Tax Court in Brief | Squire v. Comm’r | Rejected Offer in Compromise, Reasonable Collection Potential, and a Section 6673 Penalty

Squire v. Commissioner, T.C. Memo. 2026-71 | August 19, 2026 | Ashford, J. | Dkt. No. 9737-24L

Short Summary

Squire, an Ohio attorney, petitioned the Tax Court from a notice of determination sustaining a proposed levy and a Notice of Federal Tax Lien filing for unpaid federal income taxes covering 2011 and 2018 through 2020. During the collection due process hearing he offered $24,000 to compromise the liabilities. The Appeals officer calculated his reasonable collection potential at $591,652.42 and declined.

The Court sustained the determination and then imposed a $10,000 penalty under section 6673. The petitioner had filed seven petitions over roughly fifteen years, had already been warned about using offers in compromise to delay collection, and had already been sanctioned $5,000 once.

Key Issues

Whether Appeals abused its discretion in sustaining a proposed levy and a Notice of Federal Tax Lien filing after rejecting the petitioner’s offer in compromise; and whether to impose a penalty under section 6673 for instituting the proceeding primarily for delay or maintaining frivolous or groundless positions.

Primary Holdings

Appeals did not abuse its discretion. The officer verified that the requirements of applicable law and administrative procedure had been met, considered the issues the petitioner raised, and performed the required balancing.

Rejecting the $24,000 offer was reasonable. The petitioner had placed assets in an irrevocable trust and had not resolved the tax compliance problems at his wholly owned businesses, and the calculated reasonable collection potential exceeded the offer by more than twentyfold.

A section 6673(a)(1) penalty of $10,000 was imposed, given the history of repeat filings, the prior warning, and the prior $5,000 sanction.

Key Points of Law

Sections 6320(c) and 6330(d) frame collection due process review. Where the underlying liability is not properly at issue, the Court reviews the determination for abuse of discretion, asking whether it was arbitrary, capricious, or without sound basis in fact or law. The officer must verify legal and procedural compliance, consider issues the taxpayer raises, and weigh the need for efficient collection against the taxpayer’s legitimate concern that collection be no more intrusive than necessary.

Section 7122(a) authorizes the Secretary to compromise a liability, and the decision is discretionary. Rejecting an offer that falls materially below a properly computed reasonable collection potential is ordinarily not an abuse of discretion. Two facts drove the computation here: assets moved into an irrevocable trust, and ongoing noncompliance at entities the taxpayer controlled. Current compliance is a gating requirement for a compromise, and a taxpayer who is still accruing liabilities elsewhere is a poor candidate.

Section 6673(a)(1) permits a penalty up to $25,000 where a proceeding was instituted or maintained primarily for delay, where the taxpayer’s position is frivolous or groundless, or where the taxpayer unreasonably failed to pursue available administrative remedies. A taxpayer evidences a primary purpose of delay by using frivolous or groundless arguments to put off paying tax. Pierson v. Commissioner, 115 T.C. 576 (2000).

Section 6325(b) governs discharge of property from a lien, and the Court addressed it alongside the withdrawal and release provisions the petitioner raised.

Insight

Read Squire carefully, because the sanction is narrower than the headline suggests.

Nothing in this opinion penalizes a taxpayer for submitting an offer in compromise that gets rejected. Offers are rejected regularly, on reasonable collection potential grounds, and the taxpayers who submit them are exercising a right the Code gives them. What drew the penalty was a pattern — seven petitions across fifteen years, a documented warning about using the offer process to buy time, and a prior sanction that didn’t change the behavior.

The reasonable collection potential arithmetic is the part worth studying. A $24,000 offer against a $591,652.42 computation isn’t a negotiation, it’s a delay. Counsel preparing a Form 656 should be building the collection potential analysis independently first, and should be treating an irrevocable trust holding the client’s former assets as the first thing Appeals will ask about rather than the last thing the client mentions. Transfers of that kind don’t disappear from the computation, and depending on timing they raise transferee and fraudulent conveyance questions of their own.

Current compliance is the other gate. A taxpayer whose entities aren’t filing and depositing has no realistic path to a compromise, and the time to fix that is before the hearing, not during it. Our discussion of the IRS rejection of an offer in compromise covers the analysis in a cleaner posture, and our brief on collection due process, offers in compromise, and hardship takes up the economic hardship overlay.

The companion case decided the same day, involving the petitioner’s law firm and its unpaid employment taxes, produced a second $10,000 sanction. We cover it in our brief of Percy Squire Co. LLC v. Commissioner.

The full opinion is posted at CourtListener. More weekly briefs are collected in The Tax Court in Brief archive.

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. Tax outcomes turn on specific facts, and the law changes. Consult qualified counsel about your own situation.