Judges: GALE
Attorneys: Richard Stephen Kestenbaum , for petitioner. Donald Alan Glasel , for respondent.
Filed: Sep. 27, 2012
Latest Update: Nov. 21, 2020
Summary: NORMAN HINERFELD, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 20946–08L. Filed September 27, 2012. R issued to P a final notice of intent to levy with regard to P’s unpaid trust fund recovery penalties totaling $471,696. P timely requested a collection due process (CDP) hearing with the Office of Appeals (Appeals) and submitted to Appeals an offer-in-compromise (OIC) of $10,000, followed by an amended OIC of $74,857. The settlement officer assigned to the case recommend
Summary: NORMAN HINERFELD, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 20946–08L. Filed September 27, 2012. R issued to P a final notice of intent to levy with regard to P’s unpaid trust fund recovery penalties totaling $471,696. P timely requested a collection due process (CDP) hearing with the Office of Appeals (Appeals) and submitted to Appeals an offer-in-compromise (OIC) of $10,000, followed by an amended OIC of $74,857. The settlement officer assigned to the case recommende..
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NORMAN HINERFELD, PETITIONER v. COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT
Docket No. 20946–08L. Filed September 27, 2012.
R issued to P a final notice of intent to levy with regard to
P’s unpaid trust fund recovery penalties totaling $471,696. P
timely requested a collection due process (CDP) hearing with
the Office of Appeals (Appeals) and submitted to Appeals an
offer-in-compromise (OIC) of $10,000, followed by an amended
OIC of $74,857. The settlement officer assigned to the case
recommended that the amended OIC be accepted and sub-
mitted the matter to R’s Area Counsel for review in accord-
ance with I.R.C. sec. 7122(b). Upon review, Area Counsel
discovered that P and his wife were named as defendants in
a lawsuit alleging that P had fraudulently conveyed assets to
his wife. Area Counsel recommended that P’s amended OIC
be rejected, and the Appeals Team Manager agreed. Appeals
issued to P a final notice of determination rejecting his
amended OIC and determining that it was appropriate to pro-
ceed with the proposed levy. P filed a timely petition for
review with the Court. Held: Although the matter was raised
for the first time in P’s posttrial briefs, the Court will consider
P’s argument that Appeals and Area Counsel engaged in
prohibited ex parte communications during the CDP hearing.
Held, further, Appeals and Area Counsel were obliged to
communicate with regard to P’s amended OIC in accordance
with I.R.C. sec. 7122(b), and consequently their communica-
tions were not prohibited ex parte communications within the
meaning of Rev. Proc. 2000–43, 2000–2 C.B. 404. Held, fur-
ther, Appeals did not abuse its discretion in deciding to accept
Area Counsel’s recommendation to reject P’s amended OIC or
in determining to proceed with the proposed levy.
Richard Stephen Kestenbaum, for petitioner.
Donald Alan Glasel, for respondent.
GALE, Judge: Pursuant to section 6330(d), 1 Norman
Hinerfeld (petitioner) seeks review of respondent’s deter-
mination to proceed with a levy to collect petitioner’s unpaid
trust fund recovery penalties (trust fund penalties), assessed
pursuant to section 6672, for the quarterly periods ended
September 30 and December 31, 2002, March 31, September
30, and December 31, 2003, and June 30, 2004. The issues
for decision are: (1) whether respondent’s Office of Appeals
(Appeals) and Area Counsel in the Small Business/Self
1 All section references are to the Internal Revenue Code of 1986, as amended.
277
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278 139 UNITED STATES TAX COURT REPORTS (277)
Employed Division of the Office of Chief Counsel (Area
Counsel) engaged in prohibited ex parte communications
during petitioner’s collection due process (CDP) hearing, and
(2) whether Appeals abused its discretion in rejecting peti-
tioner’s amended offer-in-compromise.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are incor-
porated herein by this reference. The parties agree that all
of the stipulated exhibits are part of the administrative
record of the proposed collection action at issue. At the time
the petition was filed, petitioner resided in New York.
On June 10, 2006, respondent sent to petitioner by cer-
tified mail a Final Notice of Intent to Levy and Notice of
Your Right to a Hearing with respect to unpaid trust fund
penalties totaling $471,696. Petitioner submitted to Appeals
a timely Form 12153, Request for a Collection Due Process
or Equivalent Hearing, indicating that he was preparing an
offer-in-compromise (OIC). Petitioner does not dispute that he
is liable for the trust fund penalties at issue as a responsible
person of Thermacon Industries, Inc. (Thermacon).
On July 17, 2006, petitioner submitted to Appeals an OIC
of $10,000 based on doubt as to collectibility and a Form
433–A, Collection Information Statement for Wage Earners
and Self-Employed Individuals.
On August 7, 2007, Settlement Officer Carol Berger (SO
Berger) notified petitioner that his case had recently been
transferred to her, and she requested that he update his
Form 433–A. On August 16, 2007, petitioner submitted to SO
Berger a revised Form 433–A. SO Berger subsequently deter-
mined that petitioner’s reasonable collection potential was
$74,857. 2 In early January 2008 petitioner amended his OIC
to $74,857 (amended OIC).
On February 5, 2008, SO Berger recommended that the
Internal Revenue Service (IRS) accept petitioner’s amended
OIC, and she requested Area Counsel’s verification and
review. Upon review of the matter, Area Counsel discovered
2 At the time of petitioner’s hearing, reasonable collection potential was defined as the amount
that could be collected from a taxpayer from all available means. See Internal Revenue Manual
(IRM) pt. 5.8.4.4 (Sept. 1, 2005). That definition currently appears at IRM pt. 5.8.4.3 (June 1,
2010).
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(277) HINERFELD v. COMMISSIONER 279
that petitioner and his wife, Ruth Hinerfeld, were named as
codefendants (along with other alleged business associates)
in a lawsuit filed in the U.S. District Court for the District
of New Jersey on October 2, 2007. The pending lawsuit,
styled Multi-Glass Atlantic, Inc. v. Alnor Assocs., LLC, No.
1:07–cv–04760 (D.N.J. filed Oct. 2, 2007) (Multi-Glass law-
suit), concerned the sale of substantially all of Thermacon’s
assets pursuant to an asset purchase agreement petitioner
signed on Thermacon’s behalf on September 13, 2004, to
Reelan Industries, Inc. (Reelan), a corporation wholly owned
by petitioner’s children and RJTL, Inc., a corporation wholly
owned by Ruth Hinerfeld and petitioner’s children. The asset
purchase agreement valued the assets at $2.2 million.
Multi-Glass claimed that petitioner and the other defend-
ants fraudulently conveyed substantially all of Thermacon’s
assets to Reelan, purposefully leaving Thermacon unable to
satisfy obligations to its creditors, including Multi-Glass,
which had obtained a $734,889 (Canadian dollars) default
judgment against Thermacon in earlier litigation. Multi-
Glass claimed an interest in the assets that Thermacon had
transferred to Reelan under the asset purchase agreement.
After Area Counsel brought the Multi-Glass lawsuit to SO
Berger’s attention, she sent a letter to petitioner dated April
14, 2008, posing the following questions related to
Thermacon:
2. An amended complaint of the above action [Multi-Glass lawsuit] filed
10/05/2007 names you as an officer of Thermacon Industries Inc. and
Thermacon Penetec Systems, Inc. Are you currently an officer/owner/share-
holder of either of these entities? If not, when did your association cease?
Who did you sell to and what was the sale price? (Provide verification.)
Skip to question 4 if you were not an officer/owner of Thermacon or
Thermacon Penetec Systems, Inc.
3. Under the complaint in the plaintiff ’s proposed discovery plan (filed 01/
21/2008) they allege Thermacon transferred all of its assets to Reelan
Industries, Inc. Who were/are the officer/owners of Reelan Industries, Inc?
By letter dated April 17, 2008, petitioner responded to SO
Berger’s questions as follows:
2. I terminated my employment with the Thermacon and Penetec compa-
nies in 2003. Since that date I have not been an officer or shareholder of
either entity. All of the assets of of [sic] Thermacon and Penetec were
liened by the LaSalle Bank supporting a $5.7 million loan to Thermacon.
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280 139 UNITED STATES TAX COURT REPORTS (277)
In 2003 my wife purchased the LaSalle lien, which covered all of the
Thermacon and Penetec assets, for $3.5 million. The net assets of
Thermacon and Penetec totaled $2.2 million at that time. Immediately
after assuming the lien why [sic] wife sold the Thermacon and Penetec
assets to the Reelan Corporation for $2.2 million in the form of Notes and
Preferred Stock. Reelan never paid the Cash/Notes portion of the purchase
price and the Preferred Stock is worthless since Reelan was liquidated in
1986 [sic] with no net assets.
3. N.A.
Petitioner’s responses conflicted with information in Area
Counsel’s possession. In response to question 2, petitioner
claimed that he had not been an officer or shareholder of
Thermacon since 2003 and that his wife sold the Thermacon
assets. However, in his answer to the amended complaint in
the Multi-Glass lawsuit, which is part of the administrative
record, petitioner specifically admitted that he signed the
asset purchase agreement on behalf of Thermacon on or
about September 13, 2004. Further, even though petitioner
admitted in the Multi-Glass lawsuit that he had acted on
behalf of Thermacon in the 2004 asset sale to Reelan, he
treated question 3 concerning Reelan’s ownership as inappli-
cable to him on the grounds that he had no role in
Thermacon’s affairs in 2004.
Area Counsel reviewed petitioner’s responses to SO
Berger’s April 14, 2008, letter and concluded that it would be
premature to accept his amended OIC because the resolution
of the Multi-Glass lawsuit might show that petitioner had
participated in a fraudulent transfer of Thermacon’s assets,
exposing Ruth Hinerfeld as petitioner’s nominee and pro-
viding a new source for the IRS to collect petitioner’s unpaid
trust fund penalties. 3
The disposition of petitioner’s OIC, which was first sub-
mitted to Appeals on July 17, 2006, was subject to the 24-
month time restriction prescribed by section 7122(f). 4 In this
3 Respondent suggested at trial and on brief that petitioner’s transfer of a residence to his wife
was a fraudulent transfer. When this issue was considered in petitioner’s CDP hearing, Appeals
concluded that it was not a fraudulent transfer and Area Counsel agreed. The transfer of the
residence accordingly played no role in the determination to reject petitioner’s offer-in-com-
promise, and we decline to consider the issue further.
4 Sec. 7122(f) was added to the Internal Revenue Code as part of the Tax Increase Prevention
and Reconciliation Act of 2005 (TIPRA), Pub. L. No. 109–22, sec. 509(b)(2), 120 Stat. at 363,
and provides that an OIC shall be deemed accepted by the Secretary if the OIC is not rejected
by the Secretary before the date which is 24 months after the date of submission of the OIC.
Sec. 7122(f) is effective for OICs submitted on or after July 16, 2006. TIPRA sec. 509(d).
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(277) HINERFELD v. COMMISSIONER 281
regard, SO Berger conducted a telephone conference with
petitioner’s counsel on June 4, 2008, and informed him that
her supervisor, Appeals Team Manager John O’Dea (ATM
O’Dea), agreed with Area Counsel’s recommendation to reject
petitioner’s amended OIC. 5 During this same telephone con-
ference, SO Berger informed petitioner’s counsel that
Appeals was amenable to designating petitioner’s liability
‘‘currently not collectible’’. 6 Petitioner rejected the proposal
to place his account in currently not collectible status. By
letter dated June 25, 2008, ATM O’Dea informed petitioner
that his amended OIC had been rejected.
On July 28, 2008, Appeals sent petitioner a Notice of
Determination Concerning Collection Action(s) Under Section
6320 and/or 6330 (notice of determination) rejecting the
amended OIC and sustaining the proposed levy. The notice of
determination stated, in relevant part: (1) the amended OIC
was investigated and recommended for approval by Appeals,
but Area Counsel determined that there might be additional
collection potential once a pending lawsuit was resolved, and
(2) Appeals offered to designate petitioner’s account currently
not collectible as a less intrusive alternative to the proposed
levy.
Petitioner filed a timely petition with the Court contesting
respondent’s determination to proceed with the proposed
levy. Petitioner alleged that respondent erred: (1) in failing
to agree to refrain from the proposed levy, and (2) in con-
cluding that designating petitioner’s account currently not
collectible was an appropriate collection alternative.
Petitioner alleged in paragraph 5 of the petition that
‘‘Although an Offer in Compromise was submitted, and was
recommended for approval by the Appeals Officer, [Area]
Counsel determined that there may be additional collection
potential based upon the possible resolution of an unrelated
litigation.’’ Petitioner did not expressly challenge the pro-
priety of the communications between Appeals and Area
Counsel in the petition or at any time before or during the
trial of this case. Petitioner argued for the first time in his
5 SO Berger disagreed with Area Counsel’s opinion that petitioner’s amended OIC should be
rejected. However, authority to accept petitioner’s OIC resided with ATM O’Dea. See Johnson
v. Commissioner, 136 T.C. 475, 496 (2011) (and authorities thereat cited); see also Delegation
Order 5–1 (Rev. 2), IRM pt. 1.2.44.2 (May 19, 2006).
6 See IRM pt. 5.16.1.1 (Dec. 1, 2006).
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282 139 UNITED STATES TAX COURT REPORTS (277)
posttrial briefs that Appeals had engaged in prohibited ex
parte communications with Area Counsel.
OPINION
I. Collection Procedures
Section 6331(a) authorizes the Secretary to levy upon all
property and rights to property belonging to a taxpayer liable
for taxes who fails to pay those taxes within 10 days of notice
and demand for payment. The levy authorized in section
6331(a) may be made only if the Secretary has given written
notice to the taxpayer at least 30 days before the day of the
levy identifying the amount of the unpaid tax and informing
the taxpayer of his right to a CDP hearing with Appeals. Secs.
6331(d), 6330(a).
If the taxpayer submits a timely request for a CDP hearing,
section 6330(c)(1) requires Appeals to obtain verification from
the Secretary that the requirements of any applicable law or
administrative procedure have been met. In addition, the
taxpayer may raise at the CDP hearing any relevant issue
relating to the unpaid tax or the proposed levy, including
offers of collection alternatives such as OICs, or, in certain
circumstances, a challenge to the underlying liability. Sec.
6330(c)(2)(A) and (B). At the conclusion of the CDP hearing,
Appeals must determine whether to proceed with the collec-
tion action and shall take into account the required
verification, issues raised by the taxpayer, and whether any
proposed collection action balances the need for the efficient
collection of taxes with the legitimate concern of the taxpayer
that any collection action be no more intrusive than nec-
essary. Sec. 6330(c)(3).
This Court has jurisdiction to review Appeals’ administra-
tive determinations. Sec. 6330(d)(1). Because petitioner does
not dispute his liability for the trust fund penalties, we
review Appeals’ determination for abuse of discretion. See
Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v.
Commissioner, 114 T.C. 176, 182 (2000). In reviewing a CDP
determination for abuse of discretion, generally we consider
only issues raised in the CDP hearing. See Giamelli v.
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(277) HINERFELD v. COMMISSIONER 283
Commissioner, 129 T.C. 107, 115 (2007); see also sec.
301.6330–1(f)(2), Q&A–F3, Proced. & Admin. Regs. 7
II. Ex Parte Communications
As a preliminary matter, we consider whether petitioner
should be permitted to raise the issue of whether Appeals
and Area Counsel engaged in prohibited ex parte commu-
nications. Respondent asserts that petitioner’s argument
regarding the communications is a new issue and that the
Court should decline to consider it now because it was not
raised in the pleadings or at trial.
The principle that a party may not raise a new issue on
brief is not absolute. Rather, it is founded upon the exercise
of judicial discretion and frequently turns on a determination
whether the opposing party will be prejudiced in having to
respond to a belated issue which precludes or limits that
party’s opportunity to present pertinent evidence. See Ware
v. Commissioner, 92 T.C. 1267, 1268 (1989), aff ’d,
906 F.2d
62 (2d Cir. 1990); see also Toyota Town, Inc. v. Commis-
sioner, T.C. Memo. 2000–40, aff ’d sub nom. Bob Wondries
Motors, Inc. v. Commissioner, 268 F.3d 1156 (9th Cir. 2001).
Petitioner’s argument regarding impermissible ex parte
contacts is not inconsistent with the pleadings, and
respondent does not contend that he would suffer any mean-
ingful prejudice if the Court considered the argument.
Indeed, the record includes all the information the Court
needs to resolve what is in essence a legal issue. Accordingly,
we will consider petitioner’s argument notwithstanding that
it was raised for the first time in his posttrial briefs.
Congress directed the Commissioner to develop a plan to
restrict ex parte communications between Appeals employees
and other IRS employees, as part of the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 1998),
Pub. L. No. 105–206, sec. 1001(a)(4), 112 Stat. at 689. RRA
1998 sec. 1001(a)(4) provides as follows:
7 Effective for CDP hearing requests made on or after November 16, 2006, the applicable
version of the regulations is sec. 301.6330–1(f)(2), Q&A–F3, Proced. & Admin. Regs. See T.D.
9291, 2006–2 C.B. 887.
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284 139 UNITED STATES TAX COURT REPORTS (277)
SEC. 1001. REORGANIZATION OF THE INTERNAL REVENUE
SERVICE.
(a) IN GENERAL.—The Commissioner of Internal Revenue shall develop
and implement a plan to reorganize the Internal Revenue Service. The
plan shall—
* * * * * * *
(4) ensure an independent appeals function within the Internal Revenue
Service, including the prohibition in the plan of ex parte communications
between appeals officers and other Internal Revenue Service employees to
the extent that such communications appear to compromise the independ-
ence of the appeals officers.
In accordance with this congressional mandate, the Commis-
sioner issued Rev. Proc. 2000–43, 2000–2 C.B. 404, which
provides guidelines in question and answer format that are
designed to distinguish prohibited and permissible ex parte
communications between Appeals and other IRS employees
during an administrative appeal. 8 In so doing, the review
procedure does not adopt ‘‘formal ex parte procedures that
would apply in a judicial proceeding’’ but instead attempts to
‘‘ensure the independence of the Appeals organization, while
preserving the role of Appeals as a flexible administrative
settlement authority, operating within the Internal Revenue
Service’s overall framework of tax administration responsibil-
ities.’’ Id. sec. 2.
Citing Rev. Proc.
2000–43, supra, and certain other
administrative guidance, petitioner argues that the discus-
sions wherein Area Counsel alerted SO Berger to the Multi-
Glass lawsuit and the possibility of a fraudulent conveyance
and recommended rejection of petitioner’s OIC constituted
prohibited ex parte communications which compromised the
independence of Appeals. Consequently, petitioner contends,
the case must be remanded for a supplemental hearing.
Respondent contends that the discussions between Area
Counsel and Appeals were not prohibited ex parte contacts.
We agree with respondent.
Rev. Proc. 2000–43, Q&A–11, 2000–2 C.B. at 406, specifi-
cally addresses communications between Appeals and the
Office of Chief Counsel. Acknowledging the need for Appeals
employees to obtain legal advice from the Office of Chief
Counsel, A–11 provides three limitations on communications
8 Rev. Proc. 2000–43, 2000–2 C.B. 404, has been superseded by Rev. Proc. 2012–18, 2012–10
I.R.B. 455, effective for communications after May 15, 2012.
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(277) HINERFELD v. COMMISSIONER 285
between Appeals employees and Office of Chief Counsel
attorneys: (1) Appeals employees must not communicate with
Chief Counsel attorneys who have previously provided advice
to the IRS employees who made the determination Appeals is
reviewing; (2) requests for legal advice where the answer is
uncertain should be referred to the Chief Counsel’s National
Office and handled as requests for field service advice or
technical advice; and (3) although Appeals employees may
obtain legal advice from the Office of Chief Counsel, they
remain responsible for making independent evaluations and
judgments concerning the cases appealed to them, and
Counsel attorneys are prohibited from offering advice that
includes settlement ranges for any issue in an appealed case.
There is no evidence that the Area Counsel attorneys with
whom Appeals conferred in this case had previously advised
any employee who made the determination under Appeals
review; that is, any employee of the Collection Division who
made the determination to levy on petitioner’s property. In
addition, the administrative record establishes that while SO
Berger disagreed with Area Counsel’s recommendation to
reject petitioner’s amended OIC, the decision to reject the OIC
was made by ATM O’Dea who, rather than SO Berger, had
the authority to do so. 9 Unlike SO Berger, ATM O’Dea agreed
with Area Counsel’s recommendation to reject. Given the
substantial evidence that Area Counsel had marshaled to
support the conclusion that petitioner had made a fraudulent
conveyance, 10 we are satisfied that ATM O’Dea exercised
independent judgment as contemplated in Rev. Proc. 2000–
43, supra, when he agreed with Area Counsel’s recommenda-
tion. 11 Thus, the communications between Appeals and Area
9 See
supra note 5.
10 In
deciding this case, we are not required to and do not determine whether petitioner en-
gaged in any fraudulent conveyance. It is sufficient for our purposes that Area Counsel had un-
covered substantial evidence of such a conveyance. The evaluation of whether Appeals com-
mitted an abuse of discretion turns in large part upon information available to it when a deter-
mination is made. In this regard, we note that the administrative record indicates that peti-
tioner’s answers to Appeals’ queries concerning the sale of Thermacon’s assets were on their face
inconsistent with the position he took in his pleadings in the Multi-Glass lawsuit, and he made
no effort to address those inconsistencies in the proceedings before Appeals or this Court.
11 Petitioner makes much of the fact that SO Berger rather obviously disagreed with Area
Counsel’s recommendation to reject petitioner’s amended OIC, contending that this fact dem-
onstrates that SO Berger was unaware of her authority to reject Area Counsel’s advice and of
her obligation to reach an independent determination as provided in Rev. Proc. 2000–43, supra.
The short answer to petitioner’s argument is that SO Berger did not make the decision to reject
the OIC; she lacked authority to do so. The decision on behalf of Appeals was made by ATM
Continued
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286 139 UNITED STATES TAX COURT REPORTS (277)
Counsel in this case do not fall within the limitations pre-
scribed in Rev. Proc. 2000–43, supra.
Moreover, review by Area Counsel here was mandated by
statute. Section 7122(a) permits the Secretary to compromise
any civil case arising under the internal revenue laws. Sec-
tion 7122(d)(1) provides that the Secretary shall prescribe
guidelines for IRS officers and employees to determine
whether an OIC is adequate and should be accepted to resolve
a dispute. Section 7122(b), however, provides that if the Sec-
retary makes a compromise in a civil case in which the
unpaid amount of the tax assessed is $50,000 or more, an
opinion of the General Counsel for the Department of the
Treasury, or his delegate, shall be placed on file in the office
of the Secretary. See also sec. 301.7122–1(e)(6), Proced. &
Admin. Regs.; Internal Revenue Manual (IRM) pt. 33.3.2.1(2)
(Aug. 11, 2004).
Petitioner submitted his OIC to Appeals on the basis of
‘‘doubt as to collectibility’’, a concept that is defined in section
301.7122–1(b)(2), Proced. & Admin. Regs., as any case where
the taxpayer’s assets and income are less than the full
amount of the liability. Section 301.7122–1(c)(2), Proced. &
Admin. Regs., provides special rules for evaluating OICs
based on doubt as to collectibility. Subdivision (ii)(A) of that
provision states in relevant part:
(ii) Nonliable spouses.—(A) In general.—Where a taxpayer is offering to
compromise a liability for which the taxpayer’s spouse has no liability, the
assets and income of the nonliable spouse will not be considered in deter-
mining the amount of an adequate offer. The assets and income of a non-
liable spouse may be considered, however, to the extent property has been
transferred by the taxpayer to the nonliable spouse under circumstances
that would permit the IRS to effect collection of the taxpayer’s liability
from such property (e.g., property that was conveyed in fraud of creditors)
* * *.
General Counsel for the Treasury has delegated responsi-
bility for the legal review of OICs under section 7122(b) to the
Office of Chief Counsel, with the concomitant authority to re-
delegate such responsibility. General Counsel Order No. 4
(Rev. Jan. 19, 2001); IRM pt. 33.3.2.1(3). The Office of Chief
Counsel redelegated this authority to IRS Division Counsel in
the Small Business/Self Employed Division. IRM pt.
O’Dea after what we are satisfied was an exercise of independent judgment.
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(277) HINERFELD v. COMMISSIONER 287
33.3.2.1(3). The Small Business/Self Employed Division in
turn redelegated this authority to Area Counsel and Asso-
ciate Area Counsel. IRM pt. 5.17.1.4.2(2)(D) (Oct. 16, 2007).
IRM pt. 33.3.2.2(2) (Aug. 11, 2004) states that when
Counsel review is required under section 7122(b), Counsel
must determine whether the legal requirements for com-
promise have been met, and, if so, Counsel shall review the
proposed acceptance for consistent application of the IRS’ poli-
cies regarding whether the proposed compromise amount is
acceptable. IRM pt. 33.3.2.3.2(2)(iii) (Aug. 11, 2004) states
that when a taxpayer has submitted an OIC based on doubt
as to collectibility, Counsel’s review should include a deter-
mination of ‘‘whether fraudulent conveyances and/or trans-
feree liability issues have been properly resolved.’’ IRM pt.
33.3.2.2(3) cautions, however, that in making its determina-
tions concerning acceptance of all OICs (i.e., those based upon
doubt as to collectibility as well as doubt as to liability and
effective tax administration), ‘‘Counsel must rely upon fac-
tual determinations made by the Service. These determina-
tions should ordinarily not be reexamined by Counsel unless
patently erroneous.’’
In sum, Area Counsel’s review of and negative rec-
ommendation concerning petitioner’s amended OIC, premised
on its findings concerning the possibility of a fraudulent
conveyance, was mandated by the statute, the regulations,
and applicable administrative procedures. 12 Rev. Proc. 2000–
43, supra, does not directly address ex parte communications
that occur between Appeals and the Office of Chief Counsel
12 Area Counsel obviously investigated and developed new facts not considered by Appeals
with respect to petitioner’s possible fraudulent conveyance. While the IRM provision noted above
covering all OICs states that ‘‘ordinarily’’ Counsel should not reexamine factual determinations
made by the Service ‘‘unless patently erroneous’’, we are satisfied that the IRM provision specifi-
cally addressed to OICs based on doubt as to collectibility, which directs Counsel to determine
whether fraudulent conveyance issues have been ‘‘properly resolved’’, contemplates investiga-
tions like those undertaken by Area Counsel in this case and constitutes an exception to the
general requirement that Counsel ordinarily defer with respect to factual determinations.
We further note that the prohibition on Appeals employees’ communications concerning ‘‘the
accuracy of the facts presented by the taxpayer and the relative importance of the facts to the
determination’’ appears in Q&A–5 of Rev. Proc. 2000–43, supra, concerning communications be-
tween Appeals employees and employees of the ‘‘originating function’’ (i.e., the function where
the determination was made that Appeals is reviewing). The prohibition is not stated in Q&A–
11, concerning communications between Appeals employees and employees of the Office of Chief
Counsel. Thus, to the extent communications between Appeals and Counsel concerning the facts
of a case are restricted, those restrictions are found in the IRM rather than Rev. Proc. 2000–
43, supra. The IRM nonetheless contemplates reexamination of facts by Chief Counsel employ-
ees in certain circumstances, including in connection with review of fraudulent conveyance
issues.
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288 139 UNITED STATES TAX COURT REPORTS (277)
pursuant to a statutory mandate, such as section 7122(b).
However, Rev. Proc. 2000–43, supra, covers a comparable
scenario in Q&A–16 concerning communications between
Appeals and the Commissioner or other Service officials who
have overall supervisory responsibility for IRS operations.
Noting the Commissioner’s supervisory responsibilities under
section 7803, A–16 states that ex parte communications
about specific cases are permissible between Appeals and the
Commissioner and other IRS officials with overall supervisory
responsibility. Thus, A–16 exempts ex parte communications
that occur pursuant to the statutory responsibilities of IRS
employees who communicate with Appeals employees in
fulfillment of those responsibilities. We conclude that the
same principle applies to Appeals employees’ communications
with Office of Chief Counsel employees in fulfillment of their
responsibilities under section 7122(b).
In reaching this conclusion, we also apply the principle of
statutory construction that where two statutes potentially
conflict, a court should ‘‘ ‘read the statutes to give effect to
each if we can do so while preserving their sense and pur-
pose.’ ’’ Millsap v. Commissioner, 91 T.C. 926, 937 (1988)
(quoting Watt v. Alaska, 451 U.S. 259, 267 (1981)). We
should attempt to interpret or reconcile them in a manner
which will not cause an arbitrary or unreasonable result. Id.
The predecessor of section 7122(d) was first enacted in 1868,
see Act of July 20, 1868, ch. 186, sec. 102, 15 Stat. at 166,
and a $500 threshold for review was added as part of the
Internal Revenue Code of 1954, ch. 74, sec. 7122(b), 68A
Stat. at 849. The threshold in section 7122(b) for com-
promised liabilities requiring General Counsel review was
more recently raised to $50,000 from $500 in 1996. See Tax-
payer Bill of Rights 2, Pub. L. No. 104–168, sec. 503(a), 110
Stat. at 1461. Two years later in RRA 1998 sec. 1001(a)(4)
Congress directed the Commissioner to develop a plan
restricting ex parte communications between Appeals
employees and other IRS employees. Nothing in the legisla-
tive history of RRA 1998 sec. 1001(a)(4) suggests that Con-
gress intended that directive to circumscribe the review of an
OIC by the General Counsel (or his delegate) mandated in
section 7122(b) where the OIC is the subject of Appeals
consideration. Rev. Proc. 2000–43, supra, can be readily
interpreted to permit full review by the Office of Chief
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(277) HINERFELD v. COMMISSIONER 289
Counsel of an OIC based on doubt as to collectibility,
including nondeferential factual determinations incident to
the issue of a fraudulent conveyance. The applicable IRM
guidelines buttress that interpretation. We reject petitioner’s
arguments to the contrary, which contend that Area Coun-
sel’s investigation and development of the facts concerning a
possible fraudulent conveyance and negative recommenda-
tion to Appeals concerning the OIC as a result constitute
prohibited ex parte communications contemplated by Con-
gress and proscribed by Rev. Proc. 2000–43, supra.
For the foregoing reasons, we hold that communications
between employees of the Office of Chief Counsel and
Appeals to facilitate compliance with section 7122(d) are not
prohibited ex parte communications for purposes of RRA 1998
sec. 1001(a)(4) or Rev. Proc. 2000–43, supra.
III. Abuse of Discretion
Aside from his ex parte communications argument, peti-
tioner contends that an abuse of discretion occurred because
Area Counsel exercised undue influence over what should
have been an independent review of his amended OIC by
Appeals and SO Berger did not understand she need not
accept Area Counsel’s negative recommendation. As pre-
viously discussed, Area Counsel’s review and recommenda-
tion concerning petitioner’s OIC was mandated by statute and
complied with applicable regulations and administrative
procedures; SO Berger lacked authority to accept the OIC;
and we are satisfied ATM O’Dea, who had such authority,
exercised independent judgment in accepting Area Counsel’s
recommendation. When he did so, ATM O’Dea had before him
substantial evidence that petitioner had effected a fraudulent
conveyance of the Thermacon assets and petitioner’s incon-
sistent representations regarding when he ceased to control
those assets.
Generally, a doubt as to collectibility OIC may be accepted
only when it equals or exceeds the taxpayer’s reasonable
collection potential. IRM pt. 5.8.1.1.3(3) (Sept. 1, 2005); see
also Rev. Proc. 2003–71, sec. 4.02(2), 2003–2 C.B. 517, 517.
Amounts includible in a taxpayer’s reasonable collection
potential include amounts collectible from third parties
through judicial action, such as a suit to set aside a fraudu-
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290 139 UNITED STATES TAX COURT REPORTS (277)
lent conveyance. IRM pt. 5.8.4.4.1 (Sept. 1, 2005). The
Thermacon assets for which there was substantial evidence
of a fraudulent conveyance and about which petitioner
appeared to be dissembling were conceded by him to be
worth $2.2 million at the time of transfer. In view of the time
constraints imposed by section 7122(f) and the apparently
protracted nature of the Multi-Glass lawsuit, petitioner was
offered the collection alternative of placing his account in
currently not collectible status, which he rejected. In these
circumstances, ATM O’Dea’s decision to reject an OIC to settle
trust fund penalties totaling $471,696 for $74,857 was not an
abuse of discretion. If anything, this case illustrates not an
abuse of discretion by IRS employees but instead the wisdom
of requiring the Office of Chief Counsel’s review of fraudulent
conveyance issues.
IV. Conclusion
Petitioner did not challenge the existence or amount of his
liability for the trust fund penalties that respondent seeks to
collect, nor did he raise any other challenges to the appro-
priateness of the collection action. Because we have found
that there were no prohibited ex parte communications and
that there was no abuse of discretion in rejecting petitioner’s
amended OIC, we conclude that respondent correctly deter-
mined to proceed with the proposed levy.
To reflect the foregoing,
Decision will be entered for respondent.
f
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