890 F.3d 192
5th Cir.2018Background
- Jannette Duncan and the estate of her husband, through RCD Investments, used a Son-of-BOSS tax shelter and claimed bad-debt deductions, generating large refunds/NOLs for 1996–2001.
- The Duncans entered IRS settlement forms in 2004–2006: Form 906 (closing agreement) conceding all SOB benefits, and Forms 4549 consenting to assessments and waiving appeals; later revised Forms 4549 increased assessed deficiencies.
- IRS sought collection; the Duncans requested CDP hearings and proposed a $40,000 offer-in-compromise against roughly $3.4 million liability, asserting limited collectability and special circumstances (age, limited income, obligations).
- IRS Appeals denied the compromise without computing a precise RCP, instead estimating substantial assets (including potential recovery from Robert Duncan’s estate and trustee litigation) and treating dissipated estate assets as relevant.
- The Tax Court sustained IRS Appeals’ determinations (denying CDP relief and upholding rejection of the compromise). The Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tax Court exceeded jurisdiction by interpreting closing agreement (and thereby addressing underlying liability) | Closing agreement barred assessment; Tax Court’s interpretation effectively decided underlying liability beyond CDP scope | Tax Court only reviewed the closing agreement to verify legal impediments to collection, which is proper in CDP review | Tax Court did not exceed jurisdiction; interpretation addressed whether agreement barred assessment, not the merits of tax amounts |
| Proper interpretation/effect of Form 906 closing agreement | Countersignature without immediate payment meant IRS agreed no SOB-related tax would ever be due | Closing agreement conceded benefits but did not fix dollar liabilities; it authorized IRS to determine resulting deficiencies | Closing agreement unambiguous: it required concession of SOB benefits and payment of resulting deficiencies; did not preclude IRS recalculation |
| Whether IRS Appeals abused discretion by rejecting $40,000 offer without exact RCP calculation or expert valuation | IRS Appeals failed to follow IRM: did not compute precise RCP, did not obtain field valuation experts, and ignored procedural guidance | IRM is non‑binding guidance; given the huge gap between $40,000 and the Duncans’ own RCP estimate, rough estimation and rejection were reasonable | No abuse of discretion; IRS Appeals need not produce exact RCP or hire experts where offer is far below reasonable estimates and valuations are complex |
| Whether IRS Appeals improperly included dissipated estate assets (and extended beyond IRM three‑year window) | Dissipated assets should not be counted; IRM limits retrospective window to three years absent special facts | Duncans dissipated estate assets after audit notice and DOJ considered suing trustee; potential recovery from estate litigation made inclusion reasonable | No abuse of discretion: considering dissipated assets and potential trustee suit was appropriate given facts; going beyond three‑year window was justified |
Key Cases Cited
- NPR Invs., LLC ex rel. Roach v. United States, 740 F.3d 998 (5th Cir. 2014) (background on Son‑of‑BOSS shelters)
- Rodriguez v. Comm’r, 722 F.3d 306 (5th Cir. 2013) (standard of review for Tax Court appeals)
- Terrell v. Comm’r, 625 F.3d 254 (5th Cir. 2010) (de novo review of legal questions)
- Keller Tank Servs. II, Inc. v. Comm’r, 854 F.3d 1178 (10th Cir. 2017) (CDP hearing scope and Tax Court review limitations)
- Goza v. Comm’r, 114 T.C. 176 (Tax Ct. 2000) (taxpayer cannot raise underlying liability at CDP if previously had opportunity)
- Oxford Capital Corp. v. United States, 211 F.3d 280 (5th Cir. 2000) (IRM not legally binding on taxpayers)