## Facts

- John F. Campbell timely filed his 2001 federal income tax return, reporting taxable income of $201,519 and tax due of $59,354; the IRS assessed the reported liability and issued a refund in 2002.
- The IRS later examined the 2001 return, made substantial adjustments, and ultimately assessed a deficiency and penalties of roughly $1.2 million.
- The IRS issued a notice of intent to levy and filed a notice of federal tax lien for the 2001 liability.
- Campbell requested a Collection Due Process (CDP) hearing under I.R.C. §§ 6320 and 6330 and proposed an offer in compromise (OIC) based on doubt as to collectibility for approximately $12,000.
- In April 2004, Campbell created and funded a foreign trust in Nevis with $5 million; the trust was described as an irrevocable grantor trust for federal tax purposes, with a long term and Campbell and family members as beneficiaries.
- The trust used a foreign corporate trustee; Campbell could request a trustee change through a trust protector but could not compel distributions or direct investments.
- The IRS notified Campbell in May 2004 that his 2001 return was under examination; the IRS did not assess the disputed liability until 2010.
- IRS Appeals calculated Campbell’s reasonable collection potential (RCP) by including substantial value attributed to the foreign trust, rejected the OIC, and issued determinations sustaining the levy and lien (including supplemental determinations).
- Campbell petitioned the Tax Court, challenging the determinations as an abuse of discretion based on inclusion of the foreign trust assets in RCP; he did not dispute the underlying 2001 liability.

## Issues

1. Whether IRS Appeals abused its discretion in sustaining the proposed levy and lien after rejecting Campbell’s OIC by including the foreign trust corpus in Campbell’s RCP as collectible assets.
2. Whether Campbell’s 2004 transfer of $5 million to the foreign trust could reasonably be treated as asset dissipation for CDP/OIC purposes given the timing and circumstances.

## Decision

- The Tax Court reviewed the determinations for abuse of discretion because the underlying liability was not at issue.
- The court held Appeals abused its discretion by treating the foreign trust assets as available to satisfy Campbell’s liability when computing RCP and evaluating the OIC.
- The court found the record did not support that Campbell had control or enforceable rights sufficient to compel trust distributions to pay his tax debt.
- The court concluded the 2004 transfer was not reasonably treated as asset dissipation in anticipation of the 2010 assessment and the later OIC, given the multi-year gap and Campbell’s remaining net worth at the time of transfer.
- The determinations sustaining collection actions were not sustained to the extent they relied on the inflated RCP; the matter required reconsideration of collection alternatives using an RCP that did not count the trust corpus as available.

## Legal Principles

- In CDP cases where the underlying tax liability is not properly at issue, the Tax Court reviews the IRS determination for abuse of discretion.
- Appeals must (i) verify legal and procedural requirements, (ii) consider issues raised by the taxpayer (including collection alternatives such as an OIC), and (iii) balance efficient collection with the taxpayer’s interest in collection being no more intrusive than necessary. I.R.C. § 6330(c)(3).
- RCP for OIC evaluation must reflect amounts the IRS can realistically collect; treating assets as available requires support that the taxpayer has legal or practical ability to access them.
- A taxpayer’s status as a discretionary beneficiary of a foreign trust, without power to compel distributions or control trust assets, does not by itself justify including the trust corpus in RCP as collectible property.
- Asset dissipation principles require a reasonable connection between the transfer and the tax collection context; significant temporal separation and contrary financial circumstances can make a dissipation characterization unreasonable.

## Conclusion

The Tax Court held that IRS Appeals acted unreasonably in rejecting Campbell’s offer in compromise and sustaining collection action based on an RCP that counted a Nevis trust’s assets as if Campbell could access them; the case required reevaluation of collection alternatives without treating the trust corpus as available to pay the liability.


Campbell v. Comm’r, T.C. Memo. 2019-4 (2019)