Craig K. Potts; Kristen H. Potts v. Commissioner of Internal Revenue

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CRAIG K. POTTS; KRISTEN H. POTTS,
Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellee.
No. 17-73472
Tax Ct. No. 12116-16L
MEMORANDUM*
Appeal from a Decision of the
United States Tax Court
Submitted August 15, 2019**
Pasadena, California
Before: SCHROEDER and GRABER, Circuit Judges, and LEFKOW,*** District
Judge.
Petitioners Craig K. Potts and Kristen H. Potts timely initiated a collection
due process case with the Internal Revenue Service ("IRS") concerning the IRS’s
FILED
AUG 19 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The panel unanimously concludes that this case is suitable for decision
without oral argument. Fed. R. App. P. 34(a)(2).
*** The Honorable Joan Lefkow, United States District Judge for the
Northern District of Illinois, sitting by designation.

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intent to levy Petitioners’ unpaid tax liabilities for tax years 2005 and 2013. A
settlement officer set a deadline in March 2016 for Petitioners to submit an offer in
compromise and supporting financial information. When Petitioners failed to meet
that deadline, the settlement officer extended the deadline to April 2016 but
warned Petitioners that no further extensions would be granted. When Petitioners
again failed to submit any documents by the April deadline, the settlement officer
closed the case. Petitioners timely sought review from the tax court, which denied
relief. Petitioners now seek review from this court. We affirm.
1. The tax court correctly granted summary judgment to the Commissioner
of Internal Revenue. See Sollberger v. Comm’r, 691 F.3d 1119, 1123 (9th Cir.
2012) (holding that we review de novo the tax court’s grant of summary
judgment).
(a) The tax court correctly held that the settlement officer acted well within
her discretion by closing the case. Petitioners never submitted an offer in
compromise or any financial documents—by the initial deadline or by the extended
deadline, despite being warned that a failure to submit the requested documents
would result in the closing of the case. Similarly, the settlement officer properly
completed the legal prerequisites to closing the case.
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(b) The tax court correctly held that Petitioners waived any challenge to
liability for the 2013 tax year by declining to dispute 2013 liability both before the
settlement officer and before the tax court. At most, Petitioners mentioned, in
passing, that they had made offers in compromise concerning the 2013 liability in
proceedings outside the present collection proceedings and were contemplating
making an offer in compromise concerning the 2013 liability. Those assertions are
not fairly understood as an actual challenge to the 2013 liability in the collection
proceedings. See 26 C.F.R. § 301.6330-1(f)(2) (A-F3) ("In seeking Tax Court
review of a Notice of Determination, the taxpayer can only ask the court to
consider an issue, including a challenge to the underlying tax liability, that was
properly raised in the taxpayer’s collection due process hearing. An issue is not
properly raised if the taxpayer fails to request consideration of the issue by Appeals
. . . .").
(c) The tax court correctly held that Petitioners had an earlier opportunity to
challenge their liability for 2005 tax year and that, accordingly, they could not
challenge that liability in this collection proceeding. See 26 U.S.C.
§ 6330(c)(2)(B) ("The person may also raise at the hearing challenges to the
existence or amount of the underlying tax liability for any tax period if the person
did not receive any statutory notice of deficiency for such tax liability or did not
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otherwise have an opportunity to dispute such tax liability."). Petitioners clearly
had an earlier opportunity to dispute their 2005 liability because, in 2013,
Petitioners affirmatively settled their liability for the 2005 tax year by signing a
Form 870-AD. See, e.g., Deese v. Comm’r, 94 T.C.M. (CCH) 546, 2007 WL
4302435, at *2 (T.C. 2007) (holding that, by settling with the IRS via a Form 870-
AD, the taxpayers "gave up any right to challenge their underlying liabilities in a
collection proceeding").
We reject Petitioners’ argument that the 2013 settlement was not an earlier
opportunity to dispute the 2005 liability on the ground that the IRS allegedly
destroyed their original tax records. Even assuming that records were lost, the tax
court correctly held that Petitioners "were fully aware of that fact no later than
November 2010," when the IRS returned all documents to Petitioners with a cover
letter stating that the agency was returning all documents to Petitioners. Petitioners
settled with the IRS in 2013, after receiving the IRS’s 2010 package returning all
documents to Petitioners. Whether or not their 2013 settlement binds them for all
purposes, Whitney v. United States, 826 F.2d 896 (9th Cir. 1987), the tax court
correctly concluded that Petitioners had an "opportunity to dispute [the 2005] tax
liability" for purposes of 26 U.S.C. § 6330(c)(2)(B).
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2. The tax court did not abuse its discretion by denying Petitioners’ motion
to amend their tax court petition in order to challenge their 2013 tax liability. See
Kelley v. Comm’r, 877 F.2d 756, 761 (9th Cir. 1989) (holding that we review for
abuse of discretion the tax court’s denial of leave to amend), abrogated on other
grounds by Bufferd v. Comm’r, 506 U.S. 523 (1993). Because Petitioners failed to
challenge the 2013 tax liability before the settlement officer, amendment of the tax
court petition would have been futile.
3. The tax court did not abuse its discretion or otherwise err by denying
Petitioners’ motion to remand to the IRS because of outstanding offers in
compromise or amended tax returns initiated by Petitioners outside this collection
proceeding.
AFFIRMED.
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