Johnson v. Commissioner, 136 T.C. 475

P owes 1999 and 2000 federal income taxes totaling about $1.1 million after late filings; returns were filed in 2002 with no payments.
IRS issued NFTL and levy notices in 2007; collection due process (CDP) hearing requested, with multiple offers in compromise (OIC) proposed and amended.
Remand proceedings on RCP calculations shifted to the IRS Office of Appeals; dissipated assets and future income became disputed.
On remand, Appeals recalculated RCP at roughly $445,181, including dissipated assets and projected future earnings.
P proposed a $140,000 settlement based on limited assets; the officer rejected the informal proposal and sustained liens/levies.
Petition to review was filed; the Tax Court upheld the IRS’s rejection of the OIC and allowed collection actions.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did Appeals abuse discretion in rejecting the OIC?	Johnson argues the OIC was reasonable given his finances.	IRS contends RCP exceeded Johnson's offer; rejection was valid.	No abuse; OIC rejection upheld.
Should dissipated assets be included in RCP?	Dissipated assets used for living expenses should not be counted.	IRM allows including dissipated assets where substantiation is lacking.	Discretionary inclusion of dissipated assets affirmed.
Was the April 2009 amendment/withdrawal of the December 2008 OIC proper?	Amendment/withdrawal should have preserved the $400,000 offer.	Amendment reduced to $140,000; no pending $400,000 offer remained.	Yes; Appeals did not abuse discretion; $400,000 offer no longer pending.

Fargo v. Commissioner, 447 F.3d 706 (9th Cir. 2006) (doubt as to collectibility; OIC not accepted if not reflecting RCP)
Murphy v. Commissioner, 125 T.C. 301 (Tax Ct. 2005) (abuse of discretion standard in CDP context)
Sego v. Commissioner, 114 T.C. 604 (Tax Ct. 2000) (scope of judicial review in CDP cases)
Goza v. Commissioner, 114 T.C. 176 (Tax Ct. 2000) (abuse of discretion standard; no independent tax liability reconsideration)