2009). However,

Mr. Johnson’s payment of the $1.25 million divorce settlement has no bearing on his RCP here

because there are no ongoing payments towards this liability which need to be considered in

determining his ability to pay his taxes.

3 The IRS did, however, apply to those liabilities various overpayment credits from subsequent

years and the downpayments Mr. Johnson submitted in connection with various OICs.

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478 136 UNITED STATES TAX COURT REPORTS (475)

The IRS’s notices of lien and proposed levy

On October 30, 2007, the Internal Revenue Service (IRS)

issued Mr. Johnson a ‘‘Notice of Federal Tax Lien Filing and

Your Right to a Hearing under IRC 6320’’ (lien notice), noti-

fying him that a Federal tax lien had been filed with respect

to his outstanding income tax liabilities for taxable years

1999 and 2000, and notifying him of his right to request a

CDP hearing. Two days later, on November 1, 2007, the IRS

issued Mr. Johnson a ‘‘Final Notice—Notice of Intent to Levy

and Notice of Your Right to a Hearing’’ (levy notice) for those

same years, pursuant to sections 6330(a)(1) and 6331(d)(1),

advising him of the IRS’s intent to levy upon his property. As

of that time, his liabilities for 1999 and 2000—including

interest and penalties—totaled $1,586,952.45. On November

19, 2007, the IRS received from Mr. Johnson’s representatives

a Form 12153, ‘‘Request for a Collection Due Process

Hearing’’.

The resulting CDP process took nearly four years. Since

November 2007 multiple settlement officers have been

involved in the CDP process, and through his representatives

Mr. Johnson submitted three formal OICs on Forms 656,

‘‘Offer in Compromise’’, and a number of proposed amend-

ments, and he informally proposed an amendment to an OIC.

While only the most recent determination (made by the

Office of Appeals in April 2010) is now subject to our review,

see Kelby v. Commissioner, 130 T.C. 79 (2008), an under-

standing of the CDP hearing history is helpful.

Hearing before Settlement Officer Hunt

On November 30, 2007, Mr. Johnson submitted his first

formal OIC on a Form 656 dated October 21, 2007 (October

2007 OIC). Under the October 2007 OIC Mr. Johnson proposed

to pay, in settlement of his outstanding tax liabilities, a total

of $225,000 in 23 monthly installments of $9,375 plus a

deposit in the same amount. Mr. Johnson’s CDP hearing was

initially assigned to Settlement Officer Mark Hunt (SO

Hunt), who calculated Mr. Johnson’s total tax liability with

accruals to be $2,324,895.40.

On March 27, 2008, SO Hunt issued a preliminary deter-

mination in which he calculated Mr. Johnson’s reasonable

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(475) JOHNSON v. COMMISSIONER 479

collection potential (RCP) to be $707,386 4 and recommended

rejection of the October 2007 OIC. Mr. Johnson’s representa-

tives subsequently submitted an informal proposal to amend

the October 2007 OIC upward to $456,064, which Mr. John-

son would fund with distributions from his investment in

DCM II Doll Technology Investment Fund II LP (DCM) and his

interest in Claremont LLC (Claremont). However, in June

2008 the October 2007 OIC was informally amended down-

ward to $350,000 to account for Mr. Johnson’s plan to sell his

interest in DCM to an unrelated investor for 75 percent of the

value.

During an October 28, 2008, telephone conference, Mr.

Johnson’s representatives informed SO Hunt and his man-

ager that Asiawerks was having financial difficulty and that

a portion of Mr. Johnson’s 2008 DCM distribution, 5 which had

been earmarked to fund the October 2007 OIC and subse-

quent OICs, was reinvested in Asiawerks to pay his salary.

The parties also discussed the inclusion of certain dissipated

assets in Mr. Johnson’s RCP, the value of Mr. Johnson’s

interest in Asiawerks, and the disallowance of a monthly

loan payment. 6

On December 17, 2008, after a series of further discus-

sions, Mr. Johnson’s representatives faxed to SO Hunt an

amended offer-in-compromise proposing a $400,000 cash offer

payable within eight months. This offer was formally

amended a week later on December 24, 2008, when Mr.

4 SO Hunt calculated Mr. Johnson’s RCP to be $707,386 on the basis of a future income poten-

tial of $215,653 (monthly income of $9,777 less allowable monthly expenses of $5,284.22 pro-

jected over 48 months) and a total equity in assets of $491,733. In calculating Mr. Johnson’s

RCP for the purpose of this preliminary determination, SO Hunt did not place any value on

Mr. Johnson’s 50-percent interest in Asiawerks, and he did not treat the distribution from cer-

tain investments or the proceeds from the sale of real property as dissipated assets. In ulti-

mately recommending rejection of the October 2007 OIC, SO Hunt rejected Mr. Johnson’s asser-

tion that the forced sale of securities giving rise to his tax liabilities for years 1999 and 2000

presented a unique circumstance that would permit the acceptance of an OIC for less than his

RCP.

5 Mr. Johnson received an earlier DCM distribution, apparently in 2006, which is not at issue

in the supplemental notice of determination issued by Settlement Officer Covey (SO Covey). For

clarity, we will refer to the distribution at issue in the present case as the ‘‘2008 DCM distribu-

tion.’’

6 The parties have continuously disagreed about the disallowance (in computing RCP) of a

$3,000 monthly loan payment attributable to a home equity loan that Mr. Johnson’s mother took

out on behalf of her son. Mr. Johnson claims that the loan was taken out so that he could fund

the repayment of his outstanding tax liabilities; however, he failed to substantiate that the loan

proceeds were ever used for this purpose. SO Hunt initially proposed to allow this expense in

his draft determination, but the Appeals Office ultimately disallowed the expense in the supple-

mental notice of determination, because Mr. Johnson was not legally obligated to repay the loan

and the payments were not a necessary living expense.

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480 136 UNITED STATES TAX COURT REPORTS (475)

Johnson’s representatives submitted a revised amended offer-

in-compromise (December 24, 2008, OIC), in which Mr. John-

son proposed to pay $400,000 in five bimonthly installments

of $80,000. 7

In his January 2009 draft Appeals case memorandum

(ACM), SO Hunt recommended acceptance of Mr. Johnson’s

December 24, 2008, OIC after calculating Mr. Johnson’s RCP

to be $364,392. 8 SO Hunt’s manager, however, rejected this

recommendation. Shortly thereafter, SO Hunt was internally

reassigned to an acting position in management.

Hearing before Settlement Officer DeVincentz

Settlement Officer D.W. DeVincentz was assigned to com-

plete Mr. Johnson’s CDP hearing upon SO Hunt’s reassign-

ment. After reviewing all the prior correspondence and

records, SO DeVincentz recalculated Mr. Johnson’s RCP to be

$513,872 9 and advised Mr. Johnson’s representatives that a

short-term cash offer of $500,000, with an additional $20,000

downpayment, would be an acceptable collection alternative.

On April 10, 2009, Mr. Johnson’s representatives informed

SO DeVincentz that Asiawerks was in the process of winding

up, and thus Mr. Johnson could no longer afford the payment

schedule proposed in his December 24, 2008, OIC. Mr. John-

son’s representatives also informed SO DeVincentz that Mr.

Johnson had used the remainder of his DCM distributions to

fund the business operations of Asiawerks and for living

expenses, and that his only remaining asset was his post-dis-

tribution interest in DCM, valued at $60,000. For that reason,

7 The first installment of $80,000 consisted of $42,500 (which Mr. Johnson would pay upon

acceptance of the December 24, 2008, OIC) plus the $37,500 previously paid in connection with

the October 2008 OIC.

8 SO Hunt’s January 2009 draft ACM was not a final product and contained a number of er-

rors, including a misstatement of Mr. Johnson’s RCP. Mr. Johnson’s RCP was determined to

be $364,392 by combining future income potential of $7,800 and equity in assets of $356,592.

This figure did not include the combined $80,000 in cash already remitted to the IRS in connec-

tion with Mr. Johnson’s October 2007 OIC and December 24, 2008, OIC.

9 SO DeVincentz recalculated Mr. Johnson’s RCP to be $513,872 by combining $77,280 in fu-

ture income potential with $436,592 in asset equity. In recalculating Mr. Johnson’s future in-

come potential, SO DeVincentz determined that only $1,842 of the $3,000 monthly loan payment

was allowable as a necessary living expense, representing the difference between the $3,000 Mr.

Johnson was currently paying and the $1,158 his mother had been paying towards her mortgage

before the monthly loan payment arrangement. This effectively increased Mr. Johnson’s dispos-

able income by $1,158 per month. SO DeVincentz added the $1,158 to the $130 in net monthly

income determined by SO Hunt, which he then multiplied by 60 months to arrive at a future

income potential of $77,280. Moreover, SO DeVincentz increased Mr. Johnson’s asset equity fig-

ure from $356,592 (as calculated by SO Hunt) to $436,592 by adding the value of Mr. Johnson’s

discounted interest in a coal mine owned by Asiawerks.

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(475) JOHNSON v. COMMISSIONER 481

Mr. Johnson directed his representatives to amend the

December 24, 2008, OIC downward to $140,000, which would

consist of the $80,000 he had previously remitted in connec-

tion with his prior OICs and his remaining $60,000 interest

in DCM. SO DeVincentz declined this informal offer of

$140,000 and informed Mr. Johnson that a notice of deter-

mination sustaining the proposed collection action would be

issued.

Determination, Tax Court petition, and remand

The Office of Appeals issued its notice of determination on

April 17, 2009. Mr. Johnson filed a petition with the Court

challenging the IRS’s rejection of his OIC and arguing that an

offer of $140,000 was acceptable given his financial situation.

Respondent subsequently moved for remand because the

notice of determination did not explain how SO DeVincentz

had calculated Mr. Johnson’s RCP. This Court remanded the

case to the Office of Appeals on December 17, 2009, granting

Mr. Johnson a supplemental administrative hearing pursu-

ant to section 6330.

Supplemental hearing and determination

Upon remand, Settlement Officer Covey was assigned to

Mr. Johnson’s hearing and reviewed the administrative

record. At that time, Mr. Johnson’s unpaid balance (including

interest and penalties) was $2,468,936.29; and SO Covey ten-

tatively calculated Mr. Johnson’s RCP to be only about one-

fourth of that—i.e., $568,408 10—on the basis of her under-

standing of Mr. Johnson’s financial situation.

A face-to-face conference was held on March 2, 2010, in

which SO Covey and Mr. Johnson’s representatives discussed

the issues relating to Mr. Johnson’s unpaid tax liabilities,

including the dissipation of Mr. Johnson’s 2008 DCM distribu-

tion. Mr. Johnson’s representatives claimed that the

$277,000 2008 DCM distribution was used to pay Mr. John-

son’s representatives in connection with the ongoing Tax

10 SO Covey initially calculated Mr. Johnson’s RCP to be $568,408 on the basis of a future

income potential of $212,784 over a period of 48 months and a total equity in assets of $355,625.

SO Covey noted, however, that before a final calculation could be determined she needed more

information regarding an appraisal of Asiawerks and other companies Mr. Johnson held inter-

ests in, as well as documentation substantiating that the liquidation proceeds of certain invest-

ments were used for necessary living expenses.

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482 136 UNITED STATES TAX COURT REPORTS (475)

Court proceeding and to fund the downpayment of the

December 24, 2008, OIC, and that any remaining funds were

either reinvested into the failing Asiawerks or used for per-

sonal living expenses. SO Covey requested that Mr. Johnson

provide by March 16, 2010, a number of documents substan-

tiating his current financial affairs, including: proof of

disbursements from the 2008 DCM distribution and the liq-

uidation of Mr. Johnson’s investment in Claremont; closing

statements; settlement sheets; bank statements verifying Mr.

Johnson’s claim that the money he reinvested in Asiawerks

to pay his salary had been used for necessary living

expenses; Mr. Johnson’s current Form W–2, Wage and Tax

Statement, to corroborate a supposed reduction in his tribal

income; current statements establishing Mr. Johnson’s

remaining interests in DCM and Claremont; and Forms 433–

B, ‘‘Collection Information Statement for Businesses’’, for all

companies in which Mr. Johnson held an interest. In

response, Mr. Johnson’s representatives faxed SO Covey a

letter on March 12, 2010, advising SO Covey that the Clare-

mont investment had paid out $11,317 and was now finished,

and advocating that SO Covey apply a flexible standard in

calculating Mr. Johnson’s RCP, given that Asiawerks was now

defunct. (As is explained below, most of the requested docu-

ments were never provided to SO Covey.)

In a letter dated March 12, 2010, Mr. Johnson’s represent-

atives reiterated that his current offer was $140,000, con-

sisting of $80,000 already remitted in connection with his

prior OICs plus $60,000 that he believed he could obtain by

liquidating his remaining $60,000 interest in DCM. That is,

Mr. Johnson’s $140,000 proposal presumed that, beyond the

$80,000 he had already remitted, the IRS could reasonably

expect to collect from him in the future no more than

$60,000. At this time, Mr. Johnson’s unpaid income tax

liabilities (with accruals) totaled approximately $2.5 million.

On the basis of her review of the entire administrative

record, SO Covey ultimately concluded that neither of Mr.

Johnson’s proposed offers—i.e., neither the informal proposal

of $140,000, nor the December 24, 2008, OIC of $400,000 that

he had withdrawn—would be an acceptable offer, given her

calculation of his RCP. In evaluating Mr. Johnson’s proposals,

SO Covey calculated his RCP to be $445,181 (i.e., about 18

percent of his total liability of about $2.5 million), on the

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(475) JOHNSON v. COMMISSIONER 483

basis of total equity in assets of $288,317 and future income

potential of $156,864. Her asset computation was as follows:

Personal bank accounts ...................................... $7,500

Value of remaining DCM interest ...................... 60,000

Dissipated assets:

Claremont interest sold 4/2009 ....................... 11,317

DCM interest sold 6/2009 ................................ 209,500

Total .................................................................. 288,317

SO Covey’s determination of Mr. Johnson’s future income

potential first computed his monthly disposable income

(income over allowable expenses) and then multiplied that

amount by 48 months, to yield four years’ worth of disposable

income. For his monthly income, SO Covey took the figures

from Mr. Johnson’s own financial statement—i.e., wages of

$3,267 per month and tribal income of $6,510 per month,

totaling $9,777 per month. SO Covey’s monthly expense fig-

ures differed somewhat from Mr. Johnson’s (in some respects

to his advantage, but overall to his disadvantage), and both

are set out here:

Mr. Johnson SO Covey

Monthly income $9,777 $9,777

Monthly expenses:

National Standard $600 $760

Housing and utilities 3,117 3,117

Health care 0 60

Taxes 1,500 1,500

Transportation—

operating cost 385 385

Transportation—owner-

ship cost 915 489

Child care 300 198

Loan payment 3,000 0

Total expenses 9,817 6,509

Monthly disposable income –40 3,268

Thus, SO Covey disagreed with Mr. Johnson both about the

amount of his assets (i.e., she included his personal bank

accounts and about $220,000 of dissipated assets) and about

the expenses that should be taken into account in figuring

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484 136 UNITED STATES TAX COURT REPORTS (475)

his disposable income (chiefly, she made no allowance for his

$3,000 loan payment). 11

Mr. Johnson did not thereafter provide, in response to SO

Covey’s requests, any documentation substantiating that the

funds reinvested in Asiawerks were used for necessary living

expenses, nor Forms 433–B for interests he owned in various

businesses. SO Covey therefore recommended, and the Office

of Appeals issued, a ‘‘Supplemental Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or

6330’’ on April 20, 2010, fully sustaining the proposed lien

and levy actions of the Collection Division. In response to

this supplemental notice of determination, Mr. Johnson filed

an initial brief with this Court, arguing that the Office of

Appeals failed to properly apply the IRM provisions on dis-

sipated assets and thus abused its discretion in rejecting Mr.

Johnson’s OICs.

Discussion

I. Legal principles for ‘‘collection due process’’

A. Right to agency-level hearing

Section 6330 provides that, before a levy may be made on

any property or right to property pursuant to section 6331,

a taxpayer is entitled to notice of the Commissioner’s intent

to levy and of the taxpayer’s right to a fair hearing before an

impartial officer of the IRS Office of Appeals. Sec. 6330(a) and

(b). Similarly, section 6320 provides that after the filing of an

NFTL under section 6323, the Secretary shall furnish written

notice of the filing and of the taxpayer’s right to a hearing,

which is generally conducted consistent with the procedures

set forth in section 6330(c), (d), and (e). Sec. 6320(c).

At the agency-level CDP hearing, taxpayers may raise chal-

lenges to ‘‘the appropriateness of collection actions’’ and may

make ‘‘offers of collection alternatives, which may include the

posting of a bond, the substitution of other assets, an install-

ment agreement, or an offer-in-compromise.’’ Sec.

6330(c)(2)(A). The appeals officer must consider those issues,

verify the requirements of applicable law and administrative

procedure have been met, and consider ‘‘whether any pro-

posed collection action balances the need for the efficient

11 See supra notes 6 and 9.

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(475) JOHNSON v. COMMISSIONER 485

collection of taxes with the legitimate concern of the person

[involved] that any collection action be no more intrusive

than necessary.’’ Sec. 6330(c)(3)(C). As his collection alter-

native, Mr. Johnson chose to submit OICs. In the case before

us, Mr. Johnson disputes the IRS’s failure to accept his latest

OIC.

B. Offers-in-compromise

Section 7122(a) authorizes the Secretary to compromise

any civil or criminal case arising under the internal revenue

laws. Section 7122(c) provides that the Secretary shall pre-

scribe guidelines for evaluation of whether an OIC should be

accepted, and thus the decision whether to accept or reject an

OIC is left to the Secretary’s discretion. Fargo v. Commis-

sioner, 447 F.3d 706, 712 (9th Cir. 2006), affg. T.C. Memo.

2004–13; 26 C.F.R. sec. 301.7122–1(c)(1), Proced. & Admin.

Regs.

The regulations promulgated under section 7122 set forth

three grounds for compromise of a taxpayer’s liability. These

grounds are doubt as to liability, doubt as to collectibility,

and the promotion of effective tax administration. 26 C.F.R.

sec. 301.7122–1(b). In his CDP hearing Mr. Johnson sought a

compromise based on doubt as to collectibility.

The Secretary may compromise a tax liability based on

doubt as to collectibility where the taxpayer’s assets and

income are less than the full amount of the liability. 26

C.F.R. sec. 301.7122–1(b)(2). Under the Commissioner’s

administrative procedures, an OIC based on doubt as to

collectibility will be acceptable only if it reflects the tax-

payer’s ‘‘reasonable collection potential’’ (RCP). Rev. Proc.

2003–71, sec. 4.02(2), 2003–2 C.B. 517, 517. RCP is generally

calculated by multiplying a taxpayer’s monthly income avail-

able to pay taxes by the number of months remaining in the

statutory period for collection, see sec. 6502, and adding to

that product the realizable net equity in the taxpayer’s

assets. Both parties appear to agree that Mr. Johnson’s RCP

is substantially less than his tax liability, which stood at

approximately $2.5 million as of January 28, 2010. The par-

ties obviously disagree, however, as to the amount of Mr.

Johnson’s RCP.

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486 136 UNITED STATES TAX COURT REPORTS (475)

The IRS may reject an OIC because the taxpayer’s ability to

pay is greater than the amount he proposes to pay under the

compromise proposal. See Fargo v. Commissioner, 447 F.3d

at 709–710. Under IRS procedures, the IRS will not accept a

compromise that is less than the reasonable collection value

of the case, absent a showing of special circumstances. See

Rev. Proc. 2003–71, sec. 4.02(2). Mr. Johnson has not argued

that he presents special circumstances, so we determine here

whether the settlement officer’s calculation of RCP was

reasonable. See Murphy v. Commissioner, 125 T.C. 301, 302

(2005), affd. 469 F.3d 27 (1st Cir. 2006).

C. Dissipated assets

Where the settlement officer determines that a taxpayer

has dissipated assets in disregard of the taxpayer’s out-

standing Federal income tax liability, the IRM 12 provides

that the dissipated assets may be included in the calculation

of the minimum amount that is to be paid under an accept-

able OIC:

(1) During an offer investigation it may be discovered that assets (liquid

or non liquid) have been sold, gifted, transferred, or spent on non-priority

items or debts and are no longer available to pay the tax liability. This sec-

tion discusses treatment of the value of these assets when considering an

OIC.

* * * * * * *

(2) Once it is determined that a specific asset has been dissipated, the

investigation should address whether the value of the asset, or a portion

of the value, should be included in an acceptable offer amount.

(3) Inclusion of the value of dissipated assets must clearly be justified in

the case file and documented on the ICS or AOIC history, as appropriate.

A determination that assets were dissipated should include an analysis of

the following facts:

• When the asset(s) were dissipated in relation to the offer submission.

• When the asset(s) were dissipated in relation to the liability.

• How the asset was transferred.

• If the taxpayer realized any funds from the transfer of assets.

12 The IRM provisions on dissipated assets were revised in October 2010 and since then ap-

pear in part 5.8.5.16, but we quote the provisions as in effect when the Office of Appeals made

the determination under review here. Mr. Johnson asserts in his brief that the IRM instructs

settlement officers to take dissipated assets into account ‘‘only in unusual circumstances.’’ The

IRM, however, does not require ‘‘unusual circumstances’’ but requires only that the inclusion

of dissipated assets ‘‘must clearly be justified.’’ IRM pt. 5.8.5.5(3) (Sept. 23, 2008). The IRM,

quoted below, goes on to list a number of factors for consideration in deciding whether to include

the value of dissipated assets in a taxpayer’s RCP as quoted above.

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(475) JOHNSON v. COMMISSIONER 487

• How any funds realized from the disposition of assets were used.

• The value of the assets and the taxpayer’s interest in those assets.

* * * * * * *

(5) If the investigation clearly reveals that assets have been dissipated

with a disregard of the outstanding tax liability, consider including the

value in the RCP calculation.

[IRM pt. 5.8.5.5 (Sept. 23, 2008).]

A dissipated asset is thus defined as any asset (liquid or non-

liquid) that has been sold, transferred, or spent on non-pri-

ority items or debts and that is no longer available to pay the

tax liability. IRM pt. 5.8.5.5(1); see also Samuel v. Commis-

sioner, T.C. Memo. 2007–312. If the taxpayer establishes that

he used the dissipated assets for necessary living expenses,

the IRM instructs the settlement officer not to include them

in the RCP calculation. IRM pt. 5.8.5.5(4). If the taxpayer fails

to provide information substantiating the disposition of the

funds from such assets, the settlement officer may consider

including the full value of the dissipated assets as part of the

taxpayer’s RCP, for purposes of determining an acceptable

offer amount. IRM pt. 5.8.5.5(8).

A consequence of including dissipated assets in RCP is that

the taxpayer is fictitiously assumed to have, as funds avail-

able to pay his tax liability, money that he manifestly does

not have anymore—an assumption that may be discouraging

to the delinquent taxpayer who is trying to get right with the

IRS. However, the evident reason for this rule is to deter

delinquent taxpayers from wasting money that they owe and

should pay as taxes. Conscientious taxpayers would object—

and the system would suffer—if a taxpayer with overdue

taxes and with money in hand could spend his money on

‘‘non-priority items’’ and nonetheless effectively obtain

forgiveness of his liability simply by proving in the collection

context that he really did reduce his collection potential by

wasting the assets. Removing dissipated assets from RCP

could create perverse incentives, and the tax collector must

have discretion to avoid that problem. It is therefore reason-

able for the Office of Appeals to consider including dissipated

assets in a taxpayer’s RCP.

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488 136 UNITED STATES TAX COURT REPORTS (475)

D. Judicial review

If the taxpayer is dissatisfied with the determination made

by the Office of Appeals in his CDP hearing, he may appeal

that determination by filing a petition in this Court. Sec.

6330(d). Where, as here, the underlying tax liability is not at

issue, our review of the notice of determination under section

6330 is for abuse of discretion. See Sego v. Commissioner,

114 T.C. 604, 610, (2000); Goza v. Commissioner, 114 T.C.

176, 182, (2000). We do not make an independent decision as

to what would be an acceptable OIC or substitute our judg-

ment for that of the settlement officer. Rather, we do not dis-

turb the IRS’s decision to reject an OIC unless it is arbitrary,

capricious, or without sound basis in fact or law. Murphy v.

Commissioner, 125 T.C. at 320. 13

II. Non-acceptance of the December 24, 2008, OIC

For two reasons, we hold that when in January 2009 the

Office of Appeals declined to accept Mr. Johnson’s December

24, 2008, OIC offering $400,000, it did not abuse its discre-

tion:

A. Mr. Johnson amended or withdrew the December 24,

2008, OIC in April 2009.

The regulations require that OICs be submitted ‘‘in the

form and manner * * * prescribed by the Secretary’’. 26

C.F.R. sec. 301.7122–1(d)(1). The prescribed form for an OIC

is Form 656. See 26 C.F.R. sec. 601.203(b), Statement of

Procedural Rules; Rev. Proc. 2003–71, sec. 4.01, 2003–2 C.B.

at 517. Mr. Johnson’s latest Form 656 was submitted in

December 2008 and contained his offer to pay $400,000.

When respondent moved the Court (with Mr. Johnson’s con-

sent) to remand this case to the Office of Appeals, respondent

apparently assumed that Mr. Johnson’s December 24, 2008,

OIC had still been pending at the time of the original April

17, 2009, determination. 14 However, it is clear that the

13 Mr. Johnson requests that this Court ‘‘order that petitioner’s pending offer in compromise

be accepted by respondent’’; however, this Court has jurisdiction to review respondent’s rejection

of an OIC for abuse of discretion. We cannot order the IRS to accept an OIC. Rather, if we find

that the IRS abused its discretion in rejecting an OIC, the remedy available to this Court is

to determine that the collection action itself—the filing of the NFTL or the proposed levy—is

not sustained.

14 Respondent’s motion for remand filed December 14, 2009, stated: ‘‘The primary issue in this

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December 24, 2008, OIC was either amended or withdrawn by

the time the Office of Appeals made its original determina-

tion and could not have been accepted by the IRS at that

time.

1. The December 24, 2008, OIC was amended in

April 2009.

In a letter dated April 10, 2009, Mr. Johnson’s representa-

tives stated:

Mr. Johnson * * * is no longer able to make the payments required under

the $400,000 offer. * * * Mr. Johnson has instructed us to amend the

pending $400,000 offer downward to $140,000, consisting of the $80,000 he

has already paid to the IRS and the estimated $60,000 sale value of his

remaining interest in Doll [DCM].

* * * * * * *

* * * We respectfully request * * * that Mr. Johnson’s offer as revised

herein be accepted by the IRS.

In a letter dated March 12, 2010, Mr. Johnson’s representa-

tives confirmed to SO Covey that Mr. Johnson’s ‘‘current

offer in compromise * * * totals $140,000’’.

We find no provision in the pertinent regulations or Rev-

enue Procedure that precludes an amendment to an OIC or

requires that such an amendment take any particular form.

Consequently, we conclude that on April 10, 2009, Mr. John-

son’s latest OIC was amended downward by $260,000 15 to an

amount of $140,000. As a result of that amendment, there

was no longer pending thereafter any offer to pay $400,000.

Therefore, the Office of Appeals did not abuse its discretion

by failing to accept payment of $400,000.

case is whether respondent’s Office of Appeals abused its discretion in rejecting, as a collection

alternative, a proposed offer-in-compromise. * * * The Notice of Determination, however, does

not provide an explanation as to how the Office of Appeals calculated petitioner’s reasonable

collection potential’’. This suggests that respondent believed Mr. Johnson’s December 24, 2008,

OIC was still pending and had not been withdrawn. Otherwise respondent need only have

issued a notice of determination stating that the December 24, 2008, offer had been withdrawn,

rather than asking for a remand to clarify the calculation of Mr. Johnson’s RCP for an offer

that respondent knew was no longer pending.

15 The attachment to the supplemental notice of determination misstates Mr. Johnson’s pro-

posal at one point by stating, ‘‘your proposal was decreased from $400,000 to $260,000’’. (Empha-

sis added.) But in fact the offered amount was decreased by $260,000 to $140,000, as the attach-

ment elsewhere acknowledges.

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490 136 UNITED STATES TAX COURT REPORTS (475)

2. If the December 24, 2008, OIC was not amended, then it

was withdrawn.

Mr. Johnson’s representatives’ April 2009 letter made it

clear that his payment of $400,000 was no longer possible

and was not offered. If the letter did not effectively amend

the offer down to $120,000, then it must have withdrawn the

offer of $400,000. An offer will be considered withdrawn on

the IRS’s receipt of written notification of the withdrawal of

the offer either by personal delivery or certified mail, or on

issuance of a letter by the IRS confirming the taxpayer’s

intent to withdraw the offer. 26 C.F.R. sec. 301.7122–1(d)(3);

Rev. Proc. 2003–71, sec. 7.02, 2003–2 C.B. at 519. While Mr.

Johnson’s representatives’ letter did not use the term ‘‘with-

draw’’, it stated that ‘‘the $400,000 offer is no longer work-

able’’ because Mr. Johnson ‘‘is no longer able to make the

payments’’. If the letter withdrew the OIC, then the Office of

Appeals did not abuse its discretion in failing to accept the

then-obsolete December 24, 2008, OIC.

B. An OIC offering $400,000 would have been defective.

Even if Mr. Johnson’s offer to pay $400,000 had still been

pending, the Office of Appeals would not have abused its

discretion by failing to accept that offer when it issued its

supplemental determination in April 2010. This is so for one

of two alternative reasons: First, Mr. Johnson had stated

that he could not afford to make the payments that the

$400,000 OIC called for. If that were true, then he would

default on his obligations under the OIC and, under the

standard term in paragraph l of Form 656, would again

become liable for the entire liability. The execution of the OIC

would have been a pointless act. Or, second, for the reasons

stated below in part III.B.2, SO Covey reasonably concluded

that Mr. Johnson’s RCP exceeded $400,000. That being the

case, it would not have been in the Government’s interest to

accept the OIC, and the Office of Appeals would not have

abused its discretion by declining to accept it.

However, the only collection alternative pending during the

supplemental hearing was the amended offer of $140,000

(i.e., Mr. Johnson’s offer to pay $60,000, in addition to the

$80,000 already remitted to the IRS). We now analyze that

proposal.

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(475) JOHNSON v. COMMISSIONER 491

III. Non-acceptance of the informal proposal

A. Mr. Johnson’s informal proposal was pending.

As we have noted, IRS regulations require that an OIC be

submitted on a Form 656, whereas Mr. Johnson’s latest and

only pending proposal was the $140,000 proposal commu-

nicated by letter of April 10, 2009 (and confirmed by letter

of March 12, 2010). However, for the reasons stated above in

part II.A.1, the April 2009 letter amended the December 24,

2008, OIC, so that the $140,000 proposal was pending in the

form of the amended OIC. But even if the $140,000 proposal

was not embodied in a formal OIC, it was nonetheless a

‘‘collection alternative’’ for purposes of section

6330(c)(2)(A)(iii) and was properly considered during the CDP

hearing. See Sullivan v. Commissioner, T.C. Memo. 2009–4,

97 TCM (CCH) 1010, 1016 (2009).

B. Mr. Johnson’s informal proposal was inadequate.

1. The issue: Did Mr. Johnson’s RCP exceed $60,000?

We hold that the Office of Appeals did not abuse its discre-

tion in declining Mr. Johnson’s proposal to compromise his

unpaid Federal income tax liabilities for $140,000. That pro-

posed amount consisted of $80,000 that Mr. Johnson had

already deposited in connection with prior offers and an addi-

tional $60,000. Thus, Mr. Johnson essentially offered an

additional $60,000 in settlement of a Federal income tax

liability of approximately $2.5 million. This offer assumed

that Mr. Johnson’s entire collection potential consisted of the

value of a single asset that Mr. Johnson owned—his

remaining interest in DCM after the second distribution.

To be considered for acceptance, an offer based on doubt as

to collectibility must equal or exceed a taxpayer’s reasonable

collection potential. IRM pt. 5.8.1.1.3(3) (Sept. 23, 2008).

Pursuant to Rev. Proc. 2003–71, sec. 4.02(2), an OIC based on

doubt as to collectibility will be acceptable only if the offer

reflects the taxpayer’s RCP, i.e., that amount, less than the

full liability, which the IRS could collect through means such

as administrative and judicial remedies. Murphy v. Commis-

sioner, 125 T.C. at 309.

For SO Covey to properly conclude that Mr. Johnson’s pro-

posal should be rejected, she needed only to find that Mr.

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492 136 UNITED STATES TAX COURT REPORTS (475)

Johnson’s RCP exceeded $60,000 (i.e., the amount he proposed

to pay under his offer). The precise amount by which Mr.

Johnson’s RCP exceeded $60,000 need not be resolved,

because it was sufficient for SO Covey to find that Mr. John-

son had available for collection an amount that was substan-

tially greater than his $60,000 offer.

2. SO Covey’s analysis: Mr. Johnson’s RCP exceeded

$60,000.

SO Covey concluded (and we hold that she reasonably con-

cluded) that Mr. Johnson had other assets and disposable

income, not admitted by him, that could have funded addi-

tional collection. In fact, SO Covey calculated Mr. Johnson’s

RCP to be not $60,000, but $445,181. However, if Mr. John-

son’s RCP did substantially exceed $60,000, then the rejection

of his proposal was justified even if his RCP was not as great

as $445,181. We therefore consider three principal items, any

one of which by itself would support the supplemental deter-

mination of the Office of Appeals.

a. Dissipated assets

SO Covey concluded that Mr. Johnson had a total equity

in assets of $288,317, which included amounts he had pre-

viously received from his Claremont investment and his 2008

DCM distribution, which she considered dissipated assets.

Specifically, SO Covey included (a) the $11,317 that Mr.

Johnson received from the liquidation of his interest in

Claremont and (b) $209,500 from Mr. Johnson’s 2008 DCM

distribution of $277,000. (The portions of that distribution

that she did not treat as dissipation were the $42,500 that

was remitted to the IRS as a downpayment with the

December 24, 2008, OIC, and $25,000 that was used to pay

Mr. Johnson’s representatives in connection with the

prosecution of his Tax Court proceeding.)

Pursuant to IRM part 5.8.5.5(1), any assets that have been

‘‘sold, gifted, transferred, or spent on non-priority items or

debts and are no longer available to pay the tax liability’’ are

treated as dissipated assets. The IRM instructs a settlement

officer to consider inclusion of dissipated assets, unless the

taxpayer can substantiate that such assets were used to fund

necessary living expenses. The burden rests on the taxpayer,

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(475) JOHNSON v. COMMISSIONER 493

however, to provide complete and current financial informa-

tion and to corroborate any such claims. See Kerr v. Commis-

sioner, T.C. Memo. 2007–43; 26 C.F.R sec. 301.7122–1(d)(2).

Mr. Johnson disputes the inclusion of any of his liquidated

investments as dissipated assets for purposes of calculating

his RCP, because (he says) these funds were reinvested in his

failing business, in order to pay him a salary, which he

argues was needed for necessary living expenses. If Mr.

Johnson could show that he invested these distributions into

Asiawerks to pay himself a salary, and if he could substan-

tiate that he used the resulting salary for necessary living

expenses, then he could credibly argue that these assets

should not be included in his RCP calculation as dissipated

assets. However, despite pointed requests from SO Covey,

Mr. Johnson failed to substantiate either (a) how much of the

2008 DCM distribution or the Claremont distribution that he

invested into Asiawerks was actually used to pay his salary,

or (b) how much of this salary, if any, was used for necessary

living expenses. 16 Thus SO Covey did not abuse her discre-

tion by including the full $220,817 as dissipated assets in

calculating Mr. Johnson’s RCP.

b. Personal bank accounts

SO Covey determined from Mr. Johnson’s own financial

statements that he held $7,500 in bank accounts (an amount

equal to more than 10 percent of the $60,000 he offered). Mr.

Johnson did not dispute this determination. He was therefore

in a position to pay substantially more than the $60,000 he

offered (which would come from his liquidation of DCM). This

fact in itself was enough to justify the rejection of his

$140,000 proposal.

c. Future disposable income

According to the IRM, the amount to be collected from

future income, for purposes of calculating a taxpayer’s RCP,

consists of projected gross monthly income, less allowable

expenses, forecast over a specified monthly period. IRM pt.

5.8.5.6. In calculating future income, settlement officers are

16 According to his 2008 Form W–2, Mr. Johnson received $79,500 as tribal income. Since he

had at least this tribal income from which to pay living expenses, we cannot assume that

Asiawerks salary was spent on necessary living expenses, which the IRS determined to be

$6,509 per month.

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494 136 UNITED STATES TAX COURT REPORTS (475)

directed to consider the taxpayer’s ‘‘overall general situation

including such facts as age, health, marital status, number

and age of dependents, level of education or occupational

training, and work experience’’. Id. pt. 5.8.5.6(2). If a tax-

payer is temporarily unemployed or underemployed, the IRM

suggests using ‘‘the level of income expected if the taxpayer

were fully employed and if the potential for employment is

apparent.’’ Id. pt. 5.8.5.6(5).

In this case, SO Covey calculated Mr. Johnson’s future

disposable income to be $9,777 in projected gross monthly

income, less $6,509 in allowable monthly expenses, arriving

at $3,268 in disposable income per month, which she pro-

jected over a period of 48 months. 17 Mr. Johnson makes two

principal arguments against SO Covey’s determination of

disposable income—first, that income should be reduced and,

second, that his allowable expense should be increased.

First, Mr. Johnson argues that he should essentially be

treated as having no future income potential at all and that

the Office of Appeals should apply a ‘‘flexible’’ standard in

projecting his monthly income, given that Mr. Johnson’s

business, Asiawerks, is now defunct. In their letter dated

March 12, 2010, Mr. Johnson’s representatives essentially

argue that he has no prospect of future income, other than

his tribal income, because Asiawerks was in the process of

winding up. This argument, however, overlooks the signifi-

cant difference between being temporarily unemployed or

underemployed and being permanently unemployable. In

considering the factors outlined in the IRM, including Mr.

Johnson’s health, education, skills, prior earnings, and

professional background, SO Covey did not abuse her discre-

tion in finding that Mr. Johnson was very employable and

could, at a minimum, earn a projected $39,000 a year, in

addition to his tribal income.

Second, Mr. Johnson argues that his disposable income

should be reduced by loan payments of $3,000 per month.

This purported expense stems from a home equity loan that

his mother took out on her home, the proceeds of which he

claims were used by him for living expenses, the payment of

taxes, and legal fees incurred in connection with this pro-

17 In an exercise of discretion, SO Covey projected Mr. Johnson’s gross monthly income over

a period of only 48 months, even though, according to IRM part 5.8.5.6(1)(A), she could have

projected his income over 60 months.

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(475) JOHNSON v. COMMISSIONER 495

ceeding. While SO Hunt proposed to allow the monthly loan

payments as an expense in the calculation of Mr. Johnson’s

RCP, and while SO DeVincentz would have allowed a portion

of these loan payments, the administrative record reflects

that the Office of Appeals was justified in ultimately dis-

allowing the $3,000 monthly loan payments on SO Covey’s

recommendation, because Mr. Johnson failed to establish

that the payment of this debt was ‘‘necessary for the produc-

tion of income or for the health and welfare of the taxpayer’s

family,’’ as required by the IRM. See IRM pt. 5.8.5.6.2(1). A

more difficult issue might have been presented had Mr.

Johnson corroborated his claim that the loan proceeds were

applied toward his outstanding tax liabilities; however, we

need not address that hypothetical issue. In the absence of

any evidence to substantiate his claims that the loan pro-

ceeds were used for necessary living expenses or the payment

of taxes and expenses, we cannot say that SO Covey abused

her discretion by disallowing the $3,000 monthly loan pay-

ments in calculating Mr. Johnson’s RCP.

Thus, while Mr. Johnson proposed to pay the IRS the pro-

ceeds from the anticipated sale of one asset and nothing

more, SO Covey reasonably determined, in view of his profes-

sional qualifications and personal earning history, that his

reasonable collection potential included some amount of

future disposable income. That being the case, rejection of his

proposal was not an abuse of discretion.

C. Mr. Johnson’s other arguments have no merit.

1. The Office of Appeals did not renege on any deal with

Mr. Johnson.

Mr. Johnson claims in his answering brief that his OICs

were accepted by the IRS four times over the last seven years,

but each time the IRS subsequently reneged on the deals. Mr.

Johnson argues that the administrative course of conduct

was therefore more intrusive than necessary and denied him

the fundamental fairness that Congress sought to protect in

CDP hearings. Mr. Johnson’s claim fails, however, as a matter

of both fact and law.

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496 136 UNITED STATES TAX COURT REPORTS (475)

a. As a matter of fact, no settlement officer purported to

accept any offer made by Mr. Johnson.

The record is altogether void of any instance in which a

settlement officer or Appeals officer purported to actually

accept any of Mr. Johnson’s OICs. While SO Hunt rec-

ommended acceptance of Mr. Johnson’s December 24, 2008,

OIC in the draft January 2009 ACM, this recommendation was

considered by SO Hunt’s manager, Ms. Craca, and ultimately

rejected. A recommendation of acceptance by a settlement

officer, however, is not an acceptance of a taxpayer’s OIC.

b. As a matter of law, no settlement officer had any

authority to accept any offer made by Mr. Johnson.

An OIC is a contract, and general principles of contract law

therefore determine whether a binding settlement has been

reached. Becker Holding Corp. v. Commissioner, T.C. Memo.

2004–58. One such principle is that a settlement agreement

may be reached only by authorized agents or officials rep-

resenting the parties. Dorchester Indus. Inc. v. Commis-

sioner, 108 T.C. 320, 331 (1997), affd. without published

opinion 208 F.3d 205 (3d Cir. 2000). ‘‘[P]ersons dealing with

an agent of the government must take notice of the limita-

tions of his authority.’’ Bornstein v. United States, 345 F.2d

558, 562 (Ct. Cl. 1956); Graff v. Commissioner, 74 T.C. 743

(1980), affd. per curiam 673 F.2d 784 (5th Cir. 1982); Mid-

west Motor Express, Inc. v. Commissioner, 27 T.C. 167, 182

(1956), affd. 251 F.2d 405 (8th Cir. 1958). Within the Office

of Appeals, final authority over administrative settlements

involving Federal tax matters has been delegated to Regional

Directors of Appeals, Chiefs, Assistant Chiefs and Associate

Chiefs of the Appeals Offices, Appeals Team Chiefs, Team

Managers, Directors of an Appeals Operating Unit, Appeals

Area Directors, Deputy Appeals Area Directors, and Appeals

Team Case Leaders. 26 C.F.R. sec. 601.106(a)(1)(i) and (ii),

Statement of Procedural Rules; IRS Deleg. Order No. 66 (Rev.

15 Jan. 23, 1992). IRS Deleg. Order No. App. 8–a (Mar. 17,

2003) further authorizes: (1) Appeals officers and settlement

officers to conduct hearings and make determinations under

secs. 6320 and 6330; and (2) Appeals Team Managers to

review and approve such determinations. Thus, a settlement

officer lacks authority to accept an OIC. Consequently,

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(475) JOHNSON v. COMMISSIONER 497

regardless of any action that SO Hunt might have purported

to take, the Government had not accepted any OIC that could

have been breached by the adverse determinations of the

Office of Appeals.

The outcome is the same if Mr. Johnson contends not that

an OIC was explicitly accepted by SO Hunt but that in some

other, less formal fashion SO Hunt made a deal with him on

behalf of the IRS. Such a contention alleges a quasi-contract,

or a contract implied in fact, which is ‘‘ ‘founded upon a

meeting of minds, which, although not embodied in an

express contract, is inferred, as a fact, from conduct of the

parties showing, in the light of the surrounding cir-

cumstances, their tacit understanding.’ ’’ Lewis v. United

States, 70 F.3d 597, 600 (Fed. Cir. 1995) (quoting Baltimore

& Ohio R.R. Co. v. United States, 261 U.S. 592, 597 (1923)).

However, as the Court of Federal Claims has explained,

[W]hen the United States is a party to an alleged contract implied-in-fact,

the government representative ‘‘whose conduct is relied upon must have

actual authority to bind the government in contract.’’ [Minehan v. United

States, 75 Fed. Cl. 249, 260 (2007); citations omitted.]

The Commissioner is thus not bound by an apparent settle-

ment where an agent is without authority to compromise a

taxpayer’s tax liability. Becker Holding Corp. v. Commis-

sioner, T.C. Memo. 2004–58, 87 TCM (CCH) 1069, 1071 (2004)

(citing Botany Worsted Mills v. United States, 278 U.S. 282,

288–289 (1929)). Here, SO Hunt was without authority to

bind respondent to a settlement, and thus Mr. Johnson could

not have had any deal based on the actions of SO Hunt.

2. The Office of Appeals did not abuse its discretion by

delay in the handling of Mr. Johnson’s case.

Mr. Johnson also asserts in his briefs that the CDP pro-

ceedings were ‘‘more intrusive than necessary’’, in violation of

section 6330(c)(3)(C), because of the length of the proceedings

and the number of settlement officers assigned to his

hearings. While the four-year duration of this proceeding was

unfortunate, we do not perceive that the Office of Appeals

abused its discretion in conducting the CDP hearings.

First, section 6330(c)(3)(C) does not provide that the CDP

process must not be ‘‘more intrusive than necessary’’, but

rather that the proposed ‘‘collection action [e.g., lien or levy]

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498 136 UNITED STATES TAX COURT REPORTS (475)

be no more intrusive than necessary.’’ Mr. Johnson has made

no showing that the collection actions that the Office of

Appeals sustained were unduly intrusive.

Second, the long duration of Mr. Johnson’s CDP hearing

was largely attributable to Mr. Johnson. His case presented

a moving target, as his financial affairs drastically fluc-

tuated, with the liquidation of his investments and the

failing of Asiawerks. In addition, Mr. Johnson delayed pro-

viding the necessary financial records that were requested of

him by various settlement officers (many of which records he

never provided).

Personnel in the Office of Appeals cannot be chained to

their cases. The work of that office, like the work in any

office, will have to be reassigned as time passes, when

employees take leave, receive promotions, or retire. And

when reassignments do occur, new personnel will necessarily

take time to get up to speed. We do not find that the Office

of Appeals protracted Mr. Johnson’s proceedings in a manner

that could constitute an abuse of discretion.

Conclusion

The determination of the IRS’s Office of Appeals—i.e., not

to accept Mr. Johnson’s proposed collection alternative, but

instead to sustain the filing of the notice of lien and the pro-

posed collection by levy of his outstanding tax liabilities—

was not an abuse of discretion. Respondent may proceed with

collection.

To reflect the foregoing,

Decision will be entered for respondent.

f

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