As reflected on schedule C, petitioner claimed his interest in the pension was excluded from the bankruptcy estate pursuant to 11 U.S.C. sec. 541(c)(2) (2006), which provides: "A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a [bankruptcy] case", as interpreted in Patterson v. Shumate, 504 U.S. 753">504 U.S. 753, 504 U.S. 753">758-759, 112 S. Ct. 2242">112 S. Ct. 2242, 119 L. Ed. 2d 519">119 L. Ed. 2d 519 (1992). ^{32010 U.S. Tax Ct. LEXIS 17">*22} Alternatively, petitioner claimed the pension was 134 T.C. 280">*283 exempt property under 11 U.S.C. sec. 522(b)(2) (2006) and Cal. Civ. Proc. Code sec. 703.140(b)(10)(E) (West 2009), ^{42010 U.S. Tax Ct. LEXIS 17">*23} if and to the extent the pension was properly includable in the bankruptcy estate.

When petitioner filed for bankruptcy, he was fully vested in 2010 U.S. Tax Ct. LEXIS 17">*24 his pension, but the pension was not yet in payout status and did not contain a lump-sum or similar option that would have permitted petitioner to withdraw funds from the pension before reaching retirement age. Petitioner's right to receive monthly payments of $ 1,242.13 under the pension matured on November 1, 2007.

On December 8, 2005, petitioner received a discharge in the bankruptcy case. Petitioner's 2001 Federal income tax liability was included in the discharge.

On August 31, 2006, respondent mailed petitioner a notice of intent to levy on petitioner's pension income to collect petitioner's unpaid 2000 Federal income tax liability. On November 16, 2006, however, respondent withdrew the notice of intent to levy.

On January 29, 2007, more than 9 months before petitioner's pension entered payout status, respondent mailed petitioner a Final Notice--Notice of Intent to Levy and Notice of Your Right to a Hearing (notice of intent to levy) 134 T.C. 280">*284 with respect to petitioner's 2001 tax liability. The notice of intent to levy stated in pertinent part as follows:

You have received a discharge under Chapter 7 of the Bankruptcy Code. Thus, you are relieved from personal liability for the following 2010 U.S. Tax Ct. LEXIS 17">*25 tax liabilities:

Although the notice of intent to levy does not expressly identify the pension, the parties have stipulated that the pension is the prepetition property on which respondent plans to enforce his levy. Neither party disputes that the pension is to be paid pursuant to a qualified plan under the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat. 829, or that the plan is subject to the antialienation provision of ERISA sec. 206(d)(1), 88 Stat. 864 (current version at 29 U.S.C. sec. 1056(d)(1) (2006)).

134 T.C. 280">*285 On or about February 12, 2007, petitioner timely filed a Form 12153, Request for a Collection Due Process Hearing, objecting to the proposed levy. Petitioner did not challenge the existence or amount of the 2001 tax liability. Instead, petitioner 2010 U.S. Tax Ct. LEXIS 17">*27 raised five contentions relating to the appropriateness of respondent's proposed collection action: (1) Respondent had issued a levy notice for a similar amount on August 31, 2006, and released the levy on November 16, 2006; (2) the notice of intent to levy referenced the same retirement payments addressed in the November 16, 2006, release and was inconsistent as to the tax year and amount due; ⁵ (3) petitioner had not received an analysis regarding what property, if any, secured respondent's claim on petitioner's discharged taxes; (4) because petitioner's pension was not property to which petitioner was entitled at the time of the bankruptcy filing, the pension was not property to which respondent's lien could attach; and (5) petitioner's liability for the unpaid 2001 Federal income tax was discharged in bankruptcy on December 8, 2005.

Adlai Climan (Mr. Climan), 2010 U.S. Tax Ct. LEXIS 17">*28 a settlement officer in the Internal Revenue Service (IRS) Office of Appeals, was assigned to handle petitioner's section 6330 hearing. During a conversation with Mr. Climan that was part of the hearing process, petitioner argued that respondent could not levy on petitioner's pension income because his 2001 tax liability was discharged in bankruptcy and respondent had released a similar levy on petitioner's interest in his pension. ⁶ Petitioner did not propose any collection alternatives, such as an offer-in-compromise or an installment agreement, or provide any financial information, such as a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. ⁷

After his conversation with petitioner, Mr. Climan reviewed Form 4340, Certificate of Assessments, Payments, 2010 U.S. Tax Ct. LEXIS 17">*29 and Other Specified Matters, for petitioner's 2001 taxable 134 T.C. 280">*286 year, reviewed financial information contained in petitioner's 2003-2005 Federal income tax returns, and consulted the applicable national and local standards. From this information Mr. Climan calculated petitioner's ability to pay the 2001 tax liability. In making his calculations Mr. Climan assumed that petitioner would continue to work for the same compensation he had earned in 2005. Mr. Climan calculated petitioner's monthly income by dividing the wage income reported on petitioner's 2005 return by 12. From his calculations Mr. Climan determined: (1) "[Petitioner] has more than sufficient income to live on [and] attachment of the pension income will not create a financial hardship"; (2) the proposed levy was necessary for payment of the subject liability; and (3) the proposed levy would balance the Government's need to collect the tax with petitioner's legitimate concern that any collection action be no more intrusive than necessary. Accordingly, Mr. Climan determined that the proposed levy should be sustained.

On April 10, 2007, the Office of Appeals issued a Notice of Determination Concerning Collection Action(s) Under 2010 U.S. Tax Ct. LEXIS 17">*30 Section 6320 and/or 6330 (notice of determination) sustaining the proposed levy. The notice of determination was accompanied by an "Appeals Case Memo" (memorandum) in which the Appeals Office briefly explained its decision. With respect to the filing of an NFTL, the memorandum stated as follows:

Notices of Federal Tax Lien were filed as follows:

In the section of the memorandum devoted to specific issues, the Appeals Office provided the following explanation regarding its conclusion that respondent may pursue petitioner's pension:

134 T.C. 280">*287 the government 2010 U.S. Tax Ct. LEXIS 17">*31 may not attach any of Wadleigh's future earnings or assets he has retained after the bankruptcy discharge for the years 2000 and 2001.

The government, however, is not precluded from attaching (or levying) assets excluded from the bankruptcy, in this case, Wadleigh's pension plan. See 11 USC section 541; certain retirement savings accounts or pension plans may be excluded from the bankruptcy estate.

This issue has been discussed in 2006 TNT 167-19, and IRM 5.9.2.9.1.1 in that it is not even required that a Notice of Federal Tax Lien be filed for the government to be allowed to proceed in this fashion (NFTLs were filed in Wadleigh's case). Thus, the government may proceed against Wadleigh's pension income for both of the years 2000 and 2001, and the issuance of the Letter 4066 regarding 2001 is appropriate.

Petitioner timely filed a petition with this Court asking us to review the Appeals Office's determination.

The Commissioner may not levy on a taxpayer's property or rights to property unless he has first notified the taxpayer in writing of his right to request a hearing under section 6330. Sec. 6330(a). If the taxpayer requests a hearing under section 6330(a)2010 U.S. Tax Ct. LEXIS 17">*32 (hereinafter hearing), the hearing shall be conducted by an impartial officer or employee of the IRS Office of Appeals. Sec. 6330(b)(1), (3). At the hearing the taxpayer may raise any relevant issue relating to the Commissioner's proposed collection activity, including (1) appropriate spousal defenses, (2) challenges to the appropriateness of collection action, and (3) offers of collection alternatives. Sec. 6330(c)(2)(A); Sego v. Commissioner, 114 T.C. 604">114 T.C. 604, 114 T.C. 604">609 (2000); Goza v. Commissioner, 114 T.C. 176">114 T.C. 176, 114 T.C. 176">180 (2000). The taxpayer may challenge the existence or amount of the underlying tax liability only if the taxpayer did not receive a notice of deficiency for such liability or did not otherwise have an opportunity to dispute the liability. Sec. 6330(c)(2)(B).

Following a hearing, the Appeals Office must issue a notice of determination regarding the validity of the proposed collection action. In making the determination the Appeals Office must take into consideration: (1) Verification presented by the Secretary that the requirements of applicable 134 T.C. 280">*288 law and administrative procedure have been met; (2) relevant issues raised by the taxpayer; and (3) whether the proposed collection action 2010 U.S. Tax Ct. LEXIS 17">*33 appropriately balances the need for efficient collection of taxes with the taxpayer's legitimate concerns regarding the intrusiveness of the proposed collection action. Sec. 6330(c)(3).

We have jurisdiction to review a notice of determination. Sec. 6330(d)(1). If the validity of the underlying tax liability was properly at issue in the hearing, we review the determination regarding liability de novo. 114 T.C. 604">Sego v. Commissioner, supra at 610; 114 T.C. 176">Goza v. Commissioner, supra at 181-182. We review any other determination for abuse of discretion. 114 T.C. 604">Sego v. Commissioner, supra at 610; 114 T.C. 176">Goza v. Commissioner, supra at 182. A determination will not constitute an abuse of discretion unless it is arbitrary, capricious, or without sound basis in fact or law. See Swanson v. Commissioner, 121 T.C. 111">121 T.C. 111, 121 T.C. 111">119 (2003) (if Commissioner's determination based on erroneous legal interpretation, determination may be set aside as abuse of discretion); Woodral v. Commissioner, 112 T.C. 19">112 T.C. 19, 112 T.C. 19">23 (1999).

Petitioner did not challenge the existence or amount of his 2001 tax liability at his hearing or at trial. However, he does challenge the determination to proceed with collection. In challenging the determination 2010 U.S. Tax Ct. LEXIS 17">*34 petitioner has raised several issues that require us to decide the legal effect of the section 6321 statutory lien during and after a bankruptcy proceeding and related legal questions. When we are faced with a question of law, the standard of review has no impact on our analysis because under either standard an erroneous legal determination must be rejected. Kendricks v. Commissioner, 124 T.C. 69">124 T.C. 69, 124 T.C. 69">75 (2005); 121 T.C. 111">Swanson v. Commissioner, supra at 119. Even if we characterize the applicable standard of review as abuse of discretion, we do not uphold a discretionary determination that is infected by a material error of law. 124 T.C. 69">Kendricks v. Commissioner, supra at 75; 121 T.C. 111">Swanson v. Commissioner, supra at 119.

When reviewing a notice of determination for abuse of discretion under section 6330(d), we have held that in some circumstances we may consider evidence that was presented at trial but was not included in the administrative record. Robinette v. Commissioner, 123 T.C. 85">123 T.C. 85, 123 T.C. 85">101 (2004), revd. 439 F.3d 455">439 F.3d 455, 439 F.3d 455">460-462 (8th Cir. 2006). Respondent invites us to overrule our Opinion in Robinette and limit our review to the administrative record. We decline respondent's invitation to 2010 U.S. Tax Ct. LEXIS 17">*35 overrule our holding in Robinette because the scope of review does not materially affect the outcome at this time, given our conclusion to remand this case for further proceedings.

Before turning to our review of respondent's notice of determination, we must first examine the scope of the section 6321 lien, the effect of a discharge in bankruptcy on an otherwise valid section 6321 lien where the Commissioner fails to file a valid NFTL, and the Commissioner's ability to levy pursuant to section 6331 on property that is subject to a section 6321 lien, in order to determine whether respondent may levy on petitioner's interest in his pension.

If any person liable to pay any tax neglects or refuses to pay the tax upon notice and demand, the amount of the tax (together with any costs, penalties, and interest) shall be a lien in favor of the United States on all property and rights to property belonging to the taxpayer. Sec. 6321; sec. 301.6321-1, Proced. & Admin. Regs. A person's liability to pay a tax is established by assessment, which is the formal recording of a liability in the records of the Commissioner. Secs. 6201, 2010 U.S. Tax Ct. LEXIS 17">*36 6203. The notice and demand requirement in section 6321 refers to the action required by section 6303, which provides that the Commissioner, as soon as practicable and within 60 days of assessment, must provide written notice, stating the amount of the liability and demanding payment thereof, to each person liable for the unpaid tax.

When a taxpayer fails to pay an assessed tax liability after receiving a notice and demand for payment, the section 6321134 T.C. 280">*290 lien arises by operation of law and continues until the liability is satisfied or becomes unenforceable by lapse of time. ⁸Sec. 6322. The section 6321 lien attaches to all property and rights to property belonging to the taxpayer, including property acquired by the taxpayer after the lien arises. Sec. 6321; Glass City Bank v. United States, 326 U.S. 265">326 U.S. 265, 326 U.S. 265">268-269, 66 S. Ct. 108">66 S. Ct. 108, 90 L. Ed. 56">90 L. Ed. 56, 1945 C.B. 330">1945 C.B. 330 (1945). An unqualified right to receive property in the future is itself a property right to which the section 6321 lien attaches. See United States v. Natl. Bank of Commerce, 472 U.S. 713">472 U.S. 713, 472 U.S. 713">725, 105 S. Ct. 2919">105 S. Ct. 2919, 86 L. Ed. 2d 565">86 L. Ed. 2d 565 (1985); Connor v. United States, 27 F.3d 365">27 F.3d 365, 27 F.3d 365">366 (9th Cir. 1994). However, the section 6321 lien is not valid against a purchaser, holder of a security interest, mechanic's lienor, or 2010 U.S. Tax Ct. LEXIS 17">*37 judgment lien creditor until an NFTL has been filed. Sec. 6323(a).

Petitioner filed a 2001 Federal income tax return on August 16, 2002, that showed a Federal income tax liability and a balance due. Respondent assessed the liability and issued a timely notice and demand for payment on September 16, 2002. By reason of the above, a section 6321 lien attached to all of petitioner's property, including his pension income, notwithstanding that the pension had not yet entered payout status. See sec. 6321. However, respondent never filed a valid NFTL with respect to petitioner's 2001 Federal income tax liability. Respondent concedes the 2001 NFTL was recorded in error and withdrawn, and we infer from the record that respondent did not subsequently file a valid NFTL with respect to the 2001 tax liability. We find, therefore, that respondent has only a section 6321 lien with respect to petitioner's 2001 tax liability.

The purpose of bankruptcy is to give the debtor a fresh 2010 U.S. Tax Ct. LEXIS 17">*38 start by discharging many of the debtor's liabilities. Carlson v. Commissioner, 116 T.C. 87">116 T.C. 87, 116 T.C. 87">101 (2001). When a bankruptcy court enters a discharge order in a bankruptcy proceeding, the debtor is discharged from personal liability for all dischargeable debts. 11 U.S.C. sec. 524(a) (2006). However, liens and other secured interests generally survive bankruptcy. Farrey v. Sanderfoot, 500 U.S. 291">500 U.S. 291, 500 U.S. 291">297, 111 S. Ct. 1825">111 S. Ct. 1825, 114 L. Ed. 2d 337">114 L. Ed. 2d 337 (1991). 134 T.C. 280">*291 Thus, a discharge in bankruptcy will not necessarily prevent the postdischarge enforcement of a valid prepetition lien on any prepetition property of the debtor that survived the bankruptcy. Isom v. United States, 901 F.2d 744">901 F.2d 744, 901 F.2d 744">745 (9th Cir. 1990). "[A] bankruptcy discharge extinguishes only one mode of enforcing a claim--namely, an action against the debtor in personam--while leaving intact another--namely, an action against the debtor in rem." Johnson v. Home State Bank, 501 U.S. 78">501 U.S. 78, 501 U.S. 78">84, 111 S. Ct. 2150">111 S. Ct. 2150, 115 L. Ed. 2d 66">115 L. Ed. 2d 66 (1991); Iannone v. Commissioner, 122 T.C. 287">122 T.C. 287, 122 T.C. 287">292-293 (2004). We must examine whether petitioner's pension interest was prepetition property that survived the bankruptcy and whether the section 6321 lien that was not perfected by the filing of a valid NFTL is a valid prepetition lien that survived 2010 U.S. Tax Ct. LEXIS 17">*39 the bankruptcy.

The filing of a petition in bankruptcy automatically creates a bankruptcy estate consisting of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. sec. 541(a)(1) (2006). The bankruptcy estate includes all of the debtor's prepetition property and rights to property except property excluded from the estate under 11 U.S.C. sec. 541 (2006). Title 11 U.S.C. sec. 541(c)(2), as interpreted in Patterson v. Shumate, 504 U.S. 753">504 U.S. at 760, ⁹ permits a debtor to exclude an interest in an ERISA-qualified pension plan from his bankruptcy estate. ^{102010 U.S. Tax Ct. LEXIS 17">*40 2010 U.S. Tax Ct. LEXIS 17">*41}

134 T.C. 280">*292 Title 11 U.S.C. sec. 522 allows a debtor to exempt from his bankruptcy estate a personal residence, a car, certain property used in a trade or business, retirement funds, and certain other assets, to ensure that the debtor has at least some property with which to make a fresh start. 116 T.C. 87">Carlson v. Commissioner, supra at 102. Exempt property initially is part of the debtor's bankruptcy estate, see Taylor v. Freeland & Kronz, 503 U.S. 638">503 U.S. 638, 503 U.S. 638">642, 112 S. Ct. 1644">112 S. Ct. 1644, 118 L. Ed. 2d 280">118 L. Ed. 2d 280 (1992), but is removed from the bankruptcy estate (and is therefore unavailable to satisfy creditors' claims) for the benefit of the debtor as a result of 2010 U.S. Tax Ct. LEXIS 17">*42 the debtor's exemption, Pasquina v. Cunningham, 513 F.3d 318">513 F.3d 318, 513 F.3d 318">323 (1st Cir. 2008). Property that is exempt from the bankruptcy estate pursuant to 11 U.S.C. sec. 522 is not available to satisfy prepetition debts during or after the bankruptcy, except debts secured by liens that are not avoided in the bankruptcy and section 6321 liens with respect to which an NFTL has been filed. 11 U.S.C. sec. 522(c).

Unlike exempt property, which is part of a debtor's bankruptcy estate but is unavailable to satisfy creditors' claims, excluded property never becomes part of the bankruptcy estate and is therefore never subject to the bankruptcy trustee's or the debtor's power to avoid the section 6321 lien. See U.S. IRS v. Snyder, 343 F.3d 1171">343 F.3d 1171, 343 F.3d 1171">1178-1179 (9th Cir. 2003); Traina v. Sewell, 180 F.3d 707">180 F.3d 707, 180 F.3d 707">710 (5th Cir. 1999). Thus, if a section 6321 lien on excluded property has not expired or become unenforceable under section 6322, it survives the bankruptcy. ¹¹

Petitioner 2010 U.S. Tax Ct. LEXIS 17">*43 was granted a discharge in bankruptcy on December 8, 2005. The discharge included petitioner's 2001 tax liability. On schedule C of his bankruptcy petition, petitioner contended that his pension was excluded from the bankruptcy estate pursuant to 11 U.S.C. sec. 541(c)(2) and Patterson v. Shumate, 504 U.S. 753">504 U.S. 753, 112 S. Ct. 2242">112 S. Ct. 2242, 119 L. Ed. 2d 519">119 L. Ed. 2d 519 (1992). Alternatively petitioner claimed that his pension was exempt property, but only if and to the extent that his pension was includable in the bankruptcy estate. On the basis of the record before us and our review of 11 U.S.C. sec. 541, we conclude that petitioner's 134 T.C. 280">*293 pension was properly excludable from his bankruptcy estate under 11 U.S.C. sec. 541(c)(2) and 504 U.S. 753">Patterson v. Shumate, supra at 765, and that petitioner excluded the pension from his bankruptcy estate. As a result, the section 6321 lien that attached to the pension before bankruptcy continued to attach to petitioner's interest in his pension even after petitioner's personal liability for his 2001 tax liability was discharged in bankruptcy.

Section 6331(a) provides:

SEC. 6331(a). Authority of Secretary.--If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice 2010 U.S. Tax Ct. LEXIS 17">*44 and demand, it shall be lawful for the Secretary to collect such tax * * * by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien * * * ¹²

Once the Commissioner has assessed a Federal tax liability and given the requisite notice, he may collect the unpaid tax by levy on "all property and rights to property" belonging to the taxpayer. See sec. 6331(a). However, the Commissioner must stand in the taxpayer's shoes; he acquires through levy only those property rights that the taxpayer himself possesses. United States v. Novak, 476 F.3d 1041">476 F.3d 1041, 476 F.3d 1041">1062 (9th Cir. 2007). Thus, if the Commissioner levies on a taxpayer's pension, he will receive property from the levy only if the 2010 U.S. Tax Ct. LEXIS 17">*45 pension is already in payout status or the taxpayer has the right to demand a lump-sum distribution of his pension interest. Id.; see also 343 F.3d 1171">U.S. IRS v. Snyder, supra at 1175 (IRS cannot, outside bankruptcy, enforce its lien on debtor's interest in ERISA-qualified plan until plan enters payout status).

Section 6330(c)(1) requires the hearing officer to obtain verification from the Secretary that the requirements of applicable law and administrative procedure have been met. The record shows that Mr. Climan verified the following: (1) Petitioner had an unpaid Federal income tax liability for 2001; (2) respondent properly assessed petitioner's 2001 tax liability as required by section 6203; (3) respondent timely mailed petitioner a notice and demand for payment as required by section 6303; (4) petitioner neglected or refused to pay his 2001 liability; and (5) respondent mailed petitioner a notice of intent to levy and a notice of his right to request a hearing as required by sections 6330 and 6331(d). Mr. Climan correctly concluded that petitioner's 2001 tax liability had been discharged in bankruptcy 2010 U.S. Tax Ct. LEXIS 17">*46 and that respondent was barred from attaching any of petitioner's future earnings or postpetition assets to satisfy the 2001 liability. However, Mr. Climan also determined that respondent was not precluded from levying on any prepetition property that was excluded from petitioner's bankruptcy estate (in this case, petitioner's pension).

Petitioner contends that respondent failed to follow applicable law and administrative procedure. Specifically, petitioner argues that respondent failed to follow the step-by-step instructions provided in the Internal Revenue Manual before levying on money accumulated in a pension or retirement plan. See 1 Administration, Internal Revenue Manual (IRM) (CCH), pt. 5.11.6.2, at 16,798-16,801 (Mar. 15, 2005). A review of relevant IRM provisions is instructive in ascertaining the procedures the IRS expects its employees to follow in deciding whether to levy on a taxpayer's interest in a pension plan or other retirement account. ^{132010 U.S. Tax Ct. LEXIS 17">*47}

134 T.C. 280">*295 The IRM "serves as 2010 U.S. Tax Ct. LEXIS 17">*48 the single, official source of IRS 'instructions to staff' relating to the administration and operation of the Service." IRM pt. 1.11.2.2(1) (Apr. 1, 2007). ^{142010 U.S. Tax Ct. LEXIS 17">*49} It "provides a central repository of uniform guidelines on operating policies and procedures for use by all IRS offices." Id. Several provisions of the IRM address the Commissioner's ability to levy on retirement income and retirement accounts. 1 Administration, IRM (CCH), pt. 5.11.6.1(1), at 16,797 (June 29, 2001), which applies to levies on retirement income, directs IRS employees to "Use discretion before levying retirement income" but provides no specific guidance regarding how that discretion is to be exercised. In contrast, IRM pt. 5.11.6.2, which covers "money accumulated in a pension or retirement plan, as well as Individual Retirement Arrangements (IRAs)" and specifically does not cover "levying retirement income", directs IRS employees to levy on assets accumulated in pension or retirement accounts only after following detailed procedures. Id. pt. 5.11.6.2(4)-(12), at 16,799-16,801 (Mar. 15, 2005). ¹⁵

The record establishes that 2010 U.S. Tax Ct. LEXIS 17">*50 Mr. Climan exercised discretion as directed by IRM pt. 5.11.6.1(1). Although Mr. Climan did not follow the detailed procedures set forth in IRM pt. 5.11.6.2(4)-(12), he was not required to do so. The procedures set forth in IRM pt. 5.11.6.2 apply only to situations in which the Commissioner seeks to levy on money accumulated in pension or retirement accounts; they do not apply to a proposed 134 T.C. 280">*296 levy on payments from a pension plan that constitute retirement income to the recipient. The proposed levy is directed to petitioner's retirement income. We therefore conclude that the Appeals Office obtained verification that the requirements of all applicable law and administrative procedure had been met in accordance with section 6330(c)(1) and that it considered that verification in making its determination as required by section 6330(c)(3).

Petitioner raised five contentions in his Form 12153, which we can condense into three core arguments: (1) Respondent's proposed levy was invalid because a previous levy on petitioner's pension was released; (2) petitioner's 2001 Federal income tax liability was discharged in petitioner's 2005 bankruptcy; and (3) 2010 U.S. Tax Ct. LEXIS 17">*51 the proposed levy was invalid because it was made before petitioner's pension entered payout status. All three arguments are unavailing.

1. A Release of Levy Does Not Release the Underlying Lien on Petitioner's Pension.

Petitioner's first argument confuses the lien that arises under section 6321 with respondent's ability to levy pursuant to section 6331. The lien on petitioner's pension arose when petitioner's 2001 Federal income tax liability was assessed and petitioner failed to pay the liability upon notice and demand. See sec. 6321. The lien was not released when petitioner's 2001 tax liability was discharged in bankruptcy because the pension was excluded from the bankruptcy estate, see 112 T.C. 19">supra pp. 22-23, nor was the lien released by respondent's withdrawal of any prior levy notices. See sec. 6322.

2. Petitioner's Discharge in Bankruptcy Did Not Prevent Respondent From Levying on Petitioner's Prepetition Assets That Remained Subject to Respondent's Section 6321 Lien.

Petitioner's second argument fails because, as discussed above, a discharge in bankruptcy shields a debtor from personal liability with respect to discharged debts but does not prevent the Commissioner from proceeding in 2010 U.S. Tax Ct. LEXIS 17">*52 rem against 134 T.C. 280">*297 any prepetition assets of the debtor that survived the bankruptcy and remain subject to a valid section 6321 lien. See 112 T.C. 19">supra pp. 19-23. In the case of exempt property, the section 6321 lien survives the bankruptcy where, pursuant to section 6323(a), the Commissioner filed an NFTL before the bankruptcy; in the case of excluded property, the lien survives the bankruptcy whether or not the Commissioner filed an NFTL. See 112 T.C. 19">supra pp. 21-23. Because petitioner's pension was excluded from his bankruptcy estate, the section 6321 lien remains attached to the pension, notwithstanding respondent's failure to properly record an NFTL. Accordingly, respondent may collect petitioner's unpaid 2001 tax liability in rem by levying on petitioner's pension income, even though petitioner's personal liability for the unpaid 2001 Federal income tax was discharged in bankruptcy.

We reject petitioner's final argument because respondent did not levy prematurely. In fact, respondent has not yet levied on petitioner's pension income; the only thing respondent has done is to issue a notice of intent to levy pursuant to section 6330. Petitioner's argument confuses 2010 U.S. Tax Ct. LEXIS 17">*53 the notice of intent to levy under section 6330 with the levy itself. Petitioner is correct that respondent could not have withdrawn funds from petitioner's pension until it entered payout status on November 1, 2007. But we are unaware of any authority holding that a notice of intent to levy on pension income that is mailed to a taxpayer pursuant to section 6330 before the pension has entered payout status is improper, let alone invalid, and we can discern no restriction in section 6330 that prevents the Commissioner from issuing a notice of intent to levy once the Commissioner has identified an appropriate levy source, even if the notice of intent to levy is issued before the date when the actual levy may commence to reach payments from the plan (in this case, the date when petitioner's pension enters payout status).

Section 6330(c)(3)(C) requires a hearing officer to balance the Commissioner's obligation to collect a validly assessed but unpaid tax liability against a taxpayer's legitimate concern that the collection action may be too intrusive. We 2010 U.S. Tax Ct. LEXIS 17">*54 review for abuse of discretion the hearing officer's determination regarding the appropriate balance.

As discussed above, the IRM states that a hearing officer must exercise discretion in determining whether to levy on a taxpayer's retirement income but does not tell the hearing officer how to exercise that discretion. 1 Administration, IRM (CCH), pt. 5.11.6.1(1), at 16,797 (June 29, 2001). Mr. Climan chose to exercise his discretion by examining whether a levy on petitioner's retirement income would cause economic hardship. Our problem with that determination arises from the method Mr. Climan used to analyze whether economic hardship would result from the levy.

Mr. Climan calculated petitioner's income as if petitioner would continue to have income from wages after he started to receive his pension. Specifically, Mr. Climan took petitioner's reported income (including wage income) from petitioner's 2005 Federal income tax return and divided the figure by 12 to arrive at an average monthly income figure. He then calculated petitioner's allowable expenses by extracting information from petitioner's 2003-2005 Federal income tax returns and consulting the applicable national and local standards. 2010 U.S. Tax Ct. LEXIS 17">*55 He then calculated petitioner's net monthly income by subtracting petitioner's average allowable monthly expenses from petitioner's average monthly income.

The problem that is readily apparent from this methodology is that Mr. Climan assumed petitioner would continue to work after he started to receive his pension income in November 2007. Mr. Climan did not assume in making his income calculations that petitioner would retire, and there is nothing in the administrative record to explain why he made that assumption. The administrative record contains no indication that petitioner would continue to work for compensation after November 2007. Without that information in the administrative record or, at a minimum, without some 134 T.C. 280">*299 evidence in the administrative record that the information was requested and not provided, we simply cannot evaluate whether the Appeals Office abused its discretion.

Petitioner suggests on brief that his $ 1,242 monthly pension payment has become a "lifeline" and that he will face economic hardship if he is denied this income stream. We are unwilling to dismiss petitioner's concern without some information in the administrative record to confirm that the hearing officer 2010 U.S. Tax Ct. LEXIS 17">*56 asked petitioner (1) whether he would continue to work for compensation after he started to receive his pension and (2) to submit financial information to show his financial situation as of November 2007 when he became entitled to his pension income.

We may under certain circumstances remand a case to the Commissioner's Appeals Office while retaining jurisdiction. See Lunsford v. Commissioner, 117 T.C. 183">117 T.C. 183, 117 T.C. 183">189 (2001). The resulting section 6330 hearing on remand provides the parties with an opportunity to complete the initial section 6330 hearing while preserving the taxpayer's right to receive judicial review of the ultimate administrative determination. Drake v. Commissioner, T.C. Memo. 2006-151, affd. 511 F.3d 65">511 F.3d 65 (1st Cir. 2007). Because the administrative record is insufficient to enable us to properly evaluate whether the Appeals Office abused its discretion in determining that a levy on petitioner's pension income could proceed, we shall remand this case to enable the parties to clarify and supplement the administrative record as appropriate. ^{162010 U.S. Tax Ct. LEXIS 17">*57}

We have considered the parties' remaining arguments and, to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit. For the reasons identified above, we will remand this case to the Appeals Office for further proceedings consistent with this Opinion.

134 T.C. 280">*300 To reflect the foregoing,

An appropriate order will be issued.