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Hauptman v. Commissioner of Internal Revenue

United States Court of Appeals, Eighth Circuit

August 2, 2016

Bruce A. Hauptman Appellant
v.
Commissioner of Internal Revenue Appellee Bruce A. Hauptman Appellant
v.
Commissioner of Internal Revenue Appellee

          Submitted: June 14, 2016

         Appeal from the United States Tax Court

          Before SMITH and GRUENDER, Circuit Judges, and KETCHMARK, [1] District Judge.

          GRUENDER, Circuit Judge.

         Bruce A. Hauptman sought judicial review of the Commissioner of Internal Revenue Service's ("IRS") notices of determination permitting a levy to collect Hauptman's unpaid income tax liabilities for tax years 1992 through 1996. The tax court upheld the IRS's determinations. Hauptman appeals, arguing (1) that the tax court lacked jurisdiction and (2) that the IRS abused its discretion when it rejected Hauptman's offer-in-compromise. We affirm.

         I.

         Hauptman is an investment consultant who owned controlling interests in firms that managed over $100 million in client funds in the mid-1990s. Hauptman did not timely file federal income tax returns during any year from 1992 through 1996. Hauptman eventually filed returns for these years, but he did not pay the amounts due on the late-filed returns. As a result, the IRS assessed Hauptman for those amounts. As of 2007, his liability for tax years 1992 through 1996 totaled $13, 052, 711.30. Hauptman does not contest any portion of that liability.

         In February 2007, the IRS sent Hauptman notices that it intended to use levies to collect his income tax liability. These notices informed Hauptman that he had the right to a collection due process ("CDP") hearing before the IRS Office of Appeals to contest the proposed levies. Hauptman requested a CDP hearing and argued that the proposed levies were not appropriate because "an offer in compromise should be accepted as a reasonable alternative to enforced collection." After the CDP hearing, the Office of Appeals issued notices of determination upholding the proposed levies.

         Hauptman filed petitions in the tax court challenging the notices of determination. The IRS moved for summary judgment, which the tax court denied. The parties then agreed to allow Hauptman to submit an offer-in-compromise for tax years 1992 through 1996. Instead of remanding the case, the tax court granted a continuance of Hauptman's petitions while the IRS considered his offer.

         Hauptman submitted his offer in February 2010. His liability at the time of the offer was approximately $15.5 million. He proposed to settle that liability by paying $500, 000 within four months. Hauptman also submitted financial information for himself as well as various companies that he controlled. In these statements, Hauptman assigned a value of roughly $3 million to his various companies. He also claimed that his living expenses totaled over $10, 000 per month and that his income was $15, 284 per month.

         The IRS rejected Hauptman's offer, reasoning that Hauptman had "an egregious history of past non-compliance" and "ha[d] not reported any income" or paid any taxes for several years. The IRS noted that Hauptman had caused various firms to pay his personal expenses to fund his "lavish life style." Further, although Hauptman valued his numerous firms at roughly $3 million, he had valued these same entities at $12 million on prior loan documents. The IRS concluded that "acceptance of [the] offer would not be in the best interest of the government."

         Hauptman appealed the rejection of his offer to the IRS Office of Appeals. In July 2012, the Office of Appeals sent Hauptman supplemental notices of determination rejecting the offer-in-compromise as not in the best interest of the government. The Office of Appeals provided a thorough review detailing its reasons for its decision. It concluded that Hauptman had failed to report all of his income on his tax returns, failed to fully disclose his financial situation during the CDP proceedings, and failed to prioritize the payment of taxes. The Office of Appeals calculated Hauptman's reasonable collection potential to be $12, 156, 983.35.

         After the Office of Appeals issued the supplemental notices of determination, the tax court restored Hauptman's petitions to its docket and consolidated the petitions for trial. The sole issue presented by the parties was whether the IRS abused its discretion by rejecting Hauptman's $500, 000 offer-in-compromise. On October 9, 2014, the tax court upheld the Office of Appeals's decision rejecting Hauptman's offer.

         II.

...


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