William G. Schwartz; Jacqueline R. Schwartz v. Commissioner of Internal Revenue

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-3171
WILLIAM G. SCHWARTZ;
JACQUELINE R. SCHWARTZ,
Appellants
v.
COMMISSIONER OF INTERNAL REVENUE
Appeal from the Decision of the
United States Tax Court
IRS-1 Docket No. 112530-06l
Tax Court Judge: Honorable Julian I. Jacobs
Submitted Under Third Circuit LAR 34.1(a)
September 30, 2009
Before: RENDELL, AMBRO, and WEIS, Circuit Judges
(Opinion filed October 9, 2009)
OPINION
AMBRO, Circuit Judge
William G. and Jacqueline R. Schwartz appeal a final judgment of the United

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1 Section 6330 governs the process for IRS levy actions against the property of
delinquent taxpayers, and § 6320 applies to federal tax lien filings. For an extended
discussion of the statutory framework for this process, see Murphy v. Comm’r, 469 F.3d
27, 30 (1st Cir. 2006); Living Care Alternatives of Utica, Inc. v. United States, 411 F.3d
621, 624-25 (6th Cir. 2005).
2 The turnover in Appeals officers was due to unrelated circumstances, including
the retirement of one officer and the office transfer of another.
2
States Tax Court. The Schwartzes claim that the Tax Court erred in holding that the
Internal Revenue Service (“IRS”) did not abuse its discretion in rejecting the Schwartzes’
offer-in-compromise. We disagree with the Schwartzes and affirm the Tax Court’s
decision.
I.
On November 10, 2003, the IRS issued real estate attorney William Schwartz and
his wife, Jacqueline, a final notice of intent to levy for unpaid tax liabilities from the tax
years 1996, 1997, 1998, 2000, and 2001. Their outstanding tax liabilities totaled
$287,523.10. On November 17, 2008, the IRS followed with a notice of a federal tax
lien. The Schwartzes responded to these notices by requesting collection due process
(“CDP”) hearings under 26 U.S.C. §§ 6320 and 6330.1 These CDP hearings were
conducted by mail and over the telephone with four different officers in the IRS Office of
Appeals. 2
During the CDP hearings, the Schwartzes did not challenge their overall tax
liability. Instead, they entered into negotiations with the IRS over possible compromises.
During these negotiations, the parties continually disagreed over the Schwartzes’

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“collection potential” – particularly, the equity in the Schwartzes’ main asset, their home.
The IRS Office of Chief Counsel rejected the Schwartzes’ first offer-in-compromise as
legally insufficient because the appraisal offered by the Schwartzes was over two years
old and, therefore, did not accurately reflect the value of the home when the offer-in-
compromise was submitted. As a result, the Office of Chief Counsel requested additional
information from the Schwartzes, including a new appraisal of their home. The
Schwartzes responded with two new appraisals – one for $400,000 and another for
$430,000. All told, the Schwartzes presented four separate offers-in-compromise to the
IRS, ranging from $7,542 to $129,361.
By November 2005, the parties had preliminarily agreed to settle the Schwartzes’
tax liability for $129,361. Upon reaching this agreement, the Schwartzes’ Appeals officer
transferred to another IRS office, and another officer was assigned to the Schwartzes’
case. The new Appeals officer requested an opinion from the Office of Chief Counsel on
the legal sufficiency of the new offer-in-compromise. On March 26, 2006, the Office of
Chief Counsel concluded that it was unable to determine the legal sufficiency of the new
offer because the “reasonable collection potential” of the Schwartzes’ home had not been
adequately determined. The Office of Chief Counsel suggested that the Appeals officer
request appraisal assistance from the IRS Engineering Group.
In April 2006, the Schwartzes’ Appeals officer was replaced again. Their case file
was transferred to the new officer, who requested appraisal assistance from the
Engineering Group. After reviewing the Schwartzes’ appraisals and examining related

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sales in the relevant housing market, the Engineering Group’s appraiser informed the
Appeals officer of her preliminary analysis. She concluded that the current market value
of the Schwartzes’ home might be 30-40% greater than indicated in the Schwartzes’
appraisals. Although the appraiser briefly mentioned her appraisal methods in her
exchange with the Appeals officer, no formal report was ever filed by the Engineering
Group on the Schwartzes’ case.
On June 6, 2006, the Office of Appeals notified the Schwartzes that the IRS had
rejected their offer-in-compromise as inadequate. The Schwartzes appealed this decision
to the United States Tax Court, arguing that the IRS abused its discretion in rejecting their
offer-in-compromise. The Tax Court ruled in favor of the IRS, concluding that there was
sufficient disagreement over the value of the Schwartzes’ home to justify the IRS’s
decision to reject the offer-in-compromise. As a result, the Tax Court held that the IRS
did not abuse its discretion.
On appeal, the Schwartzes argue both that the IRS valued their assets in an
arbitrary and capricious manner and that, as a general matter, the IRS should be required
by our Court to conform with the Uniform Standards of Professional Appraisal Practice
(USPAP). We disagree.
II.
We have jurisdiction to review decisions of the Tax Court under 26 U.S.C.
§ 7482(a)(1). “We review the Tax Court’s legal determinations de novo, but we do not
disturb its factual findings unless they are clearly erroneous.” Lattera v. Comm’r, 437

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F.3d 399, 401 (3d Cir. 2006).
III.
During CDP hearings, taxpayers are allowed to propose collection alternatives,
including offers-in-compromise. 26 U.S.C. § 6330(c)(2)(iii). The IRS officer may
compromise a taxpayer’s liability where it has a “[d]oubt as to collectability” of the
outstanding tax liabilities. 26 C.F.R. § 301.7122-1(b)(2). Once a doubt as to
collectability is established, the “decision to accept or reject an offer to compromise . . . is
left to the discretion of the [IRS].” 26 C.F.R. § 301.7122-1(c)(1). The IRS officer must
ultimately determine whether the proposal “balances the need for the efficient collection
of taxes with the legitimate concern of the person that any collection be no more intrusive
than necessary.” 26 U.S.C. § 6330(c)(3)(C). Under IRS procedures, the officer will not
accept a compromise that is less than the “reasonable collection value” of the case, absent
a showing of special circumstances. Rev. Proc. 2003-71. The offer-in-compromise
should “reflect[] the amount the Service could collect through other means, including
administrative and judicial collection remedies.” Id.
Both parties agree that we review the IRS’s rejection of an offer-in-compromise
for “abuse of discretion.” Sego v. Comm’r, 114 T.C. 604, 610 (2000); see also Living
Care Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 625 (6th Cir. 2005) (“[I]t
was proper to review the IRS Appeals Office de novo with respect to decisions about the
underlying tax liability and for abuse of discretion with respect to all other decisions.”).

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3 The Sixth Circuit Court recently cautioned against reading other notions of due
process into IRS proceedings. Living Care, 411 F.3d at 629 (“[T]he notion of due process
in tax collection is not the same as in other areas of law. The IRS has historically had
broad discretion . . . .”).
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“Judicial review of such decisions is deferential.” 3 Orum v. Comm’r, 412 F.3d 819, 820
(7th Cir. 2005). In considering the IRS’s determination, we are not to “conduct an
independent review of what would be an acceptable offer in compromise.” Murphy v.
Comm’r, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). Instead, we must
“determine whether the Appeals officer’s decision to reject the offer in compromise
actually submitted by the taxpayer was arbitrary, capricious, or without sound basis in
fact or law.” Id.
Courts have consistently held that the IRS is owed considerable deference when
considering the adequacy of a taxpayer’s proposed offer-in-compromise. See, e.g.,
Murphy, 469 F.3d at 32 (“We will only disturb the rejection of [the appellant’s] offer-in-
compromise if it represents a clear abuse of discretion in the sense of taxpayer abuse and
unfairness by the IRS.”) (internal quotation marks omitted); Orum, 412 F.3d at 821
(“[T]he Judicial Branch does not instruct the Executive Branch how to make executive
decisions.”); Living Care, 411 F.3d at 627 (“In most cases, reviewing courts have merely
affirmed the Appeals Officer’s determination . . . .”). “[W]ithout a clear abuse of
discretion in the sense of clear taxpayer abuse and unfairness by the IRS, as contemplated
by Congress, the judiciary will inevitably become involved on a daily basis with tax
enforcement details that judges are neither qualified, nor have the time, to administer.”

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4 “Within the real estate appraisal community MAI is viewed as the highest
regarded appraisal designation.” Schwartz v. Comm’r, No. 12530-06L, 2008 WL
1862652, at *3 n.8 (U.S. Tax Ct. Apr. 28, 2008).
5 For an overview of the real estate valuation criteria in this context, see Int. Rev.
Man. 5.8.5.4.11. Although the record indicates that the communications between the
Engineering Group’s appraiser and the Appeals officer were informal, the appraiser based
her preliminary conclusions on other sales in the relevant housing market and her analysis
of the Schwartzes’ appraisals. These methods are consistent with the approved methods
outlined in the Internal Revenue Manual. Id.
7
Living Care, 411 F.3d at 631.
IV.
There is no clear indication that the Schwartzes were treated unfairly in this case.
Although unrelated circumstances forced them to communicate with four Appeals
officers, the record suggests that each officer followed the relevant IRS procedures in
handling the Schwartzes’ case. Furthermore, each Appeals officer was privy to their case
file. The case file contained the key valuation information offered by the Schwartzes,
including their three home appraisals and their responses to questions about possible
defects in these appraisals. Importantly, the file also contained the case notes from the
previous Appeals officers working on the Schwartzes’ case.
In addition, the member of the Engineering Group who analyzed the Schwartzes’
final offer-in-compromise held an MAI designation. 4 Although the Schwartzes are
correct in noting that the Engineering Group only offered their conclusions informally, a
formal appraisal report was not required by IRS regulations and procedures. 5 The
Engineering Group’s informal report briefly outlined the appraiser’s methods, which

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6 In Whitehouse Hotel, the Tax Court explicitly “decline[d] to adopt USPAP as the
sole standard for reliability of an expert appraiser.” 2008 WL 4757336, at *10.
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included a review of the Schwartzes’ appraisals and an independent examination of
related sales in the relevant housing market. Although the appraiser only offered a
preliminary opinion, she concluded that the Schwartzes’ appraisals had understated the
value of their home. As noted, the Engineering Group appraiser added that the value of
the Schwartzes’ home may be 30-40% higher than the appraised value. In the end, it was
not an abuse of discretion for the IRS to rely on one expert’s analysis over another,
especially after the IRS had already noted several defects in the previous appraisals
offered by the Schwartzes, beginning with their first appraisal submitted in March 2003.
Finally, contrary to the Schwartzes’ argument, the IRS was not required to use the
USPAP in reviewing the Schwartzes’ appraisals. See, e.g., Whitehouse Hotel Ltd. P’ship
v. Comm’r, No. 12104-03, 2008 WL 4757336, at *10 (U.S. Tax Ct. Oct. 30, 2008)
(“Petitioners have not cited any authority, nor do we know of any, for the proposition that
an appraiser’s compliance with USPAP is the sole determining factor as to whether an
appraiser’s valuation report is reliable.”). 6 It was within the discretion of the IRS to
consider the appropriate method for evaluating the Schwartzes’ home appraisals. See
Rev. Proc. 2003-71; Int. Rev. Man. 5.8.5.4.11.
V.
Over a six-year period, the Schwartzes incurred over $287,000 in tax liabilities. In
handling the Schwartzes’ case, the IRS followed its established procedures. Before

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determining that the Schwartzes’ offer-in-compromise was inadequate, the Office of
Appeals reviewed the taxpayers’ submissions (including three home appraisals),
researched comparable sales, and solicited the advice of the IRS Engineering Group. In
the end, the IRS “gave notice, allowed a hearing, and made a reasoned decision, which is
supported by substantial evidence.” Orum, 412 F.3d at 821. In so doing, we hold that the
IRS did not abuse its discretion in rejecting the Schwartzes’ offer-in-compromise.
We therefore affirm the judgment of the United States Tax Court.

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