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Click here for the full text of this decision FACTS:Taxpayer owes the IRS unpaid employment taxes for the periods ending March 31, 2002, June 30, 2002, Sept. 30, 2002, and Dec. 31, 2002. On Dec. 10, 2002, the IRS issued to taxpayer a Notice of Intent to Levy with respect to unpaid employment taxes, including penalties and interest, for the first three quarters of 2002. On May 5, 2003, the IRS issued taxpayer another Notice of Intent to Levy with respect to unpaid employment taxes, including penalties and interest, for the fourth quarter of 2002. Taxpayer’s assessed liability totaled $134,078. In response to each Notice of Intent to Levy, taxpayer requested a Collection Due Process (CDP) hearing. An IRS appeals officer conducted a CDP hearing respecting both notices. On Aug. 13, 2003, taxpayer submitted an offer in compromise (the offer) with respect to employment taxes due for all four quarters. In the offer, taxpayer proposed to pay a total of $85,000 under a deferred-payment schedule. On September 10, 2003, the officer returned taxpayer’s offer, stating that, “[taxpayer] failed to make its federal tax deposits timely for the entire two quarters prior to the quarter [taxpayer] submitted the offer . . . . Unless and until [taxpayer] can demonstrate a willingness and ability to meet these circumstances, [taxpayer] does not qualify for offer-in-compromise consideration.” On the same day, the officer issued a Notice of Determination upholding the proposed levy to collect unpaid employment taxes as set forth in the two Notices of Intent to Levy. Specifically, the officer stated that 1. The IRS had met all statutory, procedural, and administrative requirements before issuing the Notices of Intent to Levy; 2. Taxpayer had not presented an acceptable payment alternative; and 3. The proposed levy balanced the need for efficient tax collection with taxpayer’s legitimate concern that the collection action be no more intrusive than necessary. Additionally, the officer stated that taxpayer’s offer was “nonprocessable” because taxpayer had not timely made federal tax deposits and because taxpayer had more than sufficient equity in its current accounts receivable and moveable assets to pay the tax debts at issue. The taxpayer filed suit seeking review of the Notice of Determination. In its complaint, taxpayer alleged that the IRS had violated its statutory rights under the Internal Revenue Code by failing to consider the offer. The government subsequently filed a motion to dismiss, claiming, inter alia, that taxpayer failed to state a valid claim upon which relief could be granted under Federal Rule of Civil Procedure 12(b)(6). The district court dismissed the case for failure to state a claim. It held that the IRS’s procedures for declaring offers to compromise “nonprocessable” violated neither the taxpayer’s due process rights nor the Internal Revenue Code and that the officer was within her discretion and authority to reject taxpayer’s offer to compromise. Taxpayer filed a motion for reconsideration, which the court denied. Taxpayer appeals. HOLDING:Affirmed. Taxpayer argues that the officer did not have the authority to return the offer based upon a provision of the Internal Revenue Manual, and, therefore, the officer abused her discretion. The court finds no abuse of discretion. Even assuming the manual is not law and assuming that an appeals officer should not rely upon the manual in making its determination, the officer in this case acted within her discretion. “While the officer cited the manual in making her determination, we are not judging the appropriateness of that citation”. Instead, the court judges whether the officer abused her discretion in returning the offer. The officer’s determination was in accordance with the Internal Revenue Code and Treasury Department regulations. The officer acted under the power granted to her by the Internal Revenue Code to settle or not settle this civil case. Taxpayer has offered no viable support for its contention that the officer cannot utilize the guidelines set forth in the Manual when making the discretionary decision to return a submitted offer in compromise. The 6th U.S. Circuit Court of Appeals, addressing whether the IRS may reject a plan to present an offer in compromise, unequivocally stated that the “taxpayer must be current on payments for the previous two quarters to be eligible to submit an offer in compromise.” Living Care Alternatives of Utica v. United States, 411 F.3d 621 (6th Cir. 2005). Accordingly, it held that the “IRS was well within its discretion to reject [the taxpayer's] plan to present an offer in compromise.” The court joins the 6th Circuit in finding no clear abuse of discretion where an appeals officer makes a fully supported decision regarding the processability of an offer. OPINION:Benavides, J.; Jones, C.J., Barksdale and Benavides, J.J.

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