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T.C. Memo. 2025-48

JOHN JOSEPH BAUCHE,

Petitioner

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 12241-20L.

Filed May 20, 2025.

__________

John Joseph Bauche, pro se.

Donna L. Crosby and Leyla KM Moustapha, for respondent.

MEMORANDUM OPINION

MARVEL, Judge: Petitioner reported income tax liabilities for his

2014 and 2015 taxable years (years at issue) that he has not paid, and

respondent has secured the collection of those liabilities with the filing

of a Notice of Federal Tax Lien (NFTL). On August 12, 2024, respondent

filed a Motion for Summary Judgment (Motion) asking us to sustain the

NFTL filing, which petitioner opposes in his Opposition to Motion for

Summary Judgment (Opposition) filed October 1, 2024. Petitioner

argues that respondent should be deemed to have accepted his effective

tax administration (ETA) offer-in-compromise (OIC) pursuant to section

7122(f). 1 Petitioner alternatively argues that respondent inadequately

considered his ETA OIC. We will (1) grant respondent’s Motion in part

as it relates to section 7122(f), (2) deny respondent’s Motion in part as it

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and

Rule references are to the Tax Court Rules of Practice and Procedure. Some monetary

amounts have been rounded to the nearest dollar.

Served 05/20/25

[*2] relates to the merits consideration of petitioner’s ETA OIC, and

(3) remand this case to the Internal Revenue Service (IRS) Independent

Office of Appeals (Appeals) 2 for a second supplemental hearing. 3

Background

Income Tax Returns

On March 13, 2017, petitioner untimely filed Form 1040, U.S.

Individual Income Tax Return, for his 2014 taxable year. 4 Petitioner

reported an income tax liability of $42,317 but tax withholding of only

$9,965. In addition to petitioner’s reported income tax liability,

respondent assessed additions to tax for late filing and late payment.

See § 6651(a)(1) and (2).

On March 16, 2017, petitioner untimely filed Form 1040 for his

2015 taxable year. 5 Petitioner reported an income tax liability of

2 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent

Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,

983 (2019). Each name was in effect for part of the time period relevant to this case,

and we refer to each as Appeals.

3 We reach the merits of petitioner’s Opposition even though it was untimely

filed. See infra Background Part V. After extensions, we set a September 30, 2024,

deadline for petitioner to file a response to respondent’s Motion. In an October 11,

2024, Status Report, respondent called our attention to petitioner’s late filing of his

Opposition. On November 3, 2024, petitioner filed a Response to that Status Report

and attached a pair of emails from this Court concerning petitioner’s filing of his

Opposition and an attached declaration. The first email is timestamped by petitioner’s

email service as “Mon, Sep 30, 2024 at 10:56 PM,” and the second email is timestamped

by petitioner’s email service as “Mon, Sep 30, 2024 at 11:59 PM.” The body of each

email, however, is dated “October 1, 2024.” Furthermore, the first email states that

petitioner’s Opposition was served “10/01/24 1:56 am ET,” and the second email states

that a declaration in support of petitioner’s Opposition was served “10/01/24 2:59 am

ET.”

Pursuant to Rule 25(a)(3)(A), the cutoff time for timely electronic filing is “at

11:59 p.m. Eastern Time.” The emails petitioner provided establish that while his

email service appears to use Pacific time to timestamp emails he receives, his

Opposition was not timely filed by 11:59 p.m. Eastern time on September 30, 2024.

Although we could strike petitioner’s Opposition as untimely filed, the circumstances

here do not warrant it. In the exercise of our discretion, we will consider the merits of

the Opposition. We warn petitioner that we may strike untimely filed documents in

the future.

4 The return was due (after an extension of time to file) on October 15, 2015.

5 Petitioner did not receive an extension of time to file for his 2015 taxable year.

Cf. supra note 4. His income tax return was therefore due on April 18, 2016. See

[*3] $268,169 but tax withholding of only $9,843. In addition to

petitioner’s reported income tax liability, respondent assessed additions

to tax for late filing, late payment, and failure to pay estimated tax. See

§§ 6651(a)(1) and (2), 6654.

II.

First Hearing

On November 9, 2017, respondent mailed Letter 3172, Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320,

to petitioner notifying him that respondent had filed an NFTL in order

to collect the unpaid balance of his assessed income tax liabilities for the

years at issue. Respondent filed the NFTL with the Orange County

Recorder in Santa Ana, California.

Petitioner’s authorized representatives, Mindy Meigs and Joseph

P. Wilson, timely submitted Form 12153, Request for a Collection Due

Process or Equivalent Hearing, on petitioner’s behalf by a letter dated

December 15, 2017. The Form 12153 requested collection alternatives

of “Installment Agreement,” “Offer in Compromise,” and “I Cannot Pay

Balance,” as well as a withdrawal of the NFTL. The Form 12153 also

had a checked box labeled “Other” with text beneath it stating that

[t]he United States government illegally seized all of the

taxpayer’s funds, more than $600,000, over a year ago but

has yet to charge him with a crime. Because the

government seized his funds, he is unable to pay his tax

liability and is now subject to penalties which should be

abated. SEE ATTACHED LETTER.

In the attached letter, Ms. Meigs and Mr. Wilson argued that

respondent should “(1) place the tax liabilities in uncollectible status,

(2) abate the penalties under IRC § 6651, in full, for both tax years, and

(3) withdraw the” NFTL.

Settlement Officer Ryan O’Reilly (SO O’Reilly) of Appeals was

assigned to petitioner’s section 6320 hearing. On March 28, 2018, SO

O’Reilly held a teleconference with Ms. Meigs. Ms. Meigs stated that

petitioner had been employed by a company, Masimo, working in social

media and while working there had created a company, BoundlessRise,

Zaimes v. Commissioner, T.C. Memo. 2023-121, at *11 (“The filing due date for

calendar-year-2015 returns was April 15, 2016. § 6072(a). Because this day was

District of Columbia Emancipation Day, and because the next two days were Saturday

and Sunday, a filing made on April 18, 2016, is ‘considered timely.’ § 7503.”).

[*4] LLC (BoundlessRise), that contracted with Masimo to provide

search engine optimization services. She explained that Masimo’s

management was upset when it learned of petitioner’s ownership of

BoundlessRise and began an investigation; Masimo ultimately

terminated petitioner’s employment in July 2016. According to Ms.

Meigs, the Federal Bureau of Investigation (FBI) picked up the

investigation and seized $642,644 from BoundlessRise’s bank account in

November 2016 6 on the grounds that the subject funds were proceeds of

one or more violations of mail or wire fraud or were involved in money

laundering. Ms. Meigs argued that petitioner was an employee with no

fiduciary responsibility to disclose his ownership of BoundlessRise to

Masimo because he did not control contracts or payments. She asserted

that after petitioner’s funds were seized, he was able to complete his

income tax returns but was unable to pay his income tax liabilities

because he was living with his mother and his only source of income was

from two rental properties. Furthermore, she asserted that the FBI

investigation resulted in an indictment in December 2017 and that

petitioner was incurring legal fees in addition to his living expenses.

She noted that petitioner’s parents and sister had secured home equity

lines of credit to assist petitioner with his criminal defense fees.

SO O’Reilly and Ms. Meigs discussed the possibility of abating the

additions to tax, but SO O’Reilly ultimately determined that petitioner

was ineligible for abatement.

SO O’Reilly explained to Ms. Meigs that because of the unique

circumstances of petitioner’s case—namely that petitioner had assets

(i.e., rental properties) with enough equity to pay his income tax

liabilities in full but his sole source of income was provided by those

same assets—SO O’Reilly would recommend closing the case as

currently uncollectible with a two-year followup date. On March 29,

2018, SO O’Reilly sent Ms. Meigs and petitioner Form 12257, Summary

Notice of Determination, Waiver of Right to Judicial Review of a

Collection Due Process Determination, Waiver of Suspension of Levy

Action, and Waiver of Periods of Limitation in Section 6330(e)(1),

offering petitioner “Currently Not Collectible” status.

On April 4, 2018, SO O’Reilly received a phone call from Ms.

Meigs, who stated that she had spoken with petitioner about filing an

OIC. Petitioner told her that his brother-in-law had a connection with

a lender willing to take a chance on lending against up to 80% of the

6 The Case Activity Record states inaccurately at one point that the FBI’s

seizure of funds occurred in July 2016. It actually occurred in November 2016.

[*5] equity in one of petitioner’s rental properties. She stated that

petitioner was willing to submit an OIC in that amount but would need

to secure a lien subordination in order to finalize the loan. She asked

whether petitioner would be able to use the loan proceeds as the OIC

payment, and SO O’Reilly stated that petitioner could but that SO

O’Reilly would need to check on how that would work.

On April 12, 2018, SO O’Reilly received a phone call from Ms.

Meigs. During the call SO O’Reilly explained that he had researched

whether petitioner could use a real property loan to fund an OIC

payment: It could be done, but petitioner would need to submit both an

OIC package and a lien discharge package at the same time. SO O’Reilly

set a May 31, 2018, deadline for Ms. Meigs to provide both.

On May 31, 2018, SO O’Reilly received a faxed letter from

petitioner’s representatives stating in part that they had sent

SO O’Reilly an OIC with relevant forms and enclosures via certified

mail. On or about June 7, 2018, SO O’Reilly received Form 656, Offer

in Compromise, and Form 433–A (OIC), Collection Information

Statement for Wage Earners and Self-Employed Individuals, from

petitioner’s representatives. Petitioner’s signature on the Form 656 was

dated May 30, 2018, and the first page of the Form 656 was stamped

with an “IRS Received Date” of June 5, 2018, by “PHOENIX

APPEALS.” 7 The offer amount was $100,000.

A checked box in the “Reason for Offer” section stated

“Exceptional Circumstances (Effective Tax Administration),” with text

below stating “See Attachment 1 – Explanation of Circumstances.” In

Attachment 1 petitioner’s counsel explained that petitioner had

$496,000 of equity in real property that could fully pay his federal

income tax liability of $432,000; nonetheless, they also asserted that

“sell[ing] both properties . . . [means that] there would be no funds left

for [petitioner] and he would no longer have the rental income which

makes up 78% of his monthly income.” Furthermore, according to them,

selling even “one of the properties would reduce [petitioner’s] monthly

income to less than $1,000[,] which is not enough to cover the cost of his

actual and allowable food and transportation expenses.” Finally, they

stated that petitioner was not able to refinance his properties as

originally contemplated.

7 The “IRS CENTER AT BROOKHAVEN” added another stamp indicating

receipt on June 11, 2018, and “COIC BROOKHAVEN” added yet another such stamp

on June 12, 2018.

[*6] On June 8, 2018, SO O’Reilly submitted the OIC to respondent’s

Centralized Offer in Compromise (COIC) unit for processing and

investigation. On or about the same date, SO O’Reilly mailed petitioner

and Ms. Meigs Letter 3820, Appeals Received Your Offer in Compromise

and We Can Consider It. On June 29, 2018, the COIC unit mailed

petitioner and Mr. Wilson a letter notifying them that petitioner’s OIC

had been received and would be investigated. On or about November

13, 2018, Offer Specialist Ron Randall (OS Randall) was assigned to

review petitioner’s OIC.

On February 8, 2019, after learning that Ms. Meigs was no longer

employed at Mr. Wilson’s firm, OS Randall left a voicemail with Mr.

Wilson requesting a callback to discuss petitioner’s case. Later that day,

OS Randall received an updated Form 2848, Power of Attorney and

Declaration of Representative, designating Mr. Wilson and Michelle

Huh as petitioner’s representatives.

On February 28, 2019, OS Randall received a letter dated

February 27, 2019, with several exhibits from Ms. Huh. In the letter

petitioner reported that he had obtained employment doing marketing

research for a doctor’s office beginning July 1, 2018, and provided a

Form W–2, Wage and Tax Statement, from that doctor’s office indicating

that he earned wages of $19,250 for 2018. OS Randall’s plan moving

forward was to review petitioner’s case history and the newly received

information in order to update petitioner’s Allowable Expenses Table

(ALET), Income/Expense Table (IET), and Asset/Equity Table (AET).

On April 6, 2019, OS Randall reviewed petitioner’s case and

updated the ALET, IET, and AET. The ALET showed allowable

expenses of $4,281. Given petitioner’s gross monthly income of only

$3,474, the IET reflected a negative future income value, which

OS Randall also referred to as zero. Cf. infra note 8. Nonetheless, the

AET reflected equity in assets of $324,840. He then mailed petitioner

and Mr. Wilson a letter in which he noted in part that he had completed

the OIC review and petitioner would need to increase his offer amount.

The letter stated that the circumstances of the ETA OIC had been

reviewed: Petitioner was employed, had assets to pay a significantly

higher amount than he offered, and had years of employment left to earn

income because he was 38 years old. OS Randall offered to discuss this

issue further and set an April 22, 2019, deadline to provide

documentation and information.

[*7] On April 17, 2019, OS Randall and Ms. Huh had a call. Ms. Huh

stated that the balances of petitioner’s bank accounts were lower than

shown on the AET and that some of the accounts had been closed.

OS Randall reviewed each account by account number with Ms. Huh

and requested the last three months of petitioner’s statements. He also

informed Ms. Huh that he used an average of the ending balances in the

accounts. Ms. Huh had no objections. Ms. Huh and OS Randall agreed

that Ms. Huh would provide the requested bank statements by May 1,

2019.

Ms. Huh asked how OS Randall arrived at the valuation of

petitioner’s real properties. OS Randall informed her that he used the

average comparable sales values from Trulia, Zillow, and the local

assessor’s office. Ms. Huh objected that there was no way the properties

were worth that much in the then-existing California market.

OS Randall advised her that the only way to resolve that issue was for

petitioner to provide a third-party appraisal for each piece of real

property. Ms. Huh and OS Randall agreed that if appraisals were to be

done, they would be due by May 15, 2019.

Ms. Huh also stated that petitioner was relying on his credit cards

to live and that the credit card statements were not reflected on the IET.

OS Randall informed her that the IET already reflected zero in future

income value, so he would review the statements if petitioner wanted to

provide them, but the credit card statements could not change the

bottom-line result of zero reflected on the IET. 8

On May 16, 2019, OS Randall received a letter dated May 15,

2019, with attached exhibits from Mr. Wilson. The exhibits comprised

“closing bank statements” for several of petitioner’s bank accounts,

property appraisal reports for petitioner’s real properties, and an

updated docket report from petitioner’s federal criminal case. On the

same day, OS Randall used the newly provided information to update

the IET and the AET. These adjustments resulted in a minimum offer

amount of $264,395. OS Randall left Ms. Huh a voicemail advising her

that the IET still showed zero of future income value; that the AET had

been adjusted by removing bank account values and updating the value

of petitioner’s real estate to reflect the values shown in the property

8 We need not express any view in this Opinion about whether it was correct

to use a zero future income value instead of a negative future income value because,

as explained infra Discussion Part I.C, we review only respondent’s determination as

supplemented in the supplemental hearing. This issue did not recur in the

supplemental hearing.

[*8] appraisal reports; and that the minimum offer amount was now

$264,395. OS Randall requested a decision of acceptance or rejection by

May 20, 2019.

On May 23, 2019, OS Randall sent Ms. Huh the revised IET and

AET tables. In the cover letter OS Randall noted in part that he had

requested a response by May 20, 2019, but he had not heard anything

from petitioner or his representatives. OS Randall stated that he was

referring the case back to Appeals “with the preliminary increase in the

offer determination” (i.e., with a $264,395 offer determination as

compared to petitioner’s $100,000 OIC). On May 28, 2019, respondent

sent petitioner and his representatives a letter listing OS Randall as the

“[p]erson to [c]ontact” and communicating “a preliminary decision to

reject your offer” because “[b]ased upon your current financial

information, we have concluded your offer amount must be increased

before we can consider acceptance of an OIC at this time to resolve your

case. We have considered the special circumstances you raised, but they

did not warrant a decision to accept your offer.” The letter added that

“[d]ue to the fact that you filed a request for a [section 6320] hearing, we

are forwarding your case to Appeals. A final determination on the offer

will be issued by Appeals in conjunction with your [section 6320] case.”

On June 7, 2019, the COIC unit returned petitioner’s case to

Appeals. On June 12, 2019, Appeals transferred petitioner’s case to

Settlement Officer JC Sellers (SO Sellers). On August 20, 2019,

SO Sellers reviewed the case and confirmed that he had no prior

involvement with respect to petitioner. On October 25, 2019, SO Sellers

again reviewed petitioner’s case. He noted he was in agreement with

the preliminary determination that petitioner was able to pay at least

$264,395 because the AET showed that the fair market value of

petitioner’s properties was $1.205 million and the mortgage balances

were only $700,977, the difference between which was substantially

greater than $264,395. He also stated that the filing of the NFTL was a

correct action to protect the Government’s interest in petitioner’s real

property. Finally, he noted that petitioner needed to increase his offer

or else the rejection determination and the NFTL would be sustained.

On January 29, 2020, SO Sellers received a call from Mr. Wilson.

SO Sellers told Mr. Wilson that petitioner had enough equity in real

property to pay his tax liabilities in full. Mr. Wilson stated that

petitioner did not have a job, was living with his parents, and had only

rental income. Mr. Wilson also stated that he would see whether he

could secure additional information to support an ETA OIC. SO Sellers

[*9] agreed to allow Mr. Wilson until February 10, 2020, to provide any

such information.

On March 12, 2020, Mr. Wilson mailed SO Sellers a letter with a

thumb drive containing several exhibits. According to the Case Activity

Record, the

[f]iles include[d] the grand jury indictment for wire fraud,

mail fraud and money laundering, copies of court

documents including motions and counter actions, copies of

legal service contracts and bills, [a] letter from [an]

[i]mmigration attorney advising if [petitioner] is convicted

of crimes (felonies) he will be deported back to Canada[,]

and [a] Redfin report for property.

On April 9, 2020, SO Sellers reviewed the letter and exhibits and

determined to sustain the NFTL and reject the OIC. On April 10, 2020,

Appeals mailed petitioner and Mr. Wilson a Letter 5197 stating that the

OIC had been rejected and listing SO Sellers as the “[p]erson to contact.”

The letter stated twice that “the IRS rejection of your offer is sustained.”

On April 20, 2020, SO Sellers received a call from Mr. Wilson requesting

an explanation of the letter rejecting the OIC. SO Sellers explained that

“it was issued due to statutes”—presumably, due to section 7122(f)—and

that the ETA OIC was not acceptable because petitioner had wages as

well as rental income. Mr. Wilson was not aware that petitioner had

wages for 2019 and understood SO Sellers’s explanation. SO Sellers

advised Mr. Wilson that he could not yet close out the section 6320 case

and that he was willing to discuss potential collection alternatives “after

the COVID[-]19 issues are over and case closure can be completed.” Mr.

Wilson agreed to call SO Sellers back after August 1, 2020, “when

[petitioner] has filed [his] 2019 return” so they could reach a resolution.

On August 31, 2020, SO Sellers reviewed petitioner’s case.

SO Sellers noted that no contact had been received from Mr. Wilson.

SO Sellers also noted that petitioner had requested an extension of time

to file his 2019 income tax return on July 1, 2020. SO Sellers determined

to close the case as sustained. On September 15, 2020, respondent

issued a Notice of Determination Concerning Collection Actions under

IRC Sections 6320 or 6330 of the Internal Revenue Code (Notice of

Determination) rejecting petitioner’s OIC and sustaining the NFTL for

the years at issue. The Notice of Determination stated that the “seizure

of the funds in the amount of $642,643.00 by the FBI and your ongoing

legal expenses do not change the fact that you have income from your

[*10] job as well as rental income from your properties which have

sufficient equity to full pay the outstanding taxes.” The Notice of

Determination also rejected petitioner’s request for lien withdrawal

because of petitioner’s “equity interest in two rental properties which

would full pay [his] outstanding tax balance.”

III.

Tax Court Proceedings

On October 14, 2020, petitioner filed his Petition in this Court.

Petitioner resided in California when he filed his Petition. 9 In

paragraph 5 of the Petition, petitioner assigned the following errors to

the Notice of Determination:

THE IRS HAS ABUSED ITS DISCRETION IN

REJECTING MY [OIC] BECAUSE I SUFFER AND

CONTINUE

SUFFER

FROM

ECONOMIC

HARDSHIP AND QUALIFY FOR AN OIC BASED ON

EFFECTIVE TAX ADMINISTRATION. THE IRS HAS

ALSO VIOLATED ITS PROCEDURES IN REJECTING

MY OIC. THE IRS WAS REQUIRED TO ACCEPT MY

OIC BECAUSE THEY FAILED TO PROPERLY REJECT

IT WITHIN 2-YEARS OF IT BEING SUBMITTED.

In paragraph 6 of the Petition, petitioner alleged the following facts in

support:

DUE TO MY HARDSHIP, MY CAREER HAS BEEN

DESTROYED,

REPUTATION

HAS

BEEN

DESTROYED AND MY BUSINESS HAS BEEN

DESTROYED. AT THE AGE OF 35, I WAS FORCED OUT

OF MY HOME TO LIVE WITH MY PARENTS SO I

COULD DECREASE MY LIVING EXPENSES TO MEET

BASIC NEEDS AND AFFORD TO LIVE AND PAY MY

ATTORNEYS FEES TO DEFEND MYSELF FROM

FALSE CRIMINAL CHARGES AND ALLEGATIONS. I

HAVE BEEN FORCED TO RENT MY PROPERTIES FOR

INCOME THAT I DEPEND UPON TO HELP PAY MY

BASIC LIVING AND LEGAL EXPENSES. NOW 39, I

HAVE ADDED SIGNIFICANT CREDIT CARD DEBT TO

MY ALREADY INCREDULOUS AND MOUNTING

LEGAL EXPENSES TO GET THROUGH MY HARDSHIP

9 Unless otherwise agreed by the parties in writing, see § 7482(b)(2), venue for

an appeal is the U.S. Court of Appeals for the Ninth Circuit, see § 7482(b)(1)(G)(i).

[*11] WITH NO WAY TO ACCESS ADDITIONAL FUNDS OR

PROPERTY EQUITY TO SURVIVE IN THE MIDST OF A

PANDEMIC.

Respondent filed his Answer on January 29, 2021. On July 22,

2021, respondent filed his first Motion for Summary Judgment (not the

Motion presently under review). On July 27, 2021, petitioner filed a

Motion to Stay Proceedings pending the resolution of petitioner’s

criminal proceedings. On August 2, 2021, we denied respondent’s first

Motion for Summary Judgment without prejudice and granted

petitioner’s Motion to Stay Proceedings.

On November 30, 2021, the indictment in petitioner’s criminal

case was dismissed. On December 13, 2021, we lifted the stay in this

case. On March 11, 2022, respondent filed a second Motion for Summary

Judgment (again, not the instant Motion under review). On March 24,

2022, Mr. Wilson and Richard Stack entered appearances as counsel for

petitioner.

On June 2, 2022, petitioner filed an opposition to

respondent’s second Motion for Summary Judgment (not the Opposition

presently at issue). On July 15, 2022, we denied respondent’s second

Motion for Summary Judgment without prejudice on account of genuine

disputes of material fact concerning whether (1) SO Sellers’s

declaration, as supplemented, included the complete administrative

record and (2) “the settlement officer considered evidence not contained

in the administrative record.” On September 8, 2022, respondent filed

a Motion to Remand this case to Appeals for a further administrative

hearing. On September 12, 2022, we granted respondent’s Motion to

Remand.

IV.

Supplemental Hearing

On September 19, 2022, respondent’s counsel sent a remand

memorandum to Appeals noting that we remanded the case so that a

settlement officer could conduct a supplemental hearing that would

provide a clean administrative record clearly reflecting all

documentation and information reviewed and would allow for a fresh

review of petitioner’s eligibility for an ETA OIC. On or about October

21, 2022, Appeals assigned Settlement Officer Kathleen Lee (SO Lee) to

conduct the supplemental hearing.

On October 26, 2022, SO Lee reviewed the administrative file for

this case. On December 30, 2022, SO Lee received from Mr. Stack a

letter dated December 29, 2022, “in support of and in renewal of” the

[*12] $100,000 ETA OIC along with an updated Form 433–A (OIC) and

supporting documentation. In relevant part the letter described the

circumstances supporting the ETA OIC as follows:

[Petitioner] submitted an offer to compromise his tax

liabilities on grounds of [ETA] because he has sufficient

equity in assets to full pay the liability, but liquidation of

those assets would cause an economic hardship. Here,

forced liquidation by the IRS would result in a severe

economic hardship for [petitioner]. He owns two homes in

California with just enough equity to full pay his liabilities.

Those homes, however, are both rentals, and he lives off

the rental income. The net rents make up about 78% of his

monthly income which is less than $2,000. [Petitioner’s]

actual and allowable expenses per IRS guidelines, are more

than $2,000 per month. [Petitioner] tried but was unable

to borrow against the properties because of filed IRS and

[California Franchise Tax Board] tax liens, which

wiped-out all the equity in both homes. Because there is

no equity, lien subordination is not a viable option.

[Petitioner] is already struggling to meet basic needs. He

does not live a luxurious lifestyle. As a result of his

criminal case, which lasted from December of 2017, to

November of 2021, [petitioner] was required to move back

home with his parents due to his crippling legal bills for

criminal defense and civil lawsuits related to the criminal

case, which made it impossible to support himself. He has

been required to borrow large sums of money from both his

parents (about $160,000) and his sister (about $100,000) to

finance his legal bills. To make matters worse, on

November 28, 2016, the government seized [about]

$642,000 of bank account funds belonging to his

single-member [limited liability company], which has made

it impossible for him to use those funds to pay his tax

liabilities.

[Petitioner’s] expenses are basic and

reasonable. Forced liquidation of one or both of the

properties will reduce [petitioner’s] income to a point where

he will not be able to meet basic living expenses.

In the Tax Court proceedings, the government

misconstrued the nature of [petitioner’s] hardship. The

hardship that [petitioner] fears is not the loss of his two

[*13] condos but his inability to pay for his basic living expenses

if he no longer has rental income with which to pay such

expenses given the low wage that he presently earns. . . .

Given the circumstances, [petitioner] qualifies for an [OIC]

based on [ETA] because liquidation of his assets will cause

an economic hardship. Furthermore, [petitioner’s] income

will not increase in the near future given the harm to his

business and reputation caused by the criminal charges

filed against him in late 2017. Consequently, it would be

in the best interests of the government and [petitioner] for

the IRS to accept an ETA [OIC].

On January 12, 2023, SO Lee and Mr. Stack had a call to discuss

a planned Appeals Referral Investigation (ARI) for petitioner’s OIC. On

January 17, 2023, SO Lee and her Appeals team manager submitted

petitioner’s OIC to respondent’s Collection Division for an ARI. On

January 20, 2023, SO Lee mailed petitioner and Messrs. Wilson and

Stack a letter notifying them that petitioner’s OIC had been submitted

to respondent’s Collection Division “for its review and comment.”

On February 3, 2023, SO Lee received the ARI review from

OS Randall, who again reviewed petitioner’s OIC. OS Randall found

that “[i]n review of the supporting documents the taxpayer has an ability

to pay through income and assets.” Regarding petitioner’s expenses,

OS Randall concluded that it was “unclear what the total monthly

household expenses are” for various reasons.

On February 17, 2023, SO Lee mailed petitioner and Mr. Stack a

letter with the ARI review from OS Randall attached and requesting a

response by March 20, 2023. On March 20, 2023, SO Lee received a

letter signed by Mr. Stack expressing disagreement with OS Randall’s

determination. The letter argued that OS Randall has “reviewed the

new information that we submitted to Appeals based on doubt as to

collectability [(DATC)] rather than through the lens of ETA/financial

hardship, which is the offer that [petitioner] has submitted.

[OS] Randall’s analysis improperly focuses only on [petitioner’s] alleged

‘ability [to] pay’ rather than on ETA considerations.” (Emphasis

omitted.) The letter included a description of petitioner’s circumstances

that was very similar to the one in Mr. Stack’s December 30, 2022, letter

in support of the renewed OIC. The letter did not specifically take issue

with the asset equity or income values determined by OS Randall. It

did, however, object that OS Randall’s “analysis fails to separately list

[*14] or analyze the specific economic hardship factors that [petitioner]

allegedly fails to satisfy.”

On April 7, 2023, Mr. Stack sent a letter to SO Lee requesting

additional time and stating in part:

[T]he purpose of this request is to enable us to submit a

brief supplemental letter which provides more detailed

information about [petitioner’s] economic hardship and the

conspiracy between his former employer Masimo and their

corrupt government connections which resulted in the

improper forfeiture of over $642,00[0] of bank account

funds belonging to the single-member [limited liability

company] of [petitioner], BoundlessRise, for which he

received no credit toward his income taxes.

On April 26, 2023, SO Lee and Mr. Stack had a telephone call in which

Mr. Stack stated that he wanted to put together a bullet point summary

regarding the forfeiture of petitioner’s money and that he felt it had to

do with the fairness of the OIC. SO Lee granted Mr. Stack until May

26, 2023, to provide a bullet point summary regarding the forfeiture of

petitioner’s money.

On May 26, 2023, Mr. Stack sent SO Lee a supplemental response

to OS Randall’s analysis of petitioner’s OIC. In the letter Mr. Stack

began by stating:

[T]he purpose of this letter is to provide more detailed

information about the economic hardship of . . . [petitioner]

and the conspiracy between . . . his former employer

Masimo . . . and their corrupt government connections

which resulted in the improper forfeiture of over $642,000

of bank account funds belonging to BoundlessRise LLC, a

single-member [limited liability company] of [petitioner],

for which he received no credit toward his income taxes for

the years at issue . . . . In our view, this illegal forfeiture

of funds which, if made available to [petitioner], would

have resulted in the full payment of [petitioner’s] income

tax liabilities for [the years at issue], is relevant to the

question of whether the IRS should accept this offer on

[ETA grounds].

The letter alleged that the criminal action against petitioner had been

dismissed with prejudice “as a result of the [district court’s] detection of

[*15] ‘outrageous government conduct’ related to the government’s

collusion with Masimo and former disgraced FBI agents to seize

substantial funds from [petitioner] and to convict him of non-existent

crimes.” The letter further asserted that “numerous emails between . . .

private investigators, insurance adjusters, and [a federal prosecutor] . . .

show the highly coordinated manner and careless disregard with which

those parties jointly investigated and prosecuted [petitioner] so as to

steal more than $642,000 from the bank account of BoundlessRise LLC.”

(Emphasis omitted.) As a result, the letter alleged, although petitioner

“had intended to use those funds to satisfy the amounts that he owed to

the IRS,” “he was precluded from so using those funds by a corrupt asset

forfeiture orchestrated by government and private actors.” The letter

also alleged that the documents purportedly demonstrating such

conduct “weren’t made available to [petitioner] in the [c]riminal [a]ction

until very late or after [the] conclusion of this [section 6320] matter.” 10

(Emphasis omitted.)

Regarding respondent’s conduct, the letter alleged that

the government’s bad faith in the [c]riminal [a]ction . . .

infected the IRS’s hand[l]ing of the OIC in this proceeding.

In any case, given the interrelationship of these matters,

the bad faith of the federal prosecutor and investigators in

the [c]riminal [a]ction can be attributed to the IRS agents

assigned to this case under the ‘one federal government’

principle.

After quoting extensively from documents from the criminal action, the

letter concluded in relevant part:

In the absence [of] any conviction against [petitioner] for a

federal crime, it is patently unjust that the government

forfeited $642,643.71 of funds belonging to his

single-member [limited liability company,] BoundlessRise.

. . . The wrongful actions of the United States in seizing

those funds, using false information provided by dishonest

private parties . . . must be considered in evaluating

[petitioner’s ETA OIC].

Given the circumstances, [petitioner] qualifies for an [ETA

OIC] because liquidation of his assets will cause an

10 The reference to the conclusion of this matter presumably refers to the

conclusion of the first hearing.

[*16] economic hardship. Furthermore, [petitioner’s] income

will not increase in the near future given the harm to his

business and reputation caused by the criminal charges

filed against him in late 2017. Consequently, it would be

in the best interests of the government and [petitioner] for

the IRS to accept an ETA [OIC]. . . .

[The forfeiture] caused [petitioner] to not only lose

$642,000 of funds with which he could have paid his tax

liabilities . . . but also to incur mind-numbing legal fees of

around $500,000. Those two facts alone should favorably

dispose the IRS to consider acceptance of an ETA, if for no

other reason than to effect basic justice.

On July 14, 2023, SO Lee reviewed the administrative file and the

correspondence and documentation petitioner provided. In the course of

her review SO Lee noted that Mr. Stack

is trying to connect the criminal case and [petitioner’s] tax

case, but they have no connection. It was not a tax issue

that gave rise to the criminal case, so it really has no

bearing on the tax issues. We certainly can’t give

[petitioner] ‘credit’ for the seized funds, [as] it wasn’t the

IRS that took the money.

SO Lee also performed computations to determine petitioner’s

ability to pay his reported tax liabilities. Regarding petitioner’s income,

SO Lee observed that although petitioner “claimed $11,544 in [monthly]

expenses” on his updated Form 433–A (OIC), “$9,266 of those were for

legal fees.” Furthermore, she observed, “[h]e did not claim any housing

expense and the others seem reasonable. If you disallow the legal fees,

which are not for representation in front of the IRS, the total [monthly]

expenses are $2,278, leaving $7,312 in [monthly] net income.” 11 Because

there were 111 months remaining on the collection period expiration

dates for both years at issue, SO Lee multiplied $7,312 by 111 to

determine a future income value of $811,632. Regarding petitioner’s

assets, SO Lee summed $614,165 in real property equity, $37,518 in

bank account balances, $11,174 in vehicle equity, and $1,563 of

securities to arrive at $664,420 of net realizable equity in assets. She

11 In other words, $7,312 in monthly net income was left after SO Lee

subtracted the $2,278 of nonlegal monthly expenses petitioner reported on his updated

Form 433–A (OIC) from the $9,590 of combined monthly wages and business income

petitioner reported on the same form.

[*17] then summed the $811,632 of future income value with the

$664,420 of net realizable equity in assets to determine that petitioner

had a reasonable collection potential of $1,476,052. She noted that

because petitioner’s “current balance due is $567,201.14[,] unless we

consider [petitioner’s OIC] under ETA, the offer is not acceptable, as the

[reasonable collection potential] is twice the amount owed.”

On July 18, 2023, SO Lee reviewed provisions of the Internal

Revenue Manual (IRM) concerning ETA OICs and made an initial

determination that petitioner’s OIC was not acceptable on ETA grounds.

SO Lee summarized Mr. Stack’s economic hardship argument as “by

forcing [petitioner] to sell his rentals, he will lose his major source of

income.” SO Lee thus sought to calculate the effect of a sale of

petitioner’s rental properties on petitioner’s monthly income to

determine whether Mr. Stack was correct. SO Lee observed that “the

[monthly] net rental income is $3,644 (per the 2021 return),” 12 so “[i]f

the rentals were sold, [petitioner] would still have [monthly] income of

$5,946, less [monthly] expenses [of] $2,278, leaving $3,668 in [monthly]

net income.” 13 SO Lee recalculated petitioner’s future income value by

multiplying $3,668 by a factor of 12 (not 111 14) and arrived at a figure

12 The net income from rental activities shown on line 24 of Part I, Income or

Loss From Rental Real Estate and Royalties, of Schedule E, Supplemental Income and

Loss, of petitioner’s 2021 Form 1040 was $27,013 (i.e., about $2,251 monthly).

Petitioner had net income from his rental activities of $43,739 (i.e., about $3,645

monthly) only if $16,726 of depreciation reported on line 23d is added back to the

$27,013 net income shown on line 24. SO Lee’s depreciation addback worked in

petitioner’s favor because subtracting only $2,251 of net monthly rental income instead

of the $3,644 net monthly rental income that SO Lee used would have left petitioner

with $5,061 monthly net income (i.e., $9,590 monthly income minus $2,251 net

monthly rental income minus $2,278 monthly expenses) and therefore a higher future

income value and reasonable collection potential.

SO Lee calculated the $5,946 hypothetical monthly income figure by

subtracting $3,644 of net rental income from the $9,590 of monthly income petitioner

reported on his updated Form 433–A (OIC).

14 Although reasonable collection potential is “generally calculated by

multiplying a taxpayer’s monthly income available to pay taxes by the number of

months remaining in the statutory period for collection and adding realizable equity

in assets,” Flynn v. Commissioner, T.C. Memo. 2022-5, at *4 n.4, in the case of

lump-sum OICs (i.e., OICs payable in five or fewer payments within five months), IRM

5.8.5.25 (Sept. 24, 2021) permits a period of 12 months to be used in lieu of the

remaining statutory period, at least if the taxpayer cannot fully pay the amount owed

under installment agreement guidelines. Petitioner’s Form 656 shows that he was

proposing a lump-sum OIC, and SO Lee determined that petitioner could not fully pay

his 2015 tax liability in the remaining statutory period. The 12-month period SO Lee

[*18] of $44,016. She then added this figure to petitioner’s $664,420 of

net realizable equity in assets to determine that his reasonable

collection potential was $708,436, which was still greater than

petitioner’s then-current balance due of $567,904, as well as his

$100,000 OIC. She concluded that “I don’t believe an ETA offer is

acceptable, as there is no economic hardship; even if the rentals were

sold, [petitioner] has the ability to pay his monthly expenses.” She

added, however, that “I do want to discuss the case with [Appeals Team

Manager Gary Chapman (ATM Chapman)], just to get his take on the

ETA arguments” and that she “[s]ent him an email to schedule a time.”

On July 19, 2023, SO Lee discussed petitioner’s case with

ATM Chapman. They agreed “that we will not consider the criminal

case/issues in deciding if we can agree to the [OIC]. We will not make a

determination based on what was seized or the criminal allegations,

[but] only on the facts of the case.” They concluded that “only

considering the current income and expenses, the fact of the case is that

[petitioner] has sufficient income, even without the rental income, so the

offer is not feasible. The removal [of petitioner’s rental income] does not

cause an economic hardship.”

On July 21, 2023, SO Lee rereviewed the documents received to

date. On July 24, 2023, SO Lee adjusted petitioner’s allowable expenses

according to IRS guidelines and updated information from petitioner’s

2021 tax return, with the result that petitioner’s total allowable

expenses were only $1,588 per month (instead of $2,278). Using a

methodology very similar to her prior calculations, 15 she determined a

reasonable collection potential of $1,548,192 (with rental income, as

compared to $1,476,052 previously) or $712,266 (without rental income,

as compared to $708,436 previously). Therefore, she determined that

“neither [reasonable collection potential] allows for the acceptance of the

offer. The . . . arguments regarding ETA/Economic Hardship are not

supported by the facts of the case.” SO Lee noted that “[l]egal [f]ees were

not allowed” and that although petitioner had “claimed $9,266” of

monthly legal fees, Mr. Stack

ultimately used was more favorable to petitioner than the 111-month period she

initially used.

15 SO Lee, however, used $659,970 as petitioner’s net realizable equity in assets

instead of the $664,420 figure she used previously. Although the decrease is not

explained in the Case Activity Record, it worked in petitioner’s favor.

[*19] said in one of his letters that [petitioner] pays when he

can,[16] so there is no set payment. Also, per IRM 5.15.1.11

[(Nov. 22, 2021)], legal fees can be allowed when they are

for representation before the IRS. The legal fees in

question here are for [petitioner’s] criminal case. Also,

there was no documentation provided.

SO Lee proposed to ATM Chapman that they present petitioner

with the option of an installment agreement of $8,002 per month

(without liquidation of assets) or $4,358 per month (with liquidation of

assets). 17 ATM Chapman concurred in SO Lee’s proposed course of

action.

On July 28, 2023, SO Lee sent petitioner and Mr. Stack a letter

stating that she could not recommend acceptance of his ETA OIC,

presenting petitioner with the installment agreement options, and

stating that her “determination was made based on the facts of this

[section 6320] case only.” The letter also stated that petitioner’s

“[r]ealizable [c]ollection [p]otential” (i.e., reasonable collection potential)

was $712,266.

On August 9, 2023, SO Lee and Mr. Stack discussed SO Lee’s

preliminary determinations. Mr. Stack stated that petitioner’s financial

circumstances had changed. Specifically, Mr. Stack asserted that

(1) petitioner’s “income, other than the rental income, was from a

contract that ended in November”; (2) “some of the deposits [in

petitioner’s bank accounts] were draws from his [line of credit], not

income”; and (3) the State of California was trying to increase

petitioner’s state tax payments. SO Lee agreed to provide Mr. Stack

until August 25, 2023, to provide additional documentation supporting

the changed circumstances. In response to SO Lee’s question about

“why [petitioner] did not pursue getting the [seized] funds back,” Mr.

Stack replied that petitioner ran out of funds to litigate his claim in the

civil forfeiture case concerning the seized funds and had to abandon his

claim.

letter.

16 Mr. Stack made a statement to this effect in note 2 of his March 20, 2023,

17 Those figures were $690 higher, respectively, than the $7,312 of monthly net

income (with rental income) or $3,668 of monthly net income (without rental income)

that SO Lee previously determined petitioner had because of the $690 decrease in

allowable expenses from $2,278 to $1,588 that SO Lee determined on July 24, 2023.

[*20] On September 1, 2023, SO Lee received a letter dated August 31,

2023, with attachments from Mr. Stack. The documentation included

(1) a copy of a contract with a doctor’s office effective March 8, 2022; (2) a

November 11, 2022, email from petitioner to the same doctor’s office

indicating that no contract payments had been made since September 8,

2022; (3) monthly bank account and line of credit account statements;

(4) canceled checks drawn on petitioner’s parents’ bank account

allegedly representing loans to petitioner to pay his legal expenses; and

(5) a Final Notice Before Levy and Lien from the California Franchise

Tax Board showing that petitioner’s outstanding 2015 state income tax

liability was $130,139 as of August 2, 2023. Mr. Stack also asserted in

his letter that the California Franchise Tax Board was trying to increase

petitioner’s monthly payments from $150 to $2,200.

On October 3, 2023, SO Lee reviewed the administrative file and

considered the arguments and documentation, as well as IRM provisions

concerning ETA OICs. SO Lee accepted the November 11, 2022, email

as proof that petitioner’s contract with the doctor’s office had been

terminated or otherwise would not provide a source of income going

forward. She also accepted the bank statements as proof that petitioner

no longer had any income other than rental income. Regarding

petitioner’s argument that some of the deposits in his bank accounts

were from a line of credit and were not income, SO Lee did not dispute

that contention as such. Instead, she noted that petitioner had drawn

over $64,000 from the line of credit between February and August 2023

and included that amount in the AET as a dissipated asset because

Mr. Stack had stated in his August 31, 2023, letter that the proceeds

were used to pay legal fees.

Regarding petitioner’s argument that the California Franchise

Tax Board was trying to increase his monthly payments, SO Lee noted

that the information provided did not establish that and that the bank

statements supported $150 monthly payments. With respect to

petitioner’s arguments about the seizure of his funds, SO Lee wrote that

“while I understand the impact of what [petitioner] went through, the

seizure of the funds really has no bearing on whether or not the offer

can be accepted.” Finally, SO Lee stated that she “will reconsider the

[ETA] issue, if there is proof that [petitioner’s] income has decreased.

Based on what I had received at the time, it was not an appropriate

resolution.”

SO Lee updated petitioner’s collection analysis in accordance with

the portions of petitioner’s arguments that she accepted, as well as her

[*21] determination that petitioner had dissipated over $64,000 of

assets from a line of credit. With respect to petitioner’s income, she

determined that petitioner had monthly gross income of $3,126 (down

significantly from the $9,590 petitioner reported on his updated Form

433–A (OIC) less than a year earlier); after subtraction of $1,588 of

allowed expenses, this yielded monthly net income of $1,538 and a

future income value (using a factor of 12) of $18,456. 18 Regarding

petitioner’s assets, she determined that petitioner’s net realizable equity

in assets should be $724,184 (including the dissipated asset) instead of

the $659,970 figure she used previously, see supra note 15, a difference

of $64,214. Petitioner’s reasonable collection potential was therefore

$742,640, up from $712,266 previously, and he still had positive monthly

net income despite the decreases to income that SO Lee allowed.

Nonetheless, SO Lee noted that Mr. Stack “has argued that by

forcing [petitioner] to sell his rentals, he will lose his major source of

income; at this time, that is correct, as [h]is only source of income is from

the rentals.” She further noted that “[i]f he were to sell . . . he would net

[approximately $614,000]; most likely more as the properties have

probably gone up on value. The total liabilities are [$575,000], so there

would [be] a small sum left over after the sales.” SO Lee concluded that

she wanted to discuss the case with ATM Chapman.

Later in the day, SO Lee and ATM Chapman discussed the pros

and cons of accepting petitioner’s OIC. SO Lee noted that factors

weighing in favor of accepting the OIC included that petitioner “cannot

full pay without a forced sale” and that “with the prior criminal charges

[petitioner] may have problems securing other employment.”

Nonetheless, she also noted that several considerations weighed against

accepting the OIC. First, “[t]here is sufficient equity to full pay.”

Second, petitioner “is only 42; he was not convicted of the charges, so he

should be able to find other employment, which will relieve any hardship

considerations.” Third, “the liens protect [respondent’s] interest in the

property, and the [collection statute expiration dates] are good for

another five to six years.” Finally, she raised the possibility of a partial

pay installment agreement (PPIA), stating: “We are not telling

[petitioner] he has to sell, but can consider a PPIA for two years, with a

[followup] to review the financial[s]. This protects us from [petitioner’s]

18 The Case Activity Record incorrectly records this value as $18,459 instead of

$18,456, but SO Lee’s calculation of petitioner’s reasonable collection potential as

$742,640 (instead of $742,643) shows that she used the correct future income value

($18,456) in calculating petitioner’s reasonable collection potential.

[*22] possibl[y] selling the property in a few years and walking away

with [$600,000] because we accepted only [$100,000].”

On October 13, 2023, SO Lee mailed petitioner and Mr. Stack a

letter addressing the arguments petitioner raised, stating that

petitioner’s ETA OIC would not be accepted, and attaching an updated

IET and AET. SO Lee also offered petitioner a PPIA and attached a

Form 433–D, Installment Agreement, proposing monthly payments of

$1,538 beginning on December 15, 2023, subject to review after two

years. SO Lee noted that if petitioner did not respond by October 27,

2023, she would issue a supplemental notice of determination.

On October 26, 2023, SO Lee noted that “[d]ue to a change in my

office day schedule, [I am] moving [the] closure date to 11-07-23.” On

November 6, 2023, SO Lee noted that she had received no response from

petitioner or his representatives. On November 7, 2023, SO Lee

prepared a draft Supplemental Notice of Determination and sent it to

respondent’s counsel for review. On December 7, 2023, Appeals issued

a Supplemental Notice of Determination Concerning IRS Collection

Actions under Internal Revenue Code Sections 6320 or 6330

(Supplemental Notice of Determination).

The Supplemental Notice of Determination sustained the filing of

the NFTL and the rejection of the ETA OIC. The Supplemental Notice

of Determination stated in part that “it has been determined that you

have sufficient assets from which to pay all of your liabilities, so an OIC

is not acceptable. You were offered a [PPIA] as a collection alternative,

but you failed to respond.” It also stated in part: “You argued that by

forcing you to sell your rentals, you would lose your only source of

income. While we acknowledge that you are currently not employed,

you are 42 years old and should be able to find other employment, which

will supplement your income.”

Further Tax Court Proceedings

On December 14, 2023, the parties filed a Status Report attaching

a copy of the Supplemental Notice of Determination, and we restored

the case to the general docket on December 18, 2023. On March 19 and

March 26, 2024, we allowed Mr. Stack and Mr. Wilson, respectively, to

withdraw as counsel for petitioner. On July 18, 2024, the parties filed

the Administrative Record and a Stipulation as to the Administrative

Record. On August 12, 2024, as already stated, respondent filed the

instant Motion. On October 1, 2024, petitioner untimely filed his

[*23] Opposition. Cf. supra note 3. On November 4, 2024, we held a

hearing on the Motion.

Discussion

General Principles

Background

When the IRS assesses tax and demands payment, section 6321

automatically imposes a tax lien on the taxpayer’s property or property

rights. The lien is treated as arising from the time of assessment. See

§ 6322. To perfect this lien, the IRS must file an NFTL, generally in the

county where the taxpayer’s property is situated. See § 6323(a), (f)(1).

Section 6320 requires the IRS to send notice to the taxpayer that it has

filed the NFTL. See § 6320(a)(1) and (2). This notice must also inform

the taxpayer of the taxpayer’s right to request a hearing. See

§ 6320(a)(3)(B). At the hearing, the taxpayer may raise any relevant

issue relating to the unpaid tax or the lien, including appropriate

spousal defenses; challenges to the appropriateness of collection action;

offers of collection alternatives; and challenges to the existence or

amount of the underlying tax liability. See §§ 6320(c), 6330(c)(2). The

determination by the Appeals officer must take into consideration the

relevant issues raised by the taxpayer, as well as verification that the

requirements of any applicable law or administrative procedure have

been met and whether any proposed collection action balances the need

for the efficient collection of tax with the legitimate concern of the person

that any collection action be no more intrusive than necessary. See

§§ 6320(c), 6330(c)(3).

Jurisdiction and Standard of Review

We have jurisdiction to review Appeals’ determination concerning

collection actions when the taxpayer petitions for review. See §§ 6320(c),

6330(d)(1). Where the validity of the taxpayer’s underlying liability is

properly at issue, see § 6330(c)(2)(B), we review the underlying liability

de novo, Sego v. Commissioner, 114 T.C. 604, 610 (2000). Underlying

liability includes additions to tax. See Katz v. Commissioner, 115 T.C.

329, 339 (2000). We review the IRS’s determinations respecting any

nonliability issues for abuse of discretion. Goza v. Commissioner, 114

T.C. 176, 182 (2000). Abuse of discretion exists when a determination

is arbitrary, capricious, or without sound basis in fact or law. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27

(1st Cir. 2006).

[*24] C.

Supplemental Hearing

When we remand a case to Appeals and Appeals issues a

supplemental notice of determination, we review the decision as

supplemented. See LG Kendrick, LLC v. Commissioner, 146 T.C. 17,

36 & n.18 (2016), aff’d, 684 F. App’x 744 (10th Cir. 2017); see also Kelby

v. Commissioner, 130 T.C. 79, 86 (2008). Accordingly, we review

respondent’s determination as supplemented in the Supplemental

Notice of Determination.

Scope of Review and Summary Judgment Standard

Absent a written agreement to the contrary, venue for an appeal

is the Ninth Circuit. See supra note 9. “That court has held that, where

de novo review is not applicable, the scope of review in . . . cases [brought

under sections 6320 and 6330] is confined to the administrative record.”

Starcher v. Commissioner, T.C. Memo. 2021-144, at *7 (citing Keller v.

Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part T.C.

Memo. 2006-166, and aff’g in part, vacating in part decisions in related

cases); see also Golsen v. Commissioner, 54 T.C. 742, 757 (1970)

(“[B]etter judicial administration[] requires us to follow a Court of

Appeals decision which is squarely in point where appeal from our

decision lies to that Court of Appeals . . . .” (Footnote omitted.)), aff’d,

445 F.2d 985 (10th Cir. 1971). In other words the Ninth Circuit has

linked the applicable scope of review with the applicable standard of

review. As explained infra, we do not reach the merits of petitioner’s

underlying liabilities, and we therefore have no occasion to apply de

novo review in this Opinion.

Although petitioner argues that the administrative record is

incomplete, he has conclusively admitted that the administrative record

is complete by executing the Stipulation as to the Administrative

Record, which states: “It is hereby stipulated, subject to the right of

either party to object as to materiality or relevancy either at trial or on

brief, that the exhibits attached hereto constitute the entire

administrative record in [this] case; that said exhibits are genuine; and

are described and marked hereafter.” See Rule 91(e) (“A stipulation will

be treated, to the extent of its terms, as a conclusive admission by the

parties to the stipulation, unless otherwise permitted by the Court or as

agreed by those parties. . . . A stipulation and the admissions therein

are binding . . . .”). Accordingly, “summary judgment serves as a

mechanism for deciding, as a matter of law, whether the agency action

is supported by the administrative record and is not arbitrary,

[*25] capricious, an abuse of discretion, or otherwise not in accordance

with law.” Belair v. Commissioner, 157 T.C. 10, 17 (2021) (quoting Van

Bemmelen v. Commissioner, 155 T.C. 64, 79 (2020)).

We are not confined to the administrative record when de novo

review is applicable, see Dietz v. Commissioner, T.C. Memo. 2023-69,

at *8, such as when a taxpayer has made a proper challenge to an

underlying liability, see Stevenson v. Commissioner, T.C. Memo.

2023-115, at *5. Petitioner’s representative raised the issue of whether

petitioner’s additions to tax for the years at issue should be abated at

the outset of the first hearing, but petitioner is deemed to have conceded

the issue because he did not raise it in his Petition. 19 See Rule 331(b)(4).

Petitioner raised only two issues in his Petition. One issue concerns

whether section 7122(f) deems respondent to have accepted petitioner’s

OIC, which is a legal issue that does not depend on the standard of

review. See Brown v. Commissioner, 158 T.C. 187, 192 (2022), aff’d, 116

F.4th 861 (9th Cir. 2024); see also Manko v. Commissioner, 126 T.C. 195,

199 (2006). The other issue concerns whether respondent properly

rejected his OIC, which is a nonliability issue that we review for abuse

of discretion. Accordingly, we do not apply de novo review in this

Opinion.

II.

Section 7122(f)

Section

7122(f)

provides

relevant

part:

“Any

offer-in-compromise submitted under this section shall be deemed to be

accepted by the Secretary if such offer is not rejected by the Secretary

before the date which is 24 months after the date of the submission of

such offer.” The parties’ arguments are easy to understand. Petitioner

argues that he submitted his OIC on May 30, 2018, and that respondent

did not reject it until the issuance of the Notice of Determination on

September 15, 2020, which is more than 24 months later. Respondent

argues that he received petitioner’s OIC on June 5, 2018, and rejected it

on April 10, 2020, when Appeals mailed petitioner and Mr. Wilson a

Letter 5197 stating that petitioner’s OIC had been rejected. This

timeframe is less than 24 months.

19 Respondent contends that petitioner also failed to properly raise the issue

because he abandoned it as the first hearing progressed and that this alleged

abandonment at the administrative level precludes our review. We need not decide

whether respondent is correct because petitioner has conceded the issue by not raising

it in his Petition.

[*26] We only need to resolve the parties’ disagreement about when the

offer rejection occurred; we do not need to address their minor

differences about when the OIC was submitted except to deem them to

have conceded any arguments about this point not made in their motion

papers. See Smith v. Commissioner, 159 T.C. 33, 73 (2022) (deeming a

litigant to have forfeited arguments made in a cursory fashion “by not

fully briefing them in [the] motion papers”). The precise question we

confront here is whether, when the Commissioner sends a letter

rejecting or returning an OIC and later issues a notice of determination,

the letter or the notice of determination constitutes the offer rejection

for purposes of section 7122(f). Our precedent holds that the letter

rejecting or returning the OIC—not the notice of determination—

constitutes the offer rejection for purposes of section 7122(f). See Brown,

158 T.C. at 190–91, 193–94; see also id. at 198–99 (“Acceptance of [the

taxpayer’s] argument—that Appeals must issue the notice of

determination within 24 months after an OIC is submitted—could place

the SO in a dilemma. If the SO by that deadline has not resolved every

issue raised by the taxpayer, the SO could be motivated to issue a notice

of determination prematurely, lest the OIC be ‘deemed accepted.’”). We

will not upset that apple cart, so to speak. 20 The April 10, 2020, letter

clearly communicated that petitioner’s OIC was rejected, and SO Sellers

and Mr. Wilson discussed that rejection on a call ten days later. 21

Respondent is correct that the offer rejection occurred on April 10, 2020,

20 Judge Lee cast the deciding vote in the Ninth Circuit’s Brown decision and

concurred in the judgment only. Brown v. Commissioner, 116 F.4th at 875–79 (Lee, J.,

concurring in the judgment). He trod a substantially different analytical path from

the one taken by this Court. Nonetheless, his reasoning would counsel in favor of the

same result in this case because, in Judge Lee’s view, “[section] 7122(f) does not apply

to [OICs] submitted during [lien or levy] hearings . . . . [The taxpayer’s OIC] could

thus have never been deemed accepted through operation of law.” Id. at 878–79. This

Court’s binding precedent, coupled with the lack of a binding precedent from the Ninth

Circuit, leaves us with no occasion to consider the merits of Judge Lee’s view. Cf. id.

at 888 (Bumatay, J., dissenting) (“Because the panel here has split three ways, none

of our pronouncements today carry the weight of precedent.”). We simply note that (if

adopted) it would also support the result reached in this case, albeit via a line of

reasoning that would lead to different results in other cases.

21 During that call, SO Sellers explained that the rejection letter “was issued

due to statutes”—presumably, due to section 7122(f)—and that the ETA OIC was not

acceptable because petitioner had wages as well as rental income. Mr. Wilson

understood that explanation. Cf. United States v. Lincir, No. 21-55722, 2022 WL

17958631, at *2 (9th Cir. Dec. 27, 2022) (“[S]ubsequent communications between [the

taxpayer] and the IRS demonstrate that [the taxpayer] understood that his first OIC

was returned.”). Mr. Wilson therefore understood that the OIC had been rejected

before the close of the relevant two-year period.

[*27] at the latest, 22 with the result that respondent was not deemed to

have accepted petitioner’s OIC by operation of section 7122(f). This is

true regardless of exactly when petitioner submitted his OIC within the

date range spanning May 30 to June 5, 2018, inclusive.

III.

Abuse of Discretion

We review the administrative record to determine whether

Appeals (1) properly verified that the requirements of applicable law or

administrative procedure have been met; (2) considered any relevant

issues that petitioner raised; and (3) considered whether the NFTL

balances the need for the efficient collection of taxes with petitioner’s

legitimate concern that any collection action be no more intrusive than

necessary. See §§ 6320(c), 6330(c)(3); Lunsford v. Commissioner, 117

T.C. 183, 184 (2001).

Verification

We have authority to review satisfaction of the verification

requirement regardless of whether the taxpayer raised the issue at the

section 6320 hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200–03

(2008), supplemented by 136 T.C. 463 (2011). SO Lee confirmed the

proper issuance of notice and demand for payment, filing of the NFTL,

and issuance of notice of a right to a section 6320 hearing; that

assessments were properly made for each year at issue; that balances

were due when the NFTL filing was requested; and that she had no prior

involvement with respect to the years at issue. Petitioner does not

challenge any aspect of SO Lee’s verification that all legal and

administrative requirements were met. SO Lee properly verified that

all of the applicable requirements were met.

22 Under our precedent, the offer rejection possibly occurred even earlier.

Respondent’s May 28, 2019, letter communicating a preliminary offer rejection from

the COIC unit may have been the relevant offer rejection, which would mean that

petitioner’s OIC was pending for less than a year. Cf. Brown, 158 T.C. at 196 (stating

that a taxpayer’s argument that his OIC, which he made as part of a section 6320

hearing, “requires a final determination by Appeals . . . is meritless because it confuses

two kinds of finality: the administrative return of an OIC [by the COIC unit], which

terminates the 24-month period under section 7122(f), and the notice of determination,

which terminates the [lien or levy] proceeding”). The May 28, 2019, letter at least

arguably meets the requirement that “the IRS issue[] a written notice to the taxpayer

or his representative, advising of the rejection, the reason(s) for rejection, and the right

to an appeal.” Treas. Reg. § 301.7122-1(f)(1).

[*28] B.

Issue Raised

The sole issue reviewable for abuse of discretion, raised by

petitioner at the section 6320 hearing, and preserved in his Petition

concerns whether respondent should have accepted petitioner’s ETA

OIC. Section 7122(a) authorizes the Secretary to compromise any civil

or criminal case arising under the internal revenue laws. Section

7122(d)(1) provides that the Secretary shall prescribe guidelines for the

determination 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. 23 See Treas. Reg. § 301.7122-1(c)(1). Accordingly, we

generally uphold the rejection of an OIC when Appeals has followed the

IRM. See, e.g., Churchill v. Commissioner, T.C. Memo. 2011-182, 102

T.C.M. (CCH) 116, 117; Atchison v. Commissioner, T.C. Memo. 2009-8,

97 T.C.M. (CCH) 1034, 1036.

The regulations under section 7122 set forth three grounds for the

compromise of a taxpayer’s liability: doubt as to liability, DATC, and the

promotion of ETA. Treas. Reg. § 301.7122-1(b). Petitioner’s OIC sought

a compromise based on the promotion of ETA. The Secretary may

compromise a tax liability on ETA grounds if either (1) the Secretary

determines that, although collection in full could be achieved, collection

of the full liability would cause the taxpayer economic hardship within

the meaning of Treasury Regulation § 301.6343-1 or (2) no other grounds

for a compromise exist and

compelling public policy or equity considerations identified

by the taxpayer provide a sufficient basis for compromising

the liability. Compromise will be justified only where, due

to exceptional circumstances, collection of the full liability

would undermine public confidence that the tax laws are

being administered in a fair and equitable manner. A

taxpayer proposing compromise [on this basis] will be

expected to demonstrate circumstances that justify

compromise even though a similarly situated taxpayer may

have paid his liability in full.

Treas. Reg. § 301.7122-1(b)(3)(i) and (ii). Nonetheless, “[n]o compromise

to promote [ETA] may be entered into if compromise of the liability

23 Section 7122(d)(2) further provides that “[i]n prescribing guidelines under

paragraph (1), the Secretary shall develop and publish schedules of national and local

allowances designed to provide that taxpayers entering into a compromise have an

adequate means to provide for basic living expenses.”

[*29] would undermine compliance by taxpayers with the tax laws.” Id.

subdiv. (iii). Under an IRM provision in effect at the time the

Supplemental Notice of Determination was issued, 24

[a] taxpayer who has submitted an offer under

[non-economic hardship (NEH)]-ETA [grounds] or has

requested consideration of any public policy or equity

issues during the offer investigation must have those

issues reviewed by [a specialty group established in Austin,

Texas (Austin Office),] prior to rejection of the taxpayer’s

offer or before a rejection is sustained.

IRM 5.8.11.5.1(8) (Oct. 4, 2019); see Estate of Washington v.

Commissioner, T.C. Memo. 2022-4, at *17 (“[T]he Austin Office

investigates . . . a specific subset of [ETA] offers referred to as

[NEH-ETA] offers.”); IRM 8.22.7.4.2(2) (Aug. 26, 2020) (stating that an

OIC considered on NEH-ETA grounds must “be forwarded to the

Compliance ETA team in Austin, Texas, for an initial consideration,”

including when NEH-ETA “is later raised as a new issue in an existing

offer”); see also Estate of Washington, T.C. Memo. 2022-4, at *16 n.10

(stating that the IRS established the Austin Office in 2002 to develop

consistency in the interpretation and application of the rules regarding

ETA OICs); cf. Brown v. Commissioner, T.C. Memo. 2025-17, at *4–5,

*12–13; IRM 5.8.11.5.1(2) (stating that “a Specialty Group has been

established in Austin, [Texas,] to work” OICs submitted under public

policy or equity provisions).

In reviewing Appeals’ consideration of petitioner’s ETA OIC, we

proceed in two parts. First, we consider Appeals’ rejection of petitioner’s

ETA OIC on economic hardship grounds. Second, we inquire into

Appeals’ lack of consideration of petitioner’s ETA OIC on NEH (i.e.,

public policy or equity) grounds. Cf. Bogart v. Commissioner, T.C.

Memo. 2014-46, at *8–13. We determine that a remand is necessary in

both respects.

Economic Hardship

We have carefully considered SO Lee’s economic hardship

analysis. We do not reach most of the parties’ arguments, however,

24 Unless otherwise stated, this Opinion discusses IRM provisions in effect on

December 7, 2023, the date that Appeals issued the Supplemental Notice of

Determination.

[*30] because the administrative record is inadequate to permit us to

review SO Lee’s conclusions.

Economic hardship means the inability to pay reasonable basic

living expenses. See Treas. Reg. § 301.6343-1(b)(4)(i); see also Rev. Proc.

2003-71, § 4.02(3)(a), 2003-2 C.B. 517, 517. “The determination of a

reasonable amount for basic living expenses . . . will vary according to

the unique circumstances of the individual taxpayer.

Unique

circumstances, however, do not include the maintenance of an affluent

or luxurious standard of living.” Treas. Reg. § 301.6343-1(b)(4)(i); cf.

supra note 23 (discussing basic living expenses). Treasury Regulation

§ 301.7122-1(c)(3) sets forth the following nonexhaustive list of factors

that would support (but are not conclusive of) a finding of economic

hardship: (1) a long-term illness, medical condition, or disability which

is expected to exhaust the taxpayer’s financial resources, (2) the total

depletion of a taxpayer’s income resulting from the provision of

dependent care, and (3) the taxpayer’s inability to borrow against the

equity in the taxpayer’s assets where liquidation of those assets would

render the taxpayer unable to meet basic living expenses.

The IRM supplies additional provisions to guide these

evaluations. It is helpful to begin by discussing reasonable collection

potential and then using that concept to compare an ETA OIC with a

DATC OIC. Reasonable collection potential equals net realizable equity

in assets (as well as any amounts collectible from third parties and any

assets or income that are available to the taxpayer but are beyond the

reach of the Government) plus the taxpayer’s expected future income

(less necessary living expenses) projected over a given period. IRM

5.8.4.3.1 (Apr. 30, 2015). “As a general rule, the taxpayer’s current

income should be used in the analysis of future ability to pay.” IRM

5.8.5.20(2) (Sept. 24, 2021). Nonetheless, if “[a] taxpayer is temporarily

or recently unemployed or underemployed,” the IRS will “[u]se the level

of income expected if the taxpayer were fully employed and if the

potential for employment is apparent” and will “[j]udge each case on its

own merit, including consideration of special circumstances or ETA

issues.” Id. 5.8.5.20(4).

Whether an ETA OIC or a DATC OIC is appropriate depends on

the taxpayer’s reasonable collection potential. In a DATC OIC the tax

liability equals or exceeds the taxpayer’s reasonable collection potential.

IRM 5.8.11.3(1) (Oct. 4, 2019). By contrast, in an ETA OIC, the tax

liability is less than the taxpayer’s reasonable collection potential. Id.

In other words, in an ETA OIC, the taxpayer’s reasonable collection

[*31] potential shows that the tax liability could be collected in full in a

lump sum, through an installment agreement, or via a combination of

both. Id.

When a taxpayer indicates that ETA criteria or other special

circumstances apply, an offer investigation may proceed without an

initial calculation of whether the taxpayer can full pay via an

installment agreement. IRM 5.8.5.2(2) (Sept. 24, 2021). In the case of

an ETA OIC based on economic hardship, “[f]inancial analysis includes

reviewing basic living expenses as well as other considerations.” IRM

5.8.11.3.1(3) (Oct. 4, 2019).

The taxpayer’s income and basic living expenses must be

considered to determine if the claim for economic hardship

should be accepted. Basic living expenses are those

expenses that provide for health, welfare, and production

of income of the taxpayer and the taxpayer’s family.

National and local standard expense amounts are designed

to provide accuracy and consistency in determining [the]

taxpayer’s basic living expenses for domestic taxpayers.

These standards are guidelines and if it is determined that

a standard amount is inadequate to provide for a specific

taxpayer’s basic living expenses, allow a deviation.

Request the taxpayer provide reasonable substantiation to

support the deviation and document the case file.

Id. 5.8.11.3.1(4). Absent special circumstances, the determination of a

taxpayer’s housing and utility expenses “use[s] the amount that is

claimed or the standard, whichever is less.” 25 IRM 5.8.5.22.2(2) (Mar.

23, 2018). In addition to basic living expenses, “other [nonexclusive]

factors to consider that impact upon the taxpayer’s financial condition

include” the taxpayer’s age and employment status; the number, age,

and health of the taxpayer’s dependents; the cost of living in the area

where the taxpayer resides; and any extraordinary circumstances such

as special education expenses, a medical catastrophe, or a natural

25 The IRS’s local standards “establish standards for two necessary expenses:

1) housing and utilities and 2) transportation. Taxpayers will normally be allowed the

local standard or the amount actually paid monthly, whichever is less.” IRM

5.15.1.8(5) (July 24, 2019). In contrast the IRS’s national standards “establish

standards for Food, Clothing and Other Items and Out-of-Pocket Health Care

Expenses.” Id. 5.15.1.8(4). “Taxpayers are allowed the National Standard Expense

amount for their family size, without a need to substantiate the amount actually

spent.” IRM 5.8.5.22.1(2) (Oct. 22, 2010).

[*32] disaster. IRM 5.8.11.3.1(5). Accounting and legal fees may be

allowable if they “are for representation before the IRS (i.e., to resolve

current balances due, delinquent returns, examinations, etc.)” or they

“meet the necessary expense test.” 26 IRM 5.15.1.11(3).

“The existence of economic hardship criteria does not dictate that

an OIC must be accepted. An acceptable OIC amount must still be

determined based on a full financial analysis and negotiation with the

taxpayer. When hardship criteria are identified but the taxpayer does

not offer an acceptable amount, the OIC should not be recommended for

acceptance.” IRM 5.8.11.3.1(10). “In economic hardship cases, an

acceptable offer amount is determined by analyzing the financial

information, supporting documentation, and the hardship that would be

created if certain assets, or a portion of certain assets, were used to pay

the liability.” Id. 5.8.11.3.1(9).

The administrative record is insufficient to permit us to review

Appeals’ consideration of petitioner’s monthly housing expense, and

consequently, its determination that petitioner had positive monthly net

income and would not face economic hardship if Appeals rejected his

OIC. As already stated, the rule of IRM 5.8.5.22.2(2) that the lesser of

claimed housing expense or the local standard is allowable applies only

“[a]bsent special circumstances.” See supra note 25 and accompanying

text. Petitioner reported no housing expense on his updated Form

433–A (OIC), with the result that (according to Appeals) his allowable

housing expense was zero. Appeals never documented a conclusion

about whether special circumstances existed, however. The reported

housing expense of zero, in combination with the dismissed federal

criminal case, legal fees, and allegations of a corrupt asset forfeiture,

should have indicated to Appeals that special circumstances might exist.

If that were not enough, Mr. Stack’s March 20, 2023, letter mentioned

that petitioner “was required to move back home with his parents due

to his crippling legal bills for criminal defense and civil lawsuits related

to the criminal case, which made it impossible to support himself.”

(Emphasis omitted.) We take no position on the merits of petitioner’s

arguments, but Appeals needed to consider whether special

circumstances existed to deviate from the general housing expense rule

and to document that conclusion for us. Appeals was too quick to take

advantage of petitioner’s zero reported housing expense instead of

26 The necessary expense test is met for “expenses that are necessary to provide

for a taxpayer’s and his or her family’s health and welfare and/or production of income.”

IRM 5.15.1.8(1).

[*33] considering whether, for example, petitioner was unable to afford

housing because of (in petitioner’s telling) unjust criminal proceedings

brought against him that wreaked financial havoc. Appeals was also too

quick to take the position that petitioner’s criminal case and the asset

forfeiture could be disregarded entirely. The rigidity of the financial

analysis was thus at odds with the IRM.

Appeals’ decision to apply the general housing expense rule was

highly material because petitioner’s monthly net income was relatively

low.

Assuming arguendo, as Appeals largely did during the

supplemental hearing, that petitioner was unable to borrow against his

assets, the only consideration that kept petitioner from being a taxpayer

who “is unable to borrow against the equity in those assets and [whose]

liquidation of those assets to pay outstanding tax liabilities would

render the taxpayer unable to meet basic living expenses,” see Treas.

Reg. § 301.7122-1(c)(3)(C), for most of the supplemental hearing was

Appeals’ determination of positive monthly net income.

That

determination, in turn, depended on Appeals’ decision not to allow

petitioner the standard local housing expense amount. Toward the end

of the supplemental hearing, Appeals eventually accepted petitioner’s

position that his only source of income was rental income from his

properties, which would be lost if the properties were sold. Appeals,

however, imputed income to petitioner on the basis of his employability.

Although the basis for this imputation is not expressly stated in the

administrative record, we are able to discern that Appeals was applying

the rule of IRM 5.8.5.20(4) concerning temporary or recent

unemployment. There is no guarantee, however, that Appeals would

have reached the same conclusion about petitioner’s ability to generate

enough income to cover his monthly basic living expenses if the properly

allowable expense amount was higher (e.g., if the standard local housing

expense was allowed). The administrative record lacks clear reasoning

from Appeals about whether a housing expense deviation should have

been allowed because of special circumstances and, if so, whether

petitioner could have made enough income to cover the higher expense

amount.

We acknowledge that SO Lee and ATM Chapman discussed

petitioner’s special circumstances, including the criminal charges, to

some extent in their October 3, 2023, conversation about the pros and

cons of accepting petitioner’s OIC. Nonetheless, this conversation was

premised on their prior conclusion that they could wholly disregard

petitioner’s allegations of a corrupt asset forfeiture. This general

conversation also was not a substitute for a specific determination about

[*34] whether special circumstances existed to allow a housing expense

deviation, which might have also appropriately encompassed other

topics, such as petitioner’s living situation.

Separately but similarly, Appeals’ decision to count the line of

credit proceeds as a dissipated asset because they were used for legal

fees could only be sustained by guesswork on the administrative record

before us. Appeals counted the line of credit proceeds as a dissipated

asset solely because they were not used to fund representation before

the IRS, but the applicable test is a two-part one: Appeals must consider

not only whether the legal fees “are for representation before the IRS

(i.e., to resolve current balances due, delinquent returns, examinations,

etc.)” but also, alternatively, whether they “meet the necessary expense

test.” IRM 5.15.1.11(3); see supra note 26 and accompanying text. There

is no clear conclusion in the administrative record about whether the

expense was necessary. Cf. Commissioner v. Tellier, 383 U.S. 687

(1966).

We cannot “uphold a notice of determination on grounds other

than those actually relied upon by the Appeals officer.” Antioco v.

Commissioner, T.C. Memo. 2013-35, at *25. “Those grounds must be

clearly set forth so that we do not have to guess about why an Appeals

officer decided what [she] did.” Id. Accordingly, we cannot sustain the

Supplemental Notice of Determination without clarification and

supplementation of the administrative record.

We may remand a case to Appeals for further development when

the administrative record does not contain sufficient information to

permit us to review Appeals’ determination. See Lunsford, 117 T.C.

at 189; Antioco, T.C. Memo. 2013-35, at *31–32. We will issue an order

remanding this case to Appeals for further consideration of petitioner’s

claim of economic hardship. We will specifically direct Appeals to

consider (1) whether petitioner should be allowed the standard local

housing expense because of special circumstances, (2) whether

petitioner’s use of line of credit proceeds for legal fees meets the

necessary expense test, (3) petitioner’s recent claim at the November 4,

2024, hearing that part of his time is now occupied assisting with

caregiving for his elderly father, who has significant health problems,

and (4) how to classify petitioner’s current employment or

unemployment status for purposes of calculating his future income

value (e.g., whether petitioner is still properly classified as temporarily

or recently unemployed). Cf. IRM 5.8.5.20(4) (providing different rules

[*35] for calculating future income depending on the type of

unemployment a taxpayer is experiencing).

Finally, even though petitioner has succeeded in obtaining a

remand, we must address the fact that petitioner’s Opposition

inappropriately purports to cite the nonexistent cases “Chesney v.

Commissioner, T.C. Memo. 2008-266” and “Adolphson v. Commissioner,

T.C. Memo. 2011-201” for support. 27 (Emphasis omitted.) While in our

discretion we will not impose sanctions on petitioner, who is proceeding

pro se, we warn petitioner that continuing to cite nonexistent caselaw

could result in the imposition of sanctions in the future.

Public Policy or Equity

We also identify an alternative ground supporting our decision to

remand this case to Appeals. As already stated, IRM 5.8.11.5.1(8)

required the Austin Office to review an ETA OIC before rejection (or

before a rejection was sustained) if the taxpayer “has submitted an offer

under NEH-ETA [grounds] or has requested consideration of any public

policy or equity issues during the offer investigation.” IRM 8.22.7.4.2(2)

states that an OIC considered on NEH-ETA grounds must “be forwarded

to the Compliance ETA team in Austin, Texas, for an initial

consideration,” including when NEH-ETA “is later raised as a new issue

in an existing offer.”

First, although not dispositive, the administrative record is clear

that petitioner submitted his ETA OIC on economic hardship grounds,

not public policy or equity grounds. For example, Mr. Stack’s December

29, 2022, letter at the outset of the supplemental hearing stated that

petitioner “submitted an offer to compromise his tax liabilities on

grounds of [ETA] because he has sufficient equity in assets to full pay

the liability, but liquidation of those assets would cause an economic

hardship.” In addition Mr. Stack’s March 20, 2023, letter stated that

“the offer that [petitioner] has submitted” was “ETA/financial hardship.”

Although the version of Form 656 in effect when petitioner submitted

his Form 656 did not clearly distinguish between economic hardship and

public policy or equity grounds for ETA—unlike the current version—

the administrative record sufficiently reflects that petitioner and his

representatives submitted an ETA OIC on economic hardship grounds,

27 We found the case Adolphson v. Commissioner, 842 F.3d 478 (7th Cir. 2016),

but it is an appellate opinion affirming on different grounds an unpublished order of

this Court dismissing a section 6330 case for lack of subject matter jurisdiction. It has

no bearing on the issues here.

[*36] not public policy or equity grounds. Cf. IRM 5.8.11.4(2) (Apr. 11,

2024) (providing, in guidance promulgated after the Supplemental

Notice of Determination was issued, that “Form 656 instructs taxpayers

to select one reason” for compromise, that “[i]f more than one box is

checked, . . . an amended Form 656 [should be secured] to reflect the

reason the offer is requested,” and that “Forms 656 . . . that erroneously

request more than one reason for compromise” should not be referred “to

the NEH-ETA group”).

Nonetheless, and more importantly, it is also clear that

petitioner’s representatives repeatedly requested consideration of public

policy or equity issues throughout the course of the supplemental

hearing. 28 The following events—at least in combination, if not standing

alone—should have led Appeals to consider obtaining the Austin Office’s

input (or otherwise to consider whether petitioner’s ETA OIC might be

reviewable on NEH grounds in accordance with the IRM, cf. Bogart, T.C.

Memo. 2014-46, at *13) before rejecting it:

1. On April 7, 2023, Mr. Stack submitted a letter to Appeals stating

that he was making an extension request “to enable us to submit

a brief supplemental letter which provides more detailed

information about [petitioner’s] economic hardship and the

conspiracy between his former employer Masimo and their

corrupt government connections which resulted in the improper

forfeiture of over $642,00[0] of bank account funds” and

complaining that petitioner “received no credit toward his income

taxes” for the forfeiture.

2. On April 26, 2023, SO Lee and Mr. Stack had a telephone call in

which Mr. Stack stated that he wanted to put together a bullet

point summary regarding the forfeiture of petitioner’s money and

that he felt it had to do with the fairness of the OIC.

3. Mr. Stack’s May 26, 2023, letter made a statement to much the

same effect as the one in his April 7, 2023, letter. It also

mentioned the district court’s alleged detection of outrageous

government conduct, “the highly coordinated manner and

careless disregard with which [private investigators, insurance

adjusters, and a federal prosecutor allegedly] jointly investigated

and prosecuted [petitioner] so as to steal more than $642,000 from

28 The supplemental hearing occurred after the indictment in petitioner’s

federal criminal case was dismissed on November 30, 2021, whereas the first hearing

occurred before the dismissal.

[*37] [a] bank account,” and that petitioner “was precluded from

[applying] those funds [against his taxes] by a corrupt asset

forfeiture orchestrated by government and private actors.”

Although it did not provide authority for the alleged principle it

cited, the letter nonetheless stated that “the bad faith of the

federal prosecutor and investigators in the [c]riminal [a]ction can

be attributed to the IRS agents assigned to this case under the

‘one federal government’ principle.” The letter concluded by

stating that “it is patently unjust that the government forfeited

$642,643.71 of funds belonging to” BoundlessRise, that “[t]he

wrongful actions of the United States in seizing those funds, using

false information provided by dishonest private parties . . . must

be considered in evaluating [petitioner’s ETA OIC]” (emphasis

added), and that the alleged facts “should favorably dispose the

IRS to consider acceptance of an ETA, if for no other reason than

to effect basic justice.”

A breakdown occurred at Appeals when, after all of these events

transpired, (1) SO Lee decided on July 14, 2023, that “[i]t was not a tax

issue that gave rise to the criminal case, so it really has no bearing on

the tax issues” and (2) SO Lee and ATM Chapman decided on July 19,

2023, that “we will not consider the criminal case/issues in deciding if

we can agree to the [ETA OIC].” We will make our point plainly: An

alleged corrupt public-private conspiracy to loot BoundlessRise’s bank

account, which allegedly resulted in petitioner’s inability to pay his tax

liabilities, is a public policy or equity issue that needed to receive due

consideration. We take no position on the merits of those allegations,

but they needed to be appropriately considered in accordance with the

IRM. The current administrative record is insufficient to permit us to

review this matter adequately, necessitating a remand. See Hoyle, 131

T.C. at 204–05. We do not hold that an immediate referral was required

but only that a referral (or at least consideration of how petitioner’s ETA

OIC might receive appropriate review on NEH grounds) should have

taken place once Appeals exhausted its consideration of petitioner’s ETA

OIC on economic hardship grounds. Cf. IRM 5.8.11.5.1(3) (providing

that generally “all cases must have been completely developed under all

other bases before transfer will be accepted by the Austin [Office]”). This

case is akin to Bogart, T.C. Memo. 2014-46, at *11, in which we

concluded that the Commissioner “did not adequately consider” NEH

grounds where the taxpayers “requested relief on public policy and

equity grounds” but the Appeals officer “merely concluded that the ETA

OIC did not merit consideration under public policy or equity grounds.”

[*38] We acknowledge that there is no indication in the administrative

record that SO O’Reilly, SO Sellers, SO Lee, or OS Randall ever

subjectively understood petitioner or his representatives to have

submitted an ETA OIC on public policy or equity grounds. Nonetheless,

Mr. Stack requested consideration of public policy or equity issues,

which is all he needed to do under a plain reading of the IRM to ensure

that Appeals would consider (or obtain consideration of) the ETA OIC

on NEH grounds. As a practical matter, it may have facilitated the

process for petitioner and his representatives to have expressly

explained how “collection of the full liability would undermine public

confidence that the tax laws are being administered in a fair and

equitable manner” and whether they had “demonstrate[d]

circumstances that justify compromise even though a similarly situated

taxpayer may have paid his liability in full.” See Treas. Reg.

§ 301.7122-1(b)(3)(ii).

Nonetheless, we do not perceive such a

heightened requirement in the IRM. We will therefore remand this case

to Appeals with a direction to obtain appropriate consideration of

petitioner’s ETA OIC on NEH grounds, at least to the extent that

Appeals’ reconsideration of petitioner’s OIC on economic hardship

grounds does not result in acceptance.

Balancing

Section 6330(c)(3)(C) requires Appeals to take into consideration

whether a proposed collection action balances the need for efficient tax

collection with the taxpayer’s legitimate concern that any collection

action be no more intrusive than necessary. Given our decision to

remand, however, we need not address Appeals’ balancing analysis.

IV.

Conclusion

Respondent is not deemed to have accepted petitioner’s ETA OIC

pursuant to section 7122(f). Nonetheless, the administrative record is

unclear in more than one important respect with regard to petitioner’s

claim of economic hardship. Appeals also rejected petitioner’s ETA OIC

without obtaining consideration of whether it was acceptable on the

NEH grounds argued by petitioner’s representatives. A remand is

necessary to supplement the administrative record and permit

appropriate judicial review.

We have considered the parties’ other arguments and, to the

extent they are not discussed herein, find them to be irrelevant, moot,

or without merit.

[*39] To reflect the foregoing,

An appropriate order will be issued.

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