T.C. Memo. 2019-47



                   UNITED STATES TAX COURT



           NORMAN HINERFELD, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 4879-15L.                           Filed May 2, 2019.



        R's Appeals Office (Appeals) rejected P's offer to settle his
liability for trust fund recovery penalties because it did not reflect the
value of his residence, L, title to which he had previously transferred
to his wife, W.

       Held: Upholding a determination by Appeals that lacks an
adequate explanation does not violate the doctrine of SEC v. Chenery
Corp., 

(1943), when the failure of explanation relates to a
legal issue rather than a matter committed to the agency's discretion.

       Held, further, because (1) P failed to established that W paid
adequate consideration for L, (2) the record demonstrates, or provides
grounds for inferring, that P transferred L to W to protect it from his
creditors, and (3) P failed to demonstrate any respect in which the
transfer of L affected his use or enjoyment of the property, W can
appropriately be treated as holding title to L as P's nominee;
accordingly, R's settlement officer did not abuse her discretion in
rejecting an offer-in-compromise that did not reflect L's value.
                                         -2-

[*2] Richard S. Kestenbaum, Scott L. Kestenbaum, and Bernard S. Mark, for

petitioner.

      Michael J. De Matos, for respondent.



                           MEMORANDUM OPINION


      HALPERN, Judge: This case is before us for review of a determination by

the Internal Revenue Service (IRS) Appeals Office (Appeals) to sustain the filing

of a notice of Federal tax lien (NFTL) concerning trust fund recovery penalties

(TFRPs) assessed against petitioner under section 66721 in regard to unpaid

employment taxes of Thermacon Industries, Inc. (Thermacon), for the quarters

ended September 30 and December 31, 2002, March 31, September 30, and

December 31, 2003, and March 31 and June 30, 2004 (quarters in issue). Before

his resignation in 2003, petitioner had been chairman of Thermacon. We must

decide whether Appeals abused its discretion in rejecting petitioner's offer to settle

for $12,720 liabilities that exceeded $550,000 when respondent issued the NFTL

and remained almost $300,000 at the time of trial.


      1
      All section references are to the Internal Revenue Code of 1986, as
amended and in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure, unless otherwise indicated.
                                          -3-

[*3]                                 Background

The Larchmont Residence

        Since 1968, petitioner and his wife have resided in a house located in

Larchmont, New York (Larchmont residence). In February 2003, petitioner

executed a deed by which he transferred title to the Larchmont residence to Mrs.

Hinerfeld. The deed states that petitioner made the transfer "in consideration of

ten ($10.00) dollars paid by * * * [Mrs. Hinerfeld]". The parties stipulated the

deed to be a quitclaim deed. After transferring the Larchmont residence to his

wife, petitioner continued to pay at least some of the expenses of maintaining the

property.

Mrs. Hinerfeld's Payments to Financial Institutions

        Between March 2002 and November 2003, Mrs. Hinerfeld made payments

to various financial institutions totaling $5 million. The dates and amounts of

those payments are as follows:

        Date                 Amount                      Payee
        3/15/02              $300,000           Commerce Bank of PA NA
       11/20/02               750,000           Fleet National Bank
        1/28/03             1,100,000           LaSalle Business Credit, LLC
        1/28/03               400,000           LaSalle Business Credit, LLC
        11/7/03               850,000           LaSalle Business Credit, LLC
                                          -4-

[*4] 11/7/03                  900,000           LaSalle Business Credit, LLC
      11/7/03                 700,000           LaSalle National Bank

Assessment of Trust Fund Recovery Penalties, the Prior Levy Notice, and
Hinerfeld I

      Respondent assessed petitioner's TFRP liabilities for the quarters in issue

between February and May 2006. The following June, respondent notified

petitioner of his intention to collect those liabilities by levy.2 In Hinerfeld v.

Commissioner (Hinerfeld I), 

(2012), we considered a petition to

review Appeals' determination to sustain the proposed levy. Hinerfeld I presented

two issues for our decision: (1) whether Appeals and area counsel in the Small

Business/Self-Employed Division of the Office Chief Counsel had engaged in

prohibited ex parte communications during the collection due process (CDP)

hearing concerning the 2006 levy notice and (2) whether Appeals had abused its

discretion in rejecting petitioner's offer to settle his liabilities for $74,857. We

resolved both issues in respondent's favor.




      2
       The 2006 levy notice covered all of the quarters in issue other than the
quarter ended March 31, 2004. See Hinerfeld v. Commissioner (Hinerfeld I), 

, 277 (2012).
                                          -5-

[*5] The NFTL; Petitioner's Initial CDP Hearing

      In July 2013, respondent issued to petitioner an NFTL regarding amounts

assessed under section 6672 for the quarters in issue. In August 2013, petitioner

requested a CDP hearing in regard to the NFTL. That request referred to a

pending offer petitioner had made to settle his TFRP liabilities but raised no other

issues. In particular, petitioner did not dispute his TFRP liabilities.

      In April 2014, before petitioner's initial CDP hearing, Settlement Officer

(SO) Marilyn Matthews reviewed the deed by which petitioner transferred title to

the Larchmont residence to his wife. The copy of the deed included in the record

bears no evidence of having been recorded.

      In October 2014, petitioner's attorney, Richard Kestenbaum, sent SO

Matthews a copy of an affidavit petitioner had given in Hinerfeld I in which he

stated: "In exchange for the deed [to the Larchmont residence], my wife paid off

my bank guarantees of $300,000.00 to Commerce Bank and $750,000.00 to Fleet

Bank". The following month, after the initial CDP hearing, Mr. Kestenbaum sent

SO Matthews another letter that identified wholly different payments as the

consideration. After claiming that "Mrs. Hinerfeld paid substantial consideration

for the deed transfer", Mr. Kestenbaum elaborated: "[A]mong other payments,

Mrs. Hinerfeld satisfied debts of her husband to LaSalle Bank in the amount of
                                           -6-

[*6] $830,000.00 and $700,000.00 * * * and then paid approximately

$1,000,000.00 to satisfy the mortgage on the subject premises."

Notice of Determination

      In a notice of determination issued in January 2015, Appeals sustained the

NFTL filing. The notice of determination acknowledged petitioner's $12,720

offer-in-compromise (OIC) but stated that Appeals could not consider an OIC as a

collection alternative because the financial information petitioner provided

indicated that he had sufficient assets to satisfy his liabilities. In particular,

Appeals "determined that the taxpayer maintains a 50% interest in the primary

residence and that his wife does not meet the requirements of a purchaser

according to Internal Revenue Code 6323(h)(6)." Appeals interpreted the deed by

which petitioner transferred the Larchmont residence to his wife as indicating that

he made that transfer "for no consideration." The notice of determination further

states that "[t]he deed was quitclaimed while * * * [Thermacon's employment

taxes] were accruing".

Remand

      After petitioner petitioned this Court for a review of Appeals' determination,

respondent moved to remand the case to Appeals for reconsideration of petitioner's

OIC. Respondent acknowledged that SO Matthews' analysis "regarding Mrs.
                                        -7-

[*7] Hinerfeld's status as a 'purchaser' under I.R.C. § 6323(h)(6) was a mistake of

law." Mrs. Hinerfeld's status as a purchaser would have been relevant to the

question of whether her interest in the Larchmont residence was subject to any

preexisting tax lien on the property. But respondent did not assess petitioner's

TFRPs until after petitioner had transferred the Larchmont residence to his wife.

Therefore, as respondent acknowledged in his motion to remand, "there was no

lien at the time the Larchmont property was transferred." We thus granted

respondent's motion.

Conflicting Explanations of Consideration

      After our remand of the case, petitioner and his attorney continued to make

conflicting claims about the consideration Mrs. Hinerfeld allegedly paid for the

Larchmont residence. During a March 2016 meeting with Appeals, petitioner

disavowed the claims his attorney had made in his November 2014 letter to SO

Matthews. At that meeting, petitioner claimed that Mrs. Hinerfeld's payments to

the LaSalle entities in November 2003 had nothing to do with the transfer of the

Larchmont residence. Instead, petitioner claimed that Mrs. Hinerfeld had made a

separate payment of $1 million on the date of the deed. In response, Appeals gave

petitioner two weeks to provide documentation of the alleged $1 million payment.
                                          -8-

[*8] Petitioner later admitted in a letter to SO Matthews that "[t]here was no

'million dollar check'." In the meantime, Mr. Kestenbaum sent SO Matthews a

letter in which he reverted to his original claim. "In payment for the equity in the

subject property," Mr. Kestenbaum alleged, "Mrs. Hinerfeld, on March 15, 2002,

paid the sum of $300,000.00 to satisfy Mr. Hinerfeld's liability to Commerce

Bank." "In addition," Mr. Kestenbaum added, "on November 20, 2002, in further

payment for the equity in the residence, Mrs. Hinerfeld tendered a letter of credit

to Fleet National Bank in the amount of $750,000.00 to satisfy Mr. Hinerfeld's

obligation to Fleet." (Petitioner's subsequent letter to SO Matthews made the same

claim.)

Supplemental Notice of Determination

      In the supplemental notice of determination (supplemental notice) it issued

to petitioner, Appeals stated that it could not consider an OIC as a collection

alternative because he "has sufficient equity in assets to satisfy the liabilities". In

reaching that conclusion, SO Matthews treated the Larchmont residence as an

asset available to satisfy petitioner's liabilities on the ground that Mrs. Hinerfeld
                                          -9-

[*9] held that property as petitioner's nominee. SO Matthews based her analysis

on Internal Revenue Manual (IRM) pt. 5.17.2.5.7.2(3) (Jan. 8, 2016).3

      The supplemental notice does not explain in any detail SO Matthews'

application of the factors listed in the IRM. Instead, it states only: "Most or all of

the factors listed in * * * Internal Revenue Manual section 5.17.2.5.7.2 that are

used to determine if a nominee situation exists are present in this case."


      3
          Internal Revenue Manual (IRM) pt. 5.17.2.5.7.2(3) (Jan. 8, 2016) stated:

              No one factor determines whether a nominee situation is
      present, but a number of factors taken together may. The following
      list is neither exhaustive nor exclusive, but nominee situations
      typically involve one or more of the following:

                     (a.) The taxpayer previously owned the property.

                     (b.) The nominee paid little or no consideration for
               the property.

                     (c.) The taxpayer retains possession or control of
               the property.

                     (d.) The taxpayer continues to use and enjoy the
               property conveyed just as the taxpayer had before such
               conveyance.

                      (e.) The taxpayer pays all or most of the expenses
               of the property.

                     (f.) The conveyance was for tax avoidance
               purposes.
                                         -10-

[*10] The supplemental notice states repeatedly that the transfer of title to the

Larchmont residence occurred while Thermacon's employment taxes were

accruing.

Trial Testimony

      According to Mrs. Hinerfeld's testimony at trial, her agreement to pay

petitioner's liabilities arose from his interest in placing a second mortgage on the

house to pay those liabilities. Mrs. Hinerfeld expressed concern about losing the

house and offered to give him the funds to repay the liabilities and thereby avoid

further encumbering the residence. In exchange, she said, she asked that title to

the house be transferred to her name to protect it from petitioner's creditors. Mrs.

Hinerfeld acknowledged that the payments she claimed to have made as

consideration for the house were made before execution of the deed. When asked

why, she said, "Well, I had to wait for it but that was my quid pro quo. I get the

house and I will pay your loans."

      In his own testimony at trial, petitioner attributed the delay in execution of

the deed to his attorney's busy schedule. Petitioner also testified that he was

unaware of Thermacon's unpaid employment taxes until 2006, when he was

apprised of Thermacon's liabilities by the corporation's then owner.
                                          -11-

[*11]                                Discussion

I.      Applicable Statutory Provisions

        Sections 6320 and 6330 provide a taxpayer the right to notice and the

opportunity for an Appeals hearing before the Commissioner can collect unpaid

tax by means of a lien or levy against the taxpayer's property. If a taxpayer

requests a CDP hearing, the Appeals officer conducting the hearing must verify

that the requirements of any applicable law or administrative procedure have been

met. Secs. 6320(c), 6330(c)(1). The taxpayer may raise at the hearing any

relevant issue relating to the unpaid tax or the collection action, including

appropriate spousal defenses, challenges to the appropriateness of collection

actions, and offers of collection alternatives. See sec. 6330(c)(2)(A). Section

6330(d)(1) allows a taxpayer to "appeal * * * to the Tax Court" a determination

under section 6320 or 6330.

        Although petitioner claims to have resigned from Thermacon in 2003 and to

have been unaware of the corporation's unpaid employment taxes until 2006, he

does not dispute his liability under section 6672(a) for Thermacon's unpaid
                                          -12-

[*12] employment taxes for the quarters in issue.4 Petitioner argues only that SO

Matthews abused her discretion in rejecting his OIC.

      Section 7122(a) gives the Commissioner the discretion to compromise

unpaid tax liabilities. Section 301.7122-1(b)(2), Proced. & Admin. Regs., lists

doubt as to collectibility as a valid ground for compromising an unpaid liability.

"Doubt as to collectibility exists in any case where the taxpayer's assets and

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

the

Commissioner's administrative guidelines, Appeals will accept a taxpayer's OIC as

a result of doubt as to collectibility only if the OIC reflects the taxpayer's

reasonable collection potential (RCP)--that is, the amount the Commissioner could

reasonably collect through other means, including administrative and judicial

collection remedies. See IRM pt. 5.8.4.3(2) (May 10, 2013). A taxpayer's RCP

ordinarily includes, in addition to his own assets and future income, any amounts

collectible from third parties, such as through enforcement of a lien against




      4
       Sec. 6672(a) imposes a penalty equal to the amount of any unpaid
employment taxes withheld by a corporation from its employees' wages on any
person who willfully fails to collect, account for, or pay over those taxes. In
general, any person with the duty and authority to cause the corporation to
withhold and pay over the taxes in question can be subject to liability under sec.
6672(a). See sec. 6671(b).
                                         -13-

[*13] property held by a nominee of the taxpayer. IRM pt. 5.8.4.3.1(1) (Apr. 30,

2015).5 We generally find no abuse of discretion when an Appeals officer rejects

a taxpayer's OIC because it does not reflect the taxpayer's RCP, determined in

accordance with the Commissioner's administrative guidance. E.g., Caney v.

Commissioner, T.C. Memo. 2010-90, 

, at *2.

II.   Standard and Scope of Review

      A.     Standard of Review: Dalton

      The parties devote considerable portions of their briefs to the questions of

the standard and scope of our review. When a taxpayer's underlying liability is at

issue in a CDP case, we review Appeals' determination de novo; otherwise, we

review that determination for abuse of discretion. E.g., Goza v. Commissioner,

, 181-182 (2000). The parties agree that, because petitioner does not

challenge his underlying liabilities, our review is generally for abuse of discretion.

Cf. 5 U.S.C. sec. 706(2)(A) (2018) (requiring a reviewing court subject to the

judicial review provisions of the Administrative Procedure Act (APA) to "hold

unlawful and set aside agency action, findings, and conclusions found to be * * *

      5
        The value of property held on behalf of a taxpayer by a nominee can be
included in the taxpayer's RCP regardless of whether the Commissioner proceeds
against the property. See IRM pt. 5.8.5.6(7) (Sept. 30, 2013) ("It is not necessary
to actually seek or obtain any specific legal remedy in order to address * * *
[transferee/nominee/alter ego] issues in an offer.").
                                        -14-

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

with law"). In Kendricks v. Commissioner, 

, 75 (2005), however, we

wrote: "When faced with questions of law * * * the standard of review makes no

difference. Whether characterized as a review for abuse of discretion or as a

consideration 'de novo' (of a question of law), we must reject erroneous views of

the law." But Kendricks left open the question of the standard we apply in

identifying error in a legal conclusion on which a determination by Appeals rests.

Do we accept any legal conclusions that are reasonable, even if we might reach a

different conclusion? Or do we instead resolve underlying legal issues by

applying our own view of the law?

      In Dalton v. Commissioner, 

, 156 (1st Cir. 2012), rev'g 

(2010), and T.C. Memo. 2011-136, the Court of Appeals for the First

Circuit described a court's role in CDP cases as "consider[ing] whether the factual

and legal conclusions reached at a CDP hearing are reasonable, not whether they

are correct." Respondent urges us to "follow the reasonableness standard set forth

by the First Circuit in Dalton." Petitioner observes that, because he does not

reside in the First Circuit, we need not follow the doctrine of Golsen v.

Commissioner, 

, 757 (1970), aff'd, 

(10th Cir. 1971), and
                                       -15-

[*15] apply Dalton's reasonableness standard. Petitioner thus urges us instead to

review SO Matthews' legal conclusion de novo.

      This Court has not yet expressly adopted the reasonableness test articulated

by the Court of Appeals in Dalton,6 and the present case does not give us occasion

to do so. For the reasons described below, we conclude that SO Matthews'

determination that Mrs. Hinerfeld held title to the Larchmont residence as

petitioner's nominee was not only reasonable but correct.7




      6
        Citing our opinions in Porro v. Commissioner, T.C. Memo. 2014-81, aff'd,

(11th Cir. 2015), and Jewell v. Commissioner, T.C. Memo.
2016-239, respondent claims that we have "applied the Dalton principles in cases
outside of the First Circuit." In Porro, we did uphold as reasonable an SO's
determination regarding the ownership of property, but that issue proved to be
irrelevant to our disposition of the case. The taxpayers' RCP would have been
more than twice the amount of their offer without regard to the property in issue.
Thus, we noted that, "even if we agreed with * * * [the taxpayers] and disregarded
the value of the * * * [property], it would not affect the outcome of this case."
Porro v. Commissioner, at *17. In Jewell v. Commissioner, at *19, we cited
Dalton v. Commissioner, 

(1st Cir. 2012), rev'g 

(2010),
and T.C. Memo. 2011-156, principally for the proposition that, should the
Commissioner enforce a lien against property held by a corporation that he
claimed to be the taxpayer's nominee, the corporation "may have an opportunity to
assert its ownership and to litigate that question in an appropriate forum."
      7
       Because SO Matthews did not explain her rationale in any detail, we cannot
be sure that our conclusion rests on the analysis she applied. But the prospect that
we might be relying on an analysis that differs from hers does not prevent us from
upholding her determination. See infra part III.C.
                                         -16-

[*16] B.     Scope of Review: The Record Rule

      Regarding the scope of our review, respondent argues that, because

petitioner's underlying liabilities are not at issue, review "should be limited to the

administrative record." In Camp v. Pitts, 

, 142 (1973), the Supreme

Court opined: "In applying * * * [the] standard [provided in 5 U.S.C. sec.

706(2)(A)], the focal point for judicial review should be the administrative record

already in existence, not some new record made initially in the reviewing court."

In Robinette v. Commissioner, 

, 95 (2004), rev'd, 

(8th

Cir. 2006), however, we held that, "when reviewing for abuse of discretion under

section 6330(d), we are not limited by the Administrative Procedure Act * * * and

our review is not limited to the administrative record." We noted that the statutory

provisions governing our traditional deficiency jurisdiction predated the APA and

that, accordingly, the APA's judicial review provisions did not apply to deficiency

cases. And the jurisdiction granted us by section 6330(d) to consider appeals in

CDP cases, we reasoned, is "part and parcel" of the statutory framework granting

us jurisdiction to redetermine deficiencies. 

      The Court of Appeals for the Eighth Circuit reversed our Opinion in

Robinette and held that the record rule applies in CDP cases before this Court.

The court declined to view CDP cases as part and parcel of our traditional, pre-
                                         -17-

[*17] APA deficiency jurisdiction. "Collection due process hearings under

§ 6330", the court observed, "were newly-created administrative proceedings in

1998, and the statute provided for a corresponding new form of limited judicial

review." Robinette v. 

. Two other Courts of

Appeals have concluded that the record rule applies to CDP cases before this

Court. See Keller v. Commissioner, 

, 718 (9th Cir. 2009), aff'g in

part T.C. Memo. 2006-166, and aff'g in part, rev'g in part decisions in related

cases; Murphy v. Commissioner, 

, 31 (1st Cir. 2006), aff'g 

(2005).

      Although all three Courts of Appeals that have considered the issue have

rejected our position that the record rule is inapplicable to CDP cases, we have not

expressly overruled our Opinion in Robinette. Nonetheless, at least two of our

more recent Opinions call into question our rationale in that case.

      In Porter v. Commissioner, 

, 120 (2008), the Commissioner

argued that the Court of Appeals' reversal of our Opinion in Robinette required us

to accept the record rule when reviewing the denial of innocent spouse relief. We

had initially adopted our position regarding the inapplicability of the record rule in

innocent spouse cases in Ewing v. Commissioner, 

(2004), vacated,

(9th Cir. 2006). In Ewing, we noted the similarity in the statutory
                                          -18-

[*18] text granting us jurisdiction in deficiency and innocent spouse cases.

Section 6213(a) gives us jurisdiction to "redetermin[e]" deficiencies. And section

6015(e)(1)(A) gives us jurisdiction to "determine" appropriate innocent spouse

relief. In Porter v. Commissioner, 

, we relied on that same

similarity in statutory text to conclude that "[s]ection 6015 is part and parcel of the

* * * statutory framework" governing our deficiency jurisdiction. We

distinguished Robinette on the ground that "Congress chose not to use the word

'determine' or some derivation thereof in section 6330(d)". 

In doing so,

we implicitly acknowledged that, given the difference in statutory terms, section

6015 can more readily than section 6330(d) be viewed as part and parcel of the

statutory framework governing our traditional, pre-APA deficiency jurisdiction.

      More recently, in Kasper v. Commissioner, 

(2018), we accepted

the applicability of the record rule in cases involving the Commissioner's denial of

whistleblower awards. Among other things, we noted that the jurisdictional

statute, section 7623(b)(4), does not allow us to determine (or redetermine) the

appropriate whistleblower award. It simply allows the Commissioner's

determination regarding a whistleblower award to be "appealed" to this Court. "If

Congress's use of 'determine' was as important as our caselaw tells us it was," we

reasoned, "then the use of 'appeal' in a jurisdictional grant is telling." 

In
                                         -19-

[*19] that regard, we acknowledged that the text of section 6330(d)(1), before its

amendment in December 2015, was "admittedly similar to that in section 7623(b)".

Nonetheless, we allowed that Kasper v. Commissioner, 

n.13, was "not the right case to revisit the record rule's application in CDP cases."

       Nor is the case now before us. As with the issue regarding the standard of

our review, we need not resolve the question of the scope of our review. Whether

or not we limit our review to the administrative record, we would conclude that

SO Matthews correctly took into account the value of the Larchmont residence in

evaluating petitioner's OIC.

III.   Other Preliminary Issues

       A.    Impact of Hinerfeld I

       Before evaluating SO Matthews' determination regarding the nominee issue,

we must address two aspects of Appeals' consideration of the present case that

petitioner claims establish, by themselves, that rejection of his OIC was an abuse

of discretion. First, petitioner alleges that, in Hinerfeld I, the Commissioner

accepted that the transfer of the Larchmont residence had not been fraudulent.

Petitioner claims that Appeals' alleged failure to "follow its own prior conclusions

* * * alone is arbitrary and an abuse of discretion." Respondent counters that "SO

Matthews * * * was under no obligation to reach the same conclusion as that of
                                         -20-

[*20] * * * [the SO in the prior case] regarding the transfer of the Larchmont

residence." We agree. If this Court had concluded in Hinerfeld I that petitioner

retained no interest in the Larchmont residence after his transfer of legal title to his

wife, petitioner might be able to argue that that conclusion was binding for

purposes of the present case under collateral estoppel. But petitioner's counsel,

Mr. Kestenbaum, conceded at trial that we did not address that issue in Hinerfeld I

and that the doctrine of collateral estoppel is thus inapplicable.8

      B.     Form of Deed

      Petitioner also argues that a mischaracterization, in the original notice of

determination, of the deed by which petitioner transferred title to the Larchmont

residence to his wife, evidenced a "mistake of law" that "standing alone, should

constitute an abuse of discretion." Respondent accepts that SO Matthews'

description of petitioner as having "quitclaimed" the Larchmont residence was in

      8
        The SO handling the CDP hearing concerning the levy notice addressed in
Hinerfeld I, 

, concluded that acceptance of Mr. Hinerfeld's offer
would be premature because then-pending litigation might have disclosed the
availability of an additional source of collection. We concluded that, under those
circumstances, Appeals had not abused its discretion in rejecting Mr. Hinerfeld's
OIC. In evaluating Mr. Hinerfeld's offer, Appeals determined that his transfer of
the Larchmont residence to his wife had not been fraudulent. When the
Commissioner sought at trial and on brief to raise the fraudulent transfer issue, we
declined to consider it because "[t]he transfer of the residence * * * played no role
in the determination to reject * * * [Mr. Hinerfeld's] offer-in-compromise". 

n.3.
                                        -21-

[*21] error (notwithstanding the parties' stipulation describing the deed as a

quitclaim deed) but contends that her error was "harmless" because it did not

affect her determination that Mrs. Hinerfeld held the Larchmont property as

petitioner's nominee. Again, we agree with respondent. As petitioner

acknowledges, the distinction among the various types of deeds for conveying

property under New York law relates to the "warranties or covenants made by the

grantor"--a point that has no obvious relevance to the factors on which SO

Matthews based her conclusion.

      C.     Adequacy of Explanation of Appeals' Determination: Chenery

      Petitioner also complains that, "[a]lthough SO Matthews cited to the IRM

and its provisions respecting nominee theories of ownership, the administrative

record discloses no analysis or thoughtful consideration of any of the factors and

fails to apply them in a reasoned way to Petitioner's case". Petitioner's argument

implicates a fundamental doctrine of administrative law drawn from opinions of

the Supreme Court in SEC v. Chenery Corp. (Chenery I), 

(1943), and

SEC v. Chenery Corp. (Chenery II), 

(1947). As articulated by the

Court in Chenery 

, the basic Chenery doctrine posits that "a

reviewing court, in dealing with a determination or judgment which an

administrative agency alone is authorized to make, must judge the propriety of
                                         -22-

[*22] such action solely by the grounds invoked by the agency." And that basic

doctrine has "an important corollary": "If the administrative action is to be tested

by the basis upon which it purports to rest, that basis must be set forth with such

clarity as to be understandable." Id.9

      The Chenery doctrine rests on a proper respect for the separate roles of

administrative agencies and the courts who review their determinations. In

Chenery 

, the Court opined: "If an order is valid only as a

determination of policy or judgment which the agency alone is authorized to make

and which it has not made, a judicial judgment cannot be made to do service for an

administrative judgment. * * * [A]n appellate court cannot intrude upon the

domain which Congress has exclusively entrusted to an administrative agency."

The Court thus drew a clear distinction between acts of administrative discretion,


      9
        As recently as 2011, this Court had not decided whether the Chenery
doctrine applied to our CDP cases. See Rosenbloom v. Commissioner, T.C.
Memo. 2011-140, 

, at *7 n.17 ("[W]e haven't yet addressed the
applicability of Chenery in CDP cases, and we are not going to start in a case
where neither party made the argument."). Since then, however, we have
repeatedly accepted the doctrine's potential application. See Antioco v.
Commissioner, T.C. Memo. 2013-35; Jones v. Commissioner, T.C. Memo. 2012-
274, at *22-*23 (invoking Chenery to justify refusal to consider "post hoc
explanations" for sustaining Appeals' determination); Salahuddin v.
Commissioner, T.C. Memo. 2012-141, 

, at *7 ("[O]ur role
under section 6330(d) is to review actions that the IRS took, not actions that it
could have taken.").
                                        -23-

[*23] in which courts should be reluctant to interfere, and legal determinations,

which are more squarely within the courts' purview:

      If the action rests upon an administrative determination--an exercise
      of judgment in an area which Congress has entrusted to the agency--
      of course it must not be set aside because the reviewing court might
      have made a different determination were it empowered to do so. But
      if the action is based upon a determination of law as to which the
      reviewing authority of the courts does come into play, an order may
      not stand if the agency has misconceived the law.

Chenery 

.

      Although the supplemental notice provides only a conclusory explanation of

SO Matthews' determination that Mrs. Hinerfeld held the Larchmont property as

petitioner's nominee, we can nonetheless uphold that determination without

violating the Chenery doctrine or its corollary adequate explanation requirement.

The reason, simply put, is that the treatment of Mrs. Hinerfeld as her husband's

nominee is a legal issue that is not committed to respondent's administrative

discretion. SO Matthews' failure to explain her reasoning means that, even if we

were to reach the same conclusion she did, we could not be confident that we

would be relying on the same analysis. But our upholding her determination on

grounds that might differ from the precise analysis she employed would not

encroach upon the Commissioner's discretion.
                                         -24-

[*24] The issue of the adequacy of a taxpayer's proposed OIC is obviously one

committed to the Commissioner's administrative discretion. Therefore, we cannot

uphold the rejection of an OIC on grounds other than those on which the agency

relied. It is not for us to say which proposals are acceptable and which are not.

But the agency has already told us that, in the exercise of its discretion, it would

not accept petitioner's OIC if he can be treated as owning the Larchmont

residence. And the question of petitioner's rights in that property is a legal one.

The adequacy of an offer of $x in settlement of a liability of $y made by a taxpayer

with assets of $z is a question for the agency to determine. But whether the assets

available to satisfy the taxpayer's liability are $z or some lesser amount may turn

on "determination[s] of law as to which * * * [our] reviewing authority * * *

come[s] into play". See Chenery 

.10

      10
         If the reasonableness test of Dalton v. 

,
defined the standard of our review, the question of Mrs. Hinerfeld's status as
petitioner's nominee might not be a legal question. As the Court of Appeals for
the First Circuit recognized in Dalton, Appeals' rejection of a taxpayer's OIC
because it does not take into account property held by a third party who may be
the taxpayer's nominee does not definitively resolve the legal issue of the
property's ownership. That question would be resolved only if and when the
Commissioner proceeds against the property, at which time the alleged nominee
would have the opportunity to contest the Commissioner's claim. When Appeals
rejects a taxpayer's OIC because it fails to take into account property held by an
alleged nominee, it merely concludes that the taxpayer is sufficiently likely to have
an interest in the property to warrant its inclusion in the taxpayer's RCP. And that
                                                                         (continued...)
                                         -25-

[*25] Although SO Matthews' failure to articulate her reasoning does not risk our

encroaching on the Commissioner's discretion in violation of the Chenery

doctrine, that failure could still be grounds for remand if it prevented effective

judicial review. The requirement of clear explanations of agency actions is, at

least to some extent, independent of Chenery. Judge Friendly argued that it would

"misconstrue[]" the adequate explanation requirement to treat it as "included

within the 'Chenery doctrine'". Henry J. Friendly, "Chenery Revisited:

Reflections on Reversal and Remand of Administrative Orders," 1969 Duke L.J.

199, 206. To satisfy that part of the adequate explanation requirement that is

independent of Chenery, however, an explanation need not be "a paragon of

clarity". See Bowman Transp. Inc. v. Ark.-Best Freight Sys., Inc., 

,

290 (1974). It need only be sufficient to allow for "effective judicial review".

.

      10
        (...continued)
question--how likely a taxpayer's potential interest in property must be for it to be
included in the taxpayer's RCP--may well be one committed to the Commissioner's
discretion. Even so, we need not determine the applicability of Dalton's
reasonableness test in deciding whether to uphold Appeals' determination in the
present case or instead remand the case for further proceedings. Because we
would conclude on the record before us (whether or not limited to the
administrative record) that, as a matter of law, Mrs. Hinerfeld held the Larchmont
residence as petitioner's nominee, petitioner's interest in that property would
appropriately be taken into account in determining his RCP under any standard of
assessing potential ownership.
                                        -26-

[*26] SO Matthews' explanation of her rejection of petitioner's OIC, though

conclusory, is nonetheless adequate for us to conduct judicial review. We can

assess her conclusion that Mrs. Hinerfeld holds the Larchmont residence as

petitioner's nominee without knowing the precise analysis that led her to that

conclusion.

      Although the APA requires an agency that denies the request of an

interested person made in connection with an agency proceeding to provide

"[p]rompt notice" of that denial that includes "a brief statement of the grounds for

denial", 5 U.S.C. sec. 555(e) (2018), that requirement has been construed as

simply a codification of the more general requirement of adequate explanation for

agency actions originating in caselaw, see Tourus Records, Inc. v. DEA, 

, 737 (D.C. Cir. 2001) (describing 5 U.S.C. sec. 555(e) as a codification of the

"'fundamental' requirement of administrative law" that "an agency 'set forth its

reasons' for decision"). Thus, the 5 U.S.C. sec. 555(e) requirement of a brief

explanatory statement is no more stringent than the general adequate explanation

requirement. A statement complies with 5 U.S.C. sec. 555(e) if it is "sufficiently

detailed * * * [to allow a] reviewing tribunal * * * [to] appraise the agency's

determination under the appropriate standards of review." City of Gillette, Wyo.

v. FERC, 

, 886 (10th Cir. 1984). Because SO Matthews' explanation
                                         -27-

[*27] of her rejection of petitioner's proposed OIC would comply with 5 U.S.C.

sec. 555(e) as well as the more general judicially created administrative law

requirement, the adequacy of her explanation does not give us any more reason

than the question of the scope of our review to reconsider the APA's applicability

to our CDP cases.

IV.   Mrs. Hinerfeld as Petitioner's Nominee

      Having disposed of petitioner's threshold arguments and considered the

standard and scope of our review, we now turn to the ultimate issue the case

presents: whether SO Matthews was correct in treating Mrs. Hinerfeld as holding

title to the Larchmont residence as petitioner's nominee.

      A.     Relevant Factors Under New York Law

      We begin by asking whether New York courts would recognize the nominee

theory on which SO Matthews relied. Although Federal law provides means by

which the Commissioner can proceed against property owned by a delinquent

taxpayer, the question of whether a taxpayer has an interest in particular property

must be answered by State law. See, e.g., United States v. Nat'l Bank of

Commerce, 

, 722 (1985). And it is a "universal" conflicts of laws

principle that "the law of the place where it is situated * * * governs all matters
                                         -28-

[*28] concerning the title and disposition of real property". 16 Am. Jur. 2d,

Conflict of Laws, sec. 22 (2009).

      The District Court for the Southern District of New York acknowledged in

Nassar Family Irrevocable Tr. v. United States, No. 13 Civ. 5680 (ER), 

, at *8 (S.D.N.Y. Sept. 30, 2016), aff'd sub nom. United States v. Nassar,

(2d Cir. 2017), that "New York state courts have not explicitly

applied the nominee theory of ownership in tax cases." As that court went on to

note, however, it and other District Courts in the Second Circuit "have applied the

nominee theory in tax cases where the property interest was governed by New

York law." Id.; see also United States v. Evseroff, No. 00-cv-06029 (KAM), 

, at *9-*13 (E.D.N.Y. Apr. 30, 2012), aff'd, 

(2d Cir.

2013); Giardino v. United States, No. 96-cv-6348T, 

, at *2-*5

(W.D.N.Y. Oct. 29, 1997); Blue Lotus Holdings Ltd., Inc. v. United States,

No. 96-cv-233, 

, at *3-*4 (N.D.N.Y. Oct. 22, 1996); First Corp.

Sedans, Inc. v. United States, No. 94 Civ. 7642 (DC), 

, at *4

(S.D.N.Y. Apr. 1, 1996). In determining whether a titleholder is really a nominee

for a delinquent taxpayer, the court in each cited case applied a six-factor test

drawn from LiButti v. United States, 

(N.D.N.Y. 1995), vacated

and remanded, 

(2d Cir. 1997).
                                        -29-

[*29] LiButti was a wrongful levy suit brought by Edith LiButti to challenge the

Government's efforts to collect tax owed by her father, Robert, by levying on a

racehorse, Devil His Due, which it claimed she held as his nominee. Although

Edith and her father were New Jersey residents, Edith brought suit in the District

Court for the Northern District of New York because the IRS had seized Devil His

Due when the horse was in Saratoga to run in the Whitney Handicap. Because the

court determined that New Jersey had a stronger interest in the case than did New

York, it concluded that conflict of laws principles required it to "apply New Jersey

law, when possible". 

But the court found "no reported cases

addressing the factors relevant to the nominee theory from New Jersey". 

With the parties' agreement, the court therefore applied six factors drawn

from caselaw in various jurisdictions by the District Court for the District of

Montana in Towe Antique Ford Found. v. IRS, 

, 1454 (D. Mont.

1992). As listed by the court in LiButti, those factors are:

      (1) whether inadequate or no consideration was paid by the nominee;
      (2) whether the property was placed in the nominee's name in
      anticipation of a lawsuit or other liability while the transferor remains
      in control of the property; (3) whether there is a close relationship
      between the nominee and transferor; (4) whether the * * * [parties]
                                        -30-

[*30] failed to record the conveyance; (5) whether the transferor retains
      possession; and (6) whether the transferor continues to enjoy the
      benefits of the transferred property. * * *

.11

      B.     Application of Factors

      For the reasons explained below, consideration of the six LiButti factors

supports SO Matthews' conclusion that Mrs. Hinerfeld holds the Larchmont

residence as her husband's nominee.




      11
         On the facts before it, the court in LiButti v. United States, 

(N.D.N.Y. 1995), vacated and remanded, 

(2d Cir. 1997), found
only one of the listed factors (close relationship) to be present and thus concluded
that Edith LiButti did not hold Devil His Due as her father's nominee. The court
also rejected the Government's argument that the stable business that owned the
horse was an alter ego of Mr. LiButti on the grounds that the alter ego theory
applied only to pierce the veil of a corporation and could not be applied to impute
property of a proprietorship to its owner. On appeal, the Court of Appeals for the
Second Circuit viewed the District Court as having evidenced "an over-rigid
'preoccupation with questions of structure'". 

(quoting
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 

, 18 (2d Cir.
1996)). The appellate court reasoned that "if Robert dominated and controlled
Lion Crest [the stable] he should not be able to escape his tax liabilities simply
because it was not incorporated, and he chose, instead, to constitute his daughter
as his unincorporated business' nominee." 

        1.    Adequacy of Consideration

        Petitioner has not established that Mrs. Hinerfeld paid any consideration for

the Larchmont residence.12 None of the payments made by Mrs. Hinerfeld that

petitioner and his attorney have, at various times, claimed to be the consideration

for that transfer were made contemporaneously with the deed by which petitioner

transferred to his wife title to the Larchmont residence. The record includes no

written documentation that specifically identifies those payments as bargained-for

consideration for Mrs. Hinerfeld's acquisition of the residence.

        Although petitioner and his attorney made conflicting claims about which of

Mrs. Hinerfeld's payments in satisfaction of petitioner's liabilities constituted

consideration for petitioner's transfer of the residence, they both ended up singling

out Mrs. Hinerfeld's March 2002 payment of $300,000 to Commerce Bank and her

$750,000 payment to Fleet Bank the following November. Petitioner would thus

have us believe that he and his wife entered into an agreement no later than March

2002 for her to acquire the Larchmont residence and that his conveyance to her in

February 2003 satisfied a preexisting obligation. New York law requires contracts

for the sale of real estate to be in writing, N.Y. Gen. Oblig. Law sec. 5-703(2)

        12
        Petitioner has the burden of proving that SO Matthews abused her
discretion in rejecting his OIC. See Rule 142(a); Titsworth v. Commissioner, T.C.
Memo. 2012-12, 

, at *6.
                                        -32-

[*32] (McKinney 2018) ("A contract for * * * the sale * * * of any real property

* * * is void unless the contract or some note or memorandum thereof, expressing

the consideration, is in writing, subscribed by the party to be charged, or by his

lawful agent thereunto authorized by writing."), and the record provides no

evidence that petitioner and his wife committed their alleged agreement to writing.

If petitioner and Mrs. Hinerfeld had entered into an oral agreement requiring him

to transfer to her title to the Larchmont residence in consideration of the payments

she made in March and November 2002, her part performance of that agreement

might have enabled her to have a court compel petitioner's transfer of title despite

the absence of a written agreement. See 

("Nothing contained in

this section abridges the powers of courts of equity to compel the specific

performance of agreements in cases of part performance."). But the conflicting

claims made by petitioner, his wife, and his attorney regarding the precise terms of

the alleged agreement provide grounds for skepticism about the existence of an

agreement with sufficiently clear terms to be specifically enforced.

      In short, even considering the additional evidence presented at trial,13 the

record does not establish a clear enough nexus between petitioner's transfer of title

      13
        If we were to decline to consider the Hinerfelds' trial testimony, we would
have no explanation at all of the discrepancy in timing between the transfer of title
and the payments that allegedly provided consideration for that transfer.
                                         -33-

[*33] to the Larchmont residence and specific payments by Mrs. Hinerfeld for us

to accept those payments as bargained-for consideration.

             2.     Transfer With Retained Control in Anticipation of Liability

      Although Mrs. Hinerfeld admitted at trial that she had acquired title to the

Larchmont residence to protect it from petitioner's creditors, petitioner argues that

the second LiButti factor does not apply in the present case because "[t]he

Larchmont residence was transferred to Ruth three years prior to the assessment of

the tax liabilities in issue, and without any knowledge of the same." As articulated

by the court in 

, however, the factor applies if the

transfer was made "in anticipation of a lawsuit or other liability". The transfer

need not have been made in anticipation, or to avoid the collection, of the specific

liability that the Commissioner seeks to have satisfied.

      In the case of a transfer of title to residential property from one occupant to

another, it is not obvious how one goes about determining whether the transferor

retained "control" of the property after the transfer. The location of legal title

would be unlikely to have a significant practical impact on the residents' use and

enjoyment of the property.

      Perhaps in recognition of that reality, the Federal District Courts in the

Second Circuit, in applying the LiButti factors, have tended to equate possession
                                            -34-

[*34] and control. For example, in Evseroff, 

, at *11, the

District Court for the Eastern District of New York wrote: "Evidence in the record

indicates that the second factor is satisfied in that * * * the property was

transferred in anticipation of Evseroff's liability to the IRS and possibly his

estranged wife, and Evseroff remained in possession and control of the Dover

Street Residence." In Nassar Family Irrevocable Tr., the District Court for the

Southern District of New York concluded that a trust to which a taxpayer had

transferred an apartment held that property as the taxpayer's nominee. The court

began its analysis by stating its finding "that the undisputed evidence demonstrates

that * * * [the taxpayer] has exercised complete control over the Apartment and

has retained all the benefits of ownership, suggesting that he, not the Trust, is the

true owner of the property." Nassar Family Irrevocable Tr., 

,

at *9. But at no point in its analysis did the court differentiate between possession

and control. (In discussing the second LiButti factor, the court referred only to

evidence that the taxpayer transferred the apartment to the trust in anticipation of

the tax liabilities in issue and other liabilities.)

       Without citing any caselaw on point, respondent seems to follow the same

tack: essentially equating possession and control. In listing the reasons to believe

that petitioner retained control over the Larchmont residence, respondent notes
                                          -35-

[*35] that petitioner and Mrs. Hinerfeld have lived there since 1968 and that

petitioner continued to pay at least some of the expenses relating to the property

after transferring title to his wife. On the premise that Mrs. Hinerfeld acted at

petitioner's direction in satisfying his liabilities, respondent asks us to infer that

she also acted at his direction in paying household expenses. Petitioner counters:

"[T]he fact that * * * [he] minimally supported the residence by paying

insignificant expenses cannot be enough to establish his 'control over the

property'".

      But petitioner has failed to identify any respect in which his transfer to his

wife of legal title to the Larchmont residence materially affected their use of the

property. As respondent argues: "There is no indication in the record that the

'transfer' of the Larchmont residence to Mrs. Hinerfeld affected Petitioner's use of

the property in any way." Certainly, petitioner remained in possession of the

property. To the extent that possession can be equated with control, he also

retained control of the property. And, again, Mrs. Hinerfeld admitted that she

acquired title to the property in an effort to shield it from petitioner's creditors.14

      14
        The administrative record alone provides sufficient evidence to support a
conclusion that the Larchmont residence was placed in Mrs. Hinerfeld's name in
anticipation of a lawsuit or other liability. SO Matthews, of course, did not have
Mrs. Hinerfeld's trial testimony before her. SO Matthews seems to have inferred
                                                                       (continued...)
                                        -36-

[*36] For those reasons, we conclude that the second LiButti factor also weighs in

favor of viewing Mrs. Hinerfeld as holding the Larchmont residence as petitioner's

nominee.

             3.    Close Relationship

      Petitioner admits that he and his wife have a "close relationship" but claims

that, under the circumstances, their relationship ought to be a "neutral" factor. As

he articulates his argument: "Although there is a 'close relationship' between the

alleged nominee (Ruth) and Petitioner; and although Petitioner resides in the

residence and enjoys its benefits, considering the marital relationship, and the fact




      14
        (...continued)
from the fact that the transfer of title to the Larchmont residence occurred while
Thermacon's employment taxes were accruing that petitioner made the transfer to
protect the residence from his personal liability for those taxes. Because she
purported to apply the factors listed in IRM pt. 5.17.2.5.7.2(3), she apparently felt
she had to establish that the transfer was "for tax avoidance purposes". But
respondent did not assess any of the liabilities in issue until February 27, 2006,
and the record provides no evidence that petitioner was aware of Thermacon's
unpaid employment taxes before that date. In any event, under the LiButti factors,
the relevant question is not whether the transfer in issue was motivated by a desire
to avoid the particular tax liabilities in issue but simply whether the transfer was
made to protect the property from liabilities. And the administrative record
provides plenty of evidence that petitioner's transfer to his wife of title to the
Larchmont residence was related to his and Thermacon's financial difficulties.
Indeed, petitioner insisted to SO Matthews that his wife's payment of liabilities
served as the consideration for the transfer.
                                         -37-

[*37] that Ruth paid for almost all costs respecting the residence, it is submitted

that these are neutral factors."

      Petitioner's reasoning seems to be grounded on the premise that, whenever

one spouse transfers a joint residence to the other, the transferor's continued use

and enjoyment of the residence is to be expected. Given their relationship, the

transferee is unlikely to send the transferor packing after securing title to the

residence. The Court of Appeals for the Second Circuit recognized this reality in a

bankruptcy case when it rejected the creditors' argument that the debtor's residing

at property purchased by his wife and transferred to a trust evidences that the

debtor was the property's equitable owner. Babitt v. Vebeliunas (In re

Vebeliunas), 

(2d Cir. 2003). As the court observed: "[T]he mere fact

that the debtor lived at Lattingtown Estate, along with his wife and family, without

paying rent does not divest * * * [the wife] or the * * * [t]rust of ownership of the

property, because a homeowner would be expected to allow her spouse and

children to live rent-free in her home." 

And we ourselves have noted

that "[c]ourts * * * must be cognizant of letting a close relationship take

precedence over all of the other factors" in determining whether a relative acts as

nominee for a transferor. Dalton v. Commissioner, 

.
                                         -38-

[*38] Certainly, "a close relationship between grantor and grantee does not

necessarily make the grantee the grantor's nominee." 

the close

relationship factor neutral, as petitioner suggests, would go too far in the other

direction. When other factors weigh in favor of treating one related party as the

other's nominee, as in petitioner's case, the parties' relationship can and should

provide further support for that treatment.

             4.     Recording of Conveyance

      Although the copy of the deed by which petitioner transferred to his wife

title to the Larchmont residence that is included in the record bears no evidence of

recording, respondent does not contest petitioner's claim that "[t]he deed reflecting

the transfer was properly recorded." On the basis of respondent's concession, we

will treat the fourth LiButti factor as weighing against viewing Mrs. Hinerfeld as

petitioner's nominee in holding title to the Larchmont residence.

             5.     Retention of Possession and Continued Enjoyment of the
                    Transferred Property

      In the case of property used as a residence, possession and continued

enjoyment amount to the same thing. Thus, in the present case, the fifth and sixth

LiButti factors collapse into one. And those factors both weigh in favor of

treating Mrs. Hinerfeld as petitioner's nominee in holding title to the property. As
                                         -39-

[*39] noted above, there is no evidence in the record that petitioner's transfer to

his wife of title to the Larchmont residence significantly affected his possession or

enjoyment of the property.

V.    Conclusion

      Because all of the LiButti factors other than the recording of the deed weigh

in favor of treating Mrs. Hinerfeld as petitioner's nominee in holding title to the

Larchmont residence, SO Matthews' determination to that effect was not only

reasonable but correct. Petitioner transferred the property to a person--his wife--

with whom he had a close relationship. He failed to establish that Mrs. Hinerfeld

paid adequate consideration for the property. Mrs. Hinerfeld admitted at trial that

title to the Larchmont residence was placed in her name to protect the property

from her husband's creditors (and the administrative record before SO Matthews

gave her grounds to infer that to have been the case). Finally, petitioner failed to

identify any respect in which the transfer of legal title to the residence affected his

use or enjoyment of the property. Because Mrs. Hinerfeld can appropriately be
                                        -40-

[*40] treated as petitioner's nominee in holding title to the Larchmont residence,

SO Matthews did not abuse her discretion in rejecting an OIC that did not reflect

the value of that property.


                                               Decision will be entered for

                                       respondent.