# United States Tax Court

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Ac076abe7540c7436

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

United States Tax Court
T.C. Memo. 2025-48
JOHN JOSEPH BAUCHE,
Petitioner
v.
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
[*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
I.

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
[*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
[*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
[*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
[*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
[*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
[*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
[*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
[*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
TO
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,
MY
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
[*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
[*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
[*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
[*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
[*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
[*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
[*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).
13

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
[*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
[*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
[*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
[*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
[*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.”
V.

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
[*23] Opposition. Cf. supra note 3. On November 4, 2024, we held a
hearing on the Motion.
Discussion
I.

General Principles
A.

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).
B.

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
[*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.
D.

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
[*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
in
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
[*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
[*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).
A.

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
[*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
[*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.
1.

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
[*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
[*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
[*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
[*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
[*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
[*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.
2.

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
[*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
[*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
[*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.
C.

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
[*39] To reflect the foregoing,
An appropriate order will be issued.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Ac076abe7540c7436. Public record. Not legal advice.