Judges: WHERRY
Attorneys: Cruz Saavedra , for petitioner. Nicole C. Lloyd , for respondent.
Filed: Oct. 03, 2011
Latest Update: Dec. 05, 2020
Summary: KREIT MECHANICAL ASSOCIATES, INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 14692–09L. Filed October 3, 2011. P filed a petition for review pursuant to sec. 6330, I.R.C., in response to R’s determination to proceed with collection actions. P sought a collection alternative and submitted an offer-in-compromise. R rejected the offer, concluding that the entire amount due was collectible after R found that a 75-per- cent discount of P’s accounts receivable was inappropr
Summary: KREIT MECHANICAL ASSOCIATES, INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 14692–09L. Filed October 3, 2011. P filed a petition for review pursuant to sec. 6330, I.R.C., in response to R’s determination to proceed with collection actions. P sought a collection alternative and submitted an offer-in-compromise. R rejected the offer, concluding that the entire amount due was collectible after R found that a 75-per- cent discount of P’s accounts receivable was inappropri..
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KREIT MECHANICAL ASSOCIATES, INC., PETITIONER
v. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT
Docket No. 14692–09L. Filed October 3, 2011.
P filed a petition for review pursuant to sec. 6330, I.R.C.,
in response to R’s determination to proceed with collection
actions. P sought a collection alternative and submitted an
offer-in-compromise. R rejected the offer, concluding that the
entire amount due was collectible after R found that a 75-per-
cent discount of P’s accounts receivable was inappropriate in
valuing P’s assets and the offer-in-compromise. Held: R’s
determination is sustained.
123
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124 137 UNITED STATES TAX COURT REPORTS (123)
Cruz Saavedra, for petitioner.
Nicole C. Lloyd, for respondent.
WHERRY, Judge: This case is before the Court on a petition
for review of a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of deter-
mination). 1 Petitioner seeks review of respondent’s deter-
mination to proceed with a proposed levy.
The collection action stems from unpaid employment taxes
reported on Form 941, Employer’s Quarterly Federal Tax
Return, penalties under section 6656, and additions to tax
under section 6651(a)(2) with respect to the third quarter of
2005 and all four quarters of 2006. The issue for decision is
whether respondent’s settlement officer abused her discretion
in rejecting petitioner’s offer-in-compromise and determining
the proposed collection action was appropriate.
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulations,
with accompanying exhibits, are incorporated herein by this
reference. At the time the petition was filed, petitioner had
its principal business address in Los Angeles, California.
During the periods at issue Ephraim Kreitenberg (Mr.
Kreitenberg) was the president and coowner of petitioner.
Shaindee Kreitenberg (Mrs. Kreitenberg) was vice president
and coowner of petitioner. Petitioner is in the commercial
plumbing business and operates as a subcontractor.
On February 18, 2007, petitioner filed delinquent Forms
941 for the quarters ending September 30, 2005, and March
31, June 20, September 30, and December 31, 2006. Taxes,
penalties, additions to tax, and interest were assessed on
May 28, 2007.
On May 29, 2007, petitioner was issued a Final Notice,
Notice of Intent to Levy and Notice of Your Right to a
Hearing (levy notice). The levy notice stated that respondent
intended to levy to collect petitioner’s unpaid liabilities,
including employment taxes, penalties, and interest, totaling
$717,818.23 and that petitioner was entitled to a hearing
with respondent’s Office of Appeals. On June 26, 2007, peti-
tioner submitted a timely request for a collection due process
1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986,
as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.
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(123) KREIT MECH. ASSOCIATES, INC. v. COMMISSIONER 125
(CDP) hearing and stated that it proposed to make an offer-
in-compromise as an alternative to the levy.
On July 18, 2007, the Appeals settlement officer assigned
to the case, Alicia A. Flores (Officer Flores), mailed petitioner
a notice that the Appeals Office had received petitioner’s CDP
hearing request and scheduled a telephone conference. On
September 4, 2007, petitioner submitted a completed Form
656, Offer in Compromise, based on doubt as to collectibility.
Petitioner offered $369,192.27 2 payable under a deferred
periodic payment arrangement of $3,073.60 per month for
120 months.
Attached to the offer-in-compromise petitioner included a
completed Form 433–B, Collection Information Statement for
Businesses. As required on the Form 433–B, petitioner listed
accounts receivable of: $35,664, $604,364, $259,580, and
$165,800. Petitioner then listed the total accounts receivable
as $250,000, not $1,065,408 (the value of adding together the
listed accounts receivable). In the attached ‘‘Explanation of
determination of value of accounts receivable’’, petitioner
explained how it arrived at $250,000 and listed the reasons
it felt the face value of the accounts receivable should not be
taken into account. Petitioner stated that
Billings to the general contractor by the taxpayer (subcontractor) are based
on industry values and standards. They are subject to approval by the
project manager, the general contractor and the owner of the project. They
also involve ‘‘joint check’’ payments to suppliers where applicable.[3]
For these reasons petitioner believed that the accounts
receivable should be discounted by approximately 75 percent.
Petitioner submitted the relevant applications for payments
related to the accounts receivable listed in the offer-in-com-
promise. All of the applications for payments include certain
2 Petitioner calculated the amount offered of $369,192.27 as the amount required to fully pay
the trust fund portion (i.e., the amount withheld from employee paychecks); however, when we
add the proposed installment payments we get $368,832.20. As petitioner offered the
$369,192.27, we shall use that number. We note that because petitioner was required to match
this amount, the offer-in-compromise will not make the United States whole. We also note that
Mr. and Ms. Kreitenberg were potentially personally liable for the trust fund amount under sec.
6672.
3 At trial Mr. Kreitenberg explained that a joint check was a check written to more than one
person. In their case the general contractor would write it to both petitioner and their supplier
in order to ensure that the supplier would get paid by petitioner.
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126 137 UNITED STATES TAX COURT REPORTS (123)
adjustments to the bill for ‘‘change orders’’ and ‘‘retention’’
percentages. 4
On September 19, 2007, respondent’s Appeals Office sent
petitioner a letter stating that the Appeals Office had
received the offer-in-compromise and that the offer met the
standards for processing. At trial Officer Flores testified that
she reviewed all of the information petitioner submitted in
the offer-in-compromise package and that she was aware of
the reasons petitioner stated for discounting the accounts
receivable.
On May 28, 2008, petitioner’s counsel sent Officer Flores
a facsimile (fax) regarding prior telephone conversations. It
referenced conversations in which Officer Flores had stated
that the offer-in-compromise package could not be processed
unless petitioner was brought current on its deferred pay-
ments under the agreement and remedied the compliance
problems for its Forms 941 for the quarters ended March 30
and June 30, 2007. The fax stated that petitioner would
resolve those issues by June 9, 2008. On June 9, 2008, peti-
tioner’s counsel sent Officer Flores a fax stating that pay-
ments to his trust account of $3,076.60 and $1,540.01 had
been made in order to bring the deferred payments current
and pay the tax reported on Forms 941 for 2007. With his
receipt of these checks he indicated his trust fund account
now had sufficient funds to bring the deferred payments for
October 2007 through May 19, 2008, current ($24,612.80)
and pay the 2007 Form 941 tax due of $1,540.01. The funds
were then tendered to respondent from the trust fund
account on June 11, 2008.
On July 29, 2008, Officer Flores requested additional
information from petitioner in order to consider the offer-in-
compromise. Officer Flores inter alia requested: Bank state-
ments for the corporate payroll and general account, Forms
1099, description of all machinery and equipment and inven-
tory, depreciation schedules, explanations of cash with-
drawals, current accounts receivable, notes evidencing any
loans from shareholders or family members, and a current
copy of the profit and loss statement. She also requested per-
4 The common meaning of ‘‘change order’’ in construction is the process in which work is added
to or deleted from the original scope of the contract. ‘‘Retention’’ commonly refers to the amount
held back from the requested payment under the contract to ensure that the contractor or sub-
contractor completes the work; this amount is then paid after the retention period passes.
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(123) KREIT MECH. ASSOCIATES, INC. v. COMMISSIONER 127
sonal information from Mr. and Mrs. Kreitenberg, including:
Forms W–2, Wage and Tax Statement, for 2007, a list of
investments, and their personal bank statements. In this
letter, Officer Flores also asked petitioner to
Identify if any of the receivables from the current list have been pledged
as collateral on a loan or sold at a discount. Provide an aging report to
show how much each vendor is owed, and how much of the balance for
each vendor is overdue. Explain in a separate report the amount of the
receivables which are obligated to the suppliers. Do not discount the
amounts for purposes of the offer.
On August 21, 2008, petitioner responded to almost all of
Officer Flores’ requests. In the cover page to the packet, peti-
tioner stated that ‘‘No receivables are pledges [sic] as collat-
eral. No loans except from shareholders or other family mem-
bers.’’
On February 2, 2009, Officer Flores sent petitioner a letter
requesting updated information because ‘‘The information
has become outdated due to significant delays which were
not caused by the taxpayers. [sic]’’. At trial Officer Flores
acknowledged that she ‘‘had a really high inventory that
really kept * * * [her] from working this, this case a lot
sooner.’’
On February 23, 2009, petitioner submitted a package of
additional information to Officer Flores. The package
included representations regarding its accounts receivable,
stating that it was owed $467,000 for the UCLA Life Sciences
Replacement Building and $291,457 for the LAPD Police
Headquarters Facility. Petitioner included its profit and loss
statement for 2008. All of petitioner’s profit and loss state-
ments can be summarized as follows: 5
2006 2007 2008
Operating income $3,346,102 $2,770,370 $7,656,198
Expenses (3,547,660) (3,180,016) (7,243,454)
Other income or loss 2,522 154 (526)
Net income (199,036) (409,492) 412,218
On April 1, 2009, Officer Flores sent petitioner a letter
rejecting the offer-in-compromise for a variety of reasons. In
the letter, Officer Flores explained that ‘‘Although you did
not provide all of the records I requested (explained below),
5 The values in all tables have been rounded to the nearest whole number.
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128 137 UNITED STATES TAX COURT REPORTS (123)
there is sufficient information given to support the rejecting
of the offer * * * because * * * an amount larger than the
offer appears to be collectible.’’ She further explained that
The Profit & Loss Statement showed that the net income for the twelve
months ending in 2008 was $412,218.04. I also determined that the
expenses reported for Charitable Donations in the amount of $14,914.00
and Meals & Entertainment in the amount of $1,518.37 are not allowable.
The credit available from corporate credit cards is $2,605. The total value
of the Accounts Receivables is $758,457 for [sic] which you stated have not
been sold or pledged as collateral.
She went on to explain that there were additional facts
supporting the rejection of the offer-in-compromise. First,
petitioner did not provide its bank statements for the general
account, and Officer Flores believed that there was an
impermissible commingling of the personal expenses of Mr.
and Mrs. Kreitenberg. Second, petitioner never provided a
valuation of the business. Third, Officer Flores noted the
great increases in petitioner’s gross receipts. Fourth, peti-
tioner did not provide Forms W–2 for Mr. and Mrs.
Kreitenberg separate from their tax returns, and they did not
provide adequate personal banking information for Officer
Flores to determine their disposable income.
Officer Flores’ April 1 letter also offered an installment
agreement in which the total liability would be paid off in
$21,500 monthly payments for approximately 60 months. It
asked petitioner to contact Officer Flores by April 10, 2009,
and concluded that if petitioner did not contact the office by
that date, the case would be promptly closed.
On April 10, 2009, after Officer Flores had not heard from
petitioner, she called petitioner’s counsel and left a voicemail
message asking whether petitioner wanted to negotiate the
installment agreement. On April 23, 2009, petitioner’s
counsel left Officer Flores a voicemail message stating that
he had understood that if petitioner did not respond to
Officer Flores’ letter, she would close the case and issue a
notice of determination. He stated that he would like Officer
Flores to close the case and issue the notice of determination
because he would like to pursue the issue of collectibility in
this Court.
On May 22, 2009, Appeals Team Manager Paula Mills
mailed petitioner a Notice of Determination Concerning
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(123) KREIT MECH. ASSOCIATES, INC. v. COMMISSIONER 129
Collection Action(s) Under Section 6320 and/or 6330. The
letter explained that
It has been determined that we are unable to accept your offer at this time
because the tax is held to be legally due and an amount larger than the
offer appears to be collectible. Furthermore, you did not remain in full
compliance during the time the offer was under consideration. We do not
have authority to accept an offer in these circumstances.
Because you are not interested in other alternatives such as an install-
ment agreement, the proposed levy action is appropriate. Based on the
case circumstances the proposed levy balances the need for efficient collec-
tion of taxes with the legitimate concern that the collection action be no
more intrusive than necessary.
Petitioner timely filed a petition with this Court on June
16, 2009, for review of the Appeals Office’s actions and the
determination. Petitioner stated that ‘‘petitioner disagrees
with the IRS Notice of Determination on the grounds that the
IRS abused its discretion in determining that the taxpayer
could full pay the liability in question.’’
The following table shows the taxes, penalties, additions to
tax, and interest assessed as of March 2, 2010.
Federal
Late tax Failure
Quarter Tax filing deposit to pay
ended assessed penalty penalty addition Interest Payments Balance
Sept. 30, 2005 $81,920 $18,432 $12,243 $7,782 $12,700 $61,682 $71,396
Mar. 31, 2006 109,895 24,726 16,484 7,143 11,864 --- 170,112
June 30, 2006 141,553 31,849 21,233 7,078 11,824 --- 213,537
Sept. 30, 2006 126,316 22,737 18,947 4,421 6,986 --- 179,408
Dec. 31, 2006 106,045 2,090 5,179 979 1,697 61,459 54,531
Total 565,729 99,834 74,086 27,403 45,071 123,141 688,984
On April 28, 2010, respondent filed a motion for summary
judgment, and on April 30, 2010, this Court ordered peti-
tioner to file a response to the motion by May 14, 2010. On
May 14, 2010, petitioner submitted an expert witness report
under Rule 143(g). On May 17, 2010, petitioner filed a
response to the motion which had been timely mailed on May
14, 2010. On May 18, 2010, petitioner filed its supplement to
opposition to respondent’s motion for summary judgment. On
June 7, 2010, respondent filed a motion in limine to exclude
the testimony and report of Adlai Climan, petitioner’s prof-
fered expert. At trial this Court denied both of respondent’s
motions. The trial was held on June 16, 2010, in Los
Angeles, California.
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130 137 UNITED STATES TAX COURT REPORTS (123)
OPINION
I. Evidentiary Issues
A. Administrative Record Rule
Respondent argues that the administrative record rule, by
which the Court’s review is limited solely to the administra-
tive record, applies in this case. Petitioner and respondent
agree that because the underlying liability is not at issue,
the Court’s review of the administrative determination
regarding the collection action is limited to abuse of discre-
tion. See Sego v. Commissioner, 114 T.C. 604, 610
(2000); Goza v. Commissioner, 114 T.C. 176, 181–182 (2000).
Respondent essentially argues that the Court may look only
at the administrative record that was available to the settle-
ment officer when she made the administrative determina-
tion.
This Court held in Robinette v. Commissioner, 123 T.C. 85,
101 (2004), revd. 439 F.3d 455 (8th Cir. 2006), that we are
not limited to the administrative record in reviewing CDP
determinations. However, under the Golsen rule, we follow
the law of the Court of Appeals for the Ninth Circuit, to
which this case, absent a stipulation to the contrary, is
appealable. See Golsen v. Commissioner, 54 T.C. 742, 757
(1970), affd. 445 F.2d 985 (10th Cir. 1971). That Court of
Appeals has limited the review of the administrative deter-
mination to the administrative record. See Keller v. Commis-
sioner, 568 F.3d 710, 718 (9th Cir. 2009) (‘‘our review is con-
fined to the record at the time the Commissioner’s decision
was rendered’’), affg. T.C. Memo. 2006–166 and affg. and
vacating decisions in related cases. Therefore, the adminis-
trative record rule applies.
B. Adlai Climan’s Report and Testimony
Petitioner has offered a report and the testimony of an
expert witness to establish the factual circumstances that it
believes should be considered to value its assets. Respondent
objects to the admittance of the report and testimony of Adlai
Climan (Mr. Climan) on the grounds that it is outside the
administrative record and that the report does not qualify as
an expert witness report that may be admitted under rule
702 of the Federal Rules of Evidence and Rule 143.
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(123) KREIT MECH. ASSOCIATES, INC. v. COMMISSIONER 131
However, as respondent readily acknowledges, there is an
exception to the administrative record rule in the Ninth Cir-
cuit by which ‘‘The extra-record inquiry is limited to deter-
mining whether the agency has considered all relevant fac-
tors and has explained its decision.’’ Friends of the Payette v.
Horseshoe Bend Hydroelectric Co., 988 F.2d 989, 997 (9th
Cir. 1993). Mr. Climan’s report purports to address the ques-
tions that should have been asked in determining the actual
value of petitioner’s assets. The Court of Appeals for the
Ninth Circuit has explained that
A satisfactory explanation of agency action is essential for adequate
judicial review, because the focus of judicial review is not on the wisdom
of the agency’s decision, but on whether the process employed by the
agency to reach its decision took into consideration all the relevant factors.
[Asarco, Inc., v. EPA, 616 F.2d 1153, 1159 (9th Cir. 1980).]
Assuming arguendo that Mr. Climan’s report and testimony
fit within the exception, respondent further objects to the
report and testimony on the basis of rule 702 of the Federal
Rules of Evidence and Rule 143.
An expert’s opinion is admissible if it will assist the trier
of fact to understand the evidence or to determine a fact in
issue. Fed. R. Evid. 702. We evaluate expert opinions in the
light of each expert’s demonstrated qualifications and all
other evidence in the record. See Parker v. Commissioner, 86
T.C. 547, 561 (1986). We are not bound by an expert’s
opinion and may accept or reject an expert opinion in full or
in part in the exercise of sound judgment. See Helvering v.
Natl. Grocery Co., 304 U.S. 282, 295 (1938); Parker v.
Commissioner, supra at 561–562.
However, an expert’s opinion is not admissible if it con-
tains improper conclusions as to issues of law and not fact.
Snap-Drape, Inc. v. Commissioner, 105 T.C. 16, 20 (1995),
affd. 98 F.3d 194 (5th Cir. 1996). Although Mr. Climan’s
report concludes with an improper conclusion of law, i.e.,
that because the settlement officer did not review the factors
he believed probative, she must have abused her discretion,
a conclusion we shall disregard, the prior sections of the
report simply discuss factors that Mr. Climan or another
settlement officer would and should have used to make a
determination had he been the officer on the case. We do not
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132 137 UNITED STATES TAX COURT REPORTS (123)
find those factors to be an improper conclusion as to an issue
of law.
Mr. Climan has a bachelor of arts degree from Queens Col-
lege and a master’s in business administration from Cali-
fornia State University at Northridge. He worked for the
Internal Revenue Service from 1974 through 2008, first as a
revenue officer and then from 1987 through 2008 as a settle-
ment officer. In his report, Mr. Climan states that he was an
instructor for numerous training classes for both revenue
officers and settlement officers which covered valuation of
assets for offers-in-compromise.
In Mr. Climan’s opinion, when valuing petitioner’s
accounts receivable the following questions should have been
asked:
Was the A/R figure shown the amount due to be paid at the completion
of the contracted-for work, or was it an amount due to be paid to the tax-
payer for work already completed?
If it was for to-be-completed work, what were the terms of the payments
to be made * * * ?
If these were progress payments, what costs did the taxpayer need to incur
to complete each portion of the project in order to receive each successive
progress payment?
What has been the historic percentage of similar receivables as received
by the taxpayer (e.g. less retention and/or charge-back costs)?
His report also opines on other factors that he believed the
settlement officer should have taken into account when
evaluating petitioner’s offer-in-compromise and ability to
make payments. Because the report is helpful to the Court
in understanding respondent’s administrative procedures and
options and assists the Court in comprehending the evidence,
we overrule respondent’s objection to the admission of Mr.
Climan’s report and testimony.
II. Review for Abuse of Discretion
Section 6331(a) authorizes the Commissioner to levy upon
property or property rights of a taxpayer liable for taxes who
fails to pay those taxes within 10 days after a notice and
demand for payment is made. Section 6331(d) provides that
the levy authorized in section 6331(a) may be made with
respect to an unpaid tax liability only if the Commissioner
has given written notice to the taxpayer 30 days before the
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(123) KREIT MECH. ASSOCIATES, INC. v. COMMISSIONER 133
levy. Section 6330(a) requires the Commissioner to send a
written notice to the taxpayer of the amount of the unpaid
tax and of the taxpayer’s right to a section 6330 hearing at
least 30 days before the levy is begun.
If an administrative hearing is requested in a lien or levy
case, the hearing is to be conducted by the Appeals Office.
Secs. 6320(b)(1), 6330(b)(1). At the hearing, the Appeals
officer conducting it 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 any rel-
evant issue with regard to the Commissioner’s intended
collection activities, including spousal defenses, challenges to
the appropriateness of the proposed levy, and alternative
means of collection. Sec. 6330(c)(2)(A); see also Sego v.
Commissioner, 114 T.C. 609; Goza v. Commissioner,
114
T.C. 181–182. Taxpayers are expected to provide all rel-
evant information requested by Appeals, including financial
statements, for its consideration of the facts and issues
involved in the hearing. Secs. 301.6320–1(e)(1), 301.6330–
1(e)(1), Proced. & Admin. Regs.
Among the issues that may be raised at Appeals and are
reviewed for abuse of discretion are ‘‘offers of collection alter-
natives’’ such as offers-in-compromise. Sec. 6330(c)(2)(A)(iii).
The Court reviews the Appeals officer’s rejection of an offer-
in-compromise to decide whether the rejection was arbitrary,
capricious, or without sound basis in fact or law and there-
fore an abuse of discretion. Murphy v. Commissioner, 125
T.C. 301, 320 (2005), affd.
469 F.3d 27 (1st Cir. 2006);
Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Section 7122(a) authorizes the Commissioner to com-
promise any civil case arising under the internal revenue
laws. In general, the decision to accept or reject an offer, as
well as the terms and conditions agreed to, are left to the
discretion of the Commissioner. Sec. 301.7122–1(a)(1), (c)(1),
Proced. & Admin. Regs.
The grounds for compromise of a tax liability are doubt as
to liability, doubt as to collectibility, and promotion of effec-
tive tax administration. Sec. 301.7122–1(b), Proced. &
Admin. Regs. Petitioners based the offer-in-compromise on
doubt as to collectibility, which ‘‘exists in any case where the
taxpayer’s assets and income are less than the full amount
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134 137 UNITED STATES TAX COURT REPORTS (123)
of the liability.’’ Sec. 301.7122–1(b)(2), Proced. & Admin.
Regs.
The Commissioner will generally compromise a liability on
the basis of doubt as to collectibility only if the liability
exceeds the taxpayer’s reasonable collection potential; ‘‘i.e.,
that amount, less than the full liability, that the IRS could
collect through means such as administrative and judicial
collection remedies’’. Murphy v. Commissioner, supra at 309–
310. The Commissioner has no binding duty to negotiate
with a taxpayer before rejecting the taxpayer’s offer-in-com-
promise. Keller v. Commissioner, 568 F.3d at 719; Fargo v.
Commissioner, 447 F.3d 706, 713 (9th Cir. 2006), affg. T.C.
Memo. 2004–13.
Petitioner argues that ‘‘The Appeals Officer rejected * * *
[petitioner’s] proposed OIC because it determined that, based
on the value of the accounts receivable, whether subject to
collection or included as an income stream item, was ade-
quate to full [sic] pay the outstanding tax liabilities.’’ Peti-
tioner essentially believes that the only reason the offer-in-
compromise was rejected was that the settlement officer
misvalued petitioner’s accounts receivable. According to peti-
tioner, the settlement officer should have valued the accounts
receivable at only 25 percent of their face value.
When petitioner submitted updated information to Officer
Flores on February 23, 2009, it listed a total of $758,457 of
accounts receivable. 6 Although petitioner did not include its
applications for payment in those accounts receivable, it
stated that the $467,000 for the UCLA Life Sciences Replace-
ment Building was billed on January 25, 2009, and was due
on March 5, 2009. It also stated that the $291,457 for the
LAPD Police Headquarter Facility was billed on January 25,
2009, and was due on March 5, 2009.
Petitioner’s prior submissions to Officer Flores included the
applications for payment of accounts receivable, and each
application showed the original contract amount, an adjust-
ment to that amount for ‘‘Change Orders’’, amount of work
completed to date, less an amount withheld for ‘‘Retention’’,
before arriving at the billed amount. 7 Therefore according to
6 We note that 25 percent of $758,457 is $189,614.25. By petitioner’s own discount, it could
not, using its valuation methodology, make the $369,192.27 offer-in-compromise using only ac-
counts receivable collections.
7 Petitioner’s expert report states that the accounts receivable should be discounted by ‘‘reten-
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(123) KREIT MECH. ASSOCIATES, INC. v. COMMISSIONER 135
petitioner’s own application for payment the amount billed
has already been decreased for change orders and retention.
Petitioner did not include the applications for payment of its
most recent accounts receivable. Consequently, it was not an
abuse of discretion for Officer Flores to believe that the
amount petitioner stated was the amount billed and that it
already accounted for the change orders and retention.
Officer Flores took into account all of petitioner’s financial
information in making her determination, not just the value
of the accounts receivable. We do not find it an abuse of
discretion for Officer Flores to have considered petitioner’s
2008 net income of $412,218.04 and to have noted ‘‘the size-
able increases in Gross Receipts and almost double its pay-
roll, the business has prospered’’, to conclude that more than
the $369,192.27 offer-in-compromise appeared to be collect-
ible.
Finally, it was not an abuse of discretion for Officer Flores
to close the case after she had not heard from petitioner
regarding her April 1, 2009, letter rejecting petitioner’s offer-
in-compromise and offering her own installment agreement.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not dis-
cussed herein, the Court concludes that they are meritless,
moot, or irrelevant.
To reflect the foregoing,
Decision will be entered for respondent.
f
tion and/or charge-back costs’’. However, as petitioner’s own statements show, under its billing
methodology the accounts receivable had already been discounted for those exact factors. The
question then for the settlement officer was whether the amount of discount was appropriate
or excessive. She found it to be excessive when combined with the 75-percent discount. While
this Court on a de novo basis might have valued the collectible portion of the $758,457 some-
what more conservatively than did the settlement officer, we cannot say her valuation was un-
reasonably outside the pale of actual value, and hence it was not arbitrary, capricious, or with-
out sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999). Hence it
was not an abuse of discretion. Petitioner had also mentioned in its prior submissions that some
of the accounts receivable would include amounts written as joint checks to suppliers; however,
petitioner never submitted any documentation that its most current accounts receivable of
$758,457 were subject to joint checks.
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