Tenth Circuit Upholds IRS Collection Determination

Eric Edward Chandler admits that he owes hundreds of thousands of dollars in federal tax liabilities. After the IRS Office of Appeals rejected Chandler's offer in compromise and sustained the notice of federal tax lien, Chandler claimed that his medical expenses had increased, resulting in changed circumstances. Chandler argues that the Tax Court should have remanded his appeal to the IRS Office of Appeals to reconsider its ruling in view of his changed circumstances, even though his reasonable collection potential is still substantially more than his offer in compromise. The Tax Court rejected this argument and concluded that even if Chandler were able to show a change in circumstances, that change wouldn't be material or alter the Office of Appeals' determination. Exercising jurisdiction under 26 U.S.C. § 7482(a)(1), we affirm.

The Office of Appeals sustained the IRS's lien filing and rejected Chandler's offer in compromise. The Office of Appeals calculated Chandler's reasonable collection potential at $518,579. It did so by adding five years of Chandler's disposable income ($103,920) to his equity in other assets, including his retirement funds ($415,969). Based on its calculated reasonable collection potential, the Office of Appeals proposed its own Form 433-D Installment Agreement payment plan, offering to accept $103,920, the value of sixty months' payments of $1,732.

Dissatisfied with this turn, Chandler appealed the Office of Appeals' denial of his offer in compromise to the Tax Court. Once there, Chandler sought a remand to the Office of Appeals for reconsideration in view of an alleged recent change of circumstance -- medical expenses rising from $144 per month (which the Office of Appeals considered in determining his reasonable collection potential) to $310 a month.

The Tax Court began by sustaining the IRS's tax lien, holding that the Office of Appeals had acted within its discretion in rejecting Chandler's offer in compromise. Next, addressing Chandler's changed-circumstances argument, the Tax Court determined that Chandler's $166 increase in monthly medical expenses would not materially affect the IRS's reasonable collection potential. Thus, the Tax Court concluded that the asserted change in circumstances didn't justify a remand to the Office of Appeals.

On appeal to this court, Chandler doesn't dispute his tax liability, oppose the Tax Court's calculation of his reasonable collection potential, or claim that the Office of Appeals abused its discretion in rejecting his offer in compromise. Instead, he argues that the Tax Court erred by not remanding his case back to the Office of Appeals to reconsider its ruling after he told the Tax Court that his medical expenses had increased $166 per month.

Here, the Tax Court didn't abuse its discretion in denying Chandler's request to remand to the Office of Appeals for changed circumstances. In the Tax Court, Chandler presented evidence that his medical expenses had increased by $166 per month after he had appeared in the Office of Appeals. But the Tax Court concluded that even with the increased medical expenses, Chandler's reasonable collection potential would marginally decrease from $518,579 to $508,619 -- still far more than Chandler's offer in compromise of $2,937.60. In refusing Chandler's requested remand, the Tax Court explained that even with the asserted change in circumstances, a remand to consider Chandler's offer of $2,937.60 would be unhelpful, unnecessary, and unproductive.

The Tax Court did not abuse its discretion in rejecting Chandler's request for remand. Chandler's change in circumstances isn't material because it marginally lowers his reasonable collection potential, which is still far greater than his offer in compromise. See Murphy v. Comm'r, 469 F.3d 27, 33 (1st Cir. 2006) (explaining that the IRS "will not accept a compromise that is less than the reasonable collection value of the case."). Therefore, the Tax Court did not abuse its discretion in refusing to remand this case to the Office of Appeals.

¹ The record is unclear how Chandler determined this offer in compromise. In response to Chandler's offer in compromise, the IRS calculated Chandler's monthly disposable income as $1,732. His offer in compromise of $2,937.60 represented less than two months of his disposable income.

² Chandler doesn't dispute the amount of the outstanding tax liabilities or argue that the Office of Appeals erred in rejecting his offer in compromise.