OIC Cases - Miscellaneous

Miscellaenous Cases:

Joseph G. Dostal v. Commissioner

[CCH Dec. 55,689(M)]
Mark Fowler and Joylyn Souter-Fowler v. Commissioner.

Dkt. No. 6650-02L , TC Memo. 2004-163, July 13, 2004.

[Appealable, barring stipulation to the contrary, to CA-9. --CCH.]

[Code Secs. 6330 and 7122]
Practice and procedure: Collection Due Process hearing: Offer in compromise: Liens and levies: Abuse of discretion. --
An IRS Appeals officer abused his discretion in denying a married couple's offer in compromise on the grounds that the taxpayers had inadequate income to meet their living expenses and pay the proposed monthly payments. The officer appeared to rely exclusively on the IRS's prescribed schedule of national and local average living expenses to determine that the taxpayers' basic living expenses exceeded their monthly income. However, all of the facts and circumstances, including the schedule of actual expenses submitted by the taxpayers, should have been considered to determine whether the taxpayers could pay both (Code Sec. 7122(c)(2)). The filing of the federal tax liens to secure the IRS's interest in the unpaid tax liability was not an abuse of discretion. --CCH.
Mark Fowler and Joylyn Souter-Fowler, pro sese; Guy H. Glaser, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION

GERBER, Chief Judge: Respondent, on February 21, 2002, sent Mark Fowler (petitioner) a Notice of Determination Concerning Collection Action(s) Under Section 63201 and/or 6330, in which respondent sustained the filing of a Federal tax lien for petitioner's 1990-92 tax liabilities. In that same notice respondent also rejected petitioner's offer in compromise. On that same date respondent sent Mark Fowler and Joylyn Souter-Fowler (petitioners) a second Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. In this notice respondent sustained the filing of a Federal tax lien with respect to petitioners' 1994-96 tax liabilities, and respondent again rejected petitioners' offer in compromise.

Prior to these determinations, petitioners sought and were offered an Appeals hearing, but they did not attend due to personal reasons. One month after the scheduled hearing date, the Appeals officer issued the above determinations sustaining the filing of the Federal tax liens and rejecting petitioners' offers in compromise. With respect to both determinations, petitioners appealed to this Court.

The issue for consideration is whether respondent abused his discretion by rejecting petitioners' offers in compromise and by sustaining the filing of the Federal tax liens.

FINDINGS OF FACT2

Petitioners resided in Garden Grove, California, when the petition in this case was filed.

Separate Liabilities
Petitioner filed his 1990 Federal income tax return late on September 6, 1991. On July 21, 1993, respondent mailed a statutory notice of deficiency to petitioner for his 1990 taxable year. Petitioner did not petition this Court to dispute the deficiency. On December 20, 1993, respondent assessed the $399 income tax deficiency and a $98.74 late-filing penalty under section 6651(a)(1). In addition, $104.40 of interest was assessed. Petitioner does not contest the 1990 tax liability.

Petitioner timely filed his 1991 Federal income tax return that contained several mathematical errors. Respondent corrected the mathematical errors in accord with section 6213(b)(1), and assessments were made to correct the errors. Respondent subsequently selected petitioner's 1991 return for an audit examination. On April 5, 1994, respondent mailed petitioner a statutory notice of deficiency for his 1991 taxable year determining a $545 income tax deficiency. Petitioner did not petition this Court with respect to the 1991 notice of deficiency. On September 5, 1994, respondent assessed the $545 deficiency and $103.37 of accrued interest.

Petitioner filed his 1992 Federal income tax return late on July 28, 1993. Respondent selected petitioner's 1992 return for an audit examination. On January 11, 1995, respondent mailed petitioner a statutory notice of deficiency for his 1992 taxable year determining a $1,193 income tax deficiency and a $189 penalty for late filing under section 6651(a)(1). On July 17, 1995, respondent assessed the deficiency, the late-filing penalty, and accrued interest in the amount of $265.92. On the same day, the late-filing penalty was abated leaving an unpaid balance of $1,458.92 for 1992.

Joint Liabilities
Petitioners were married in 1993. Under cover of a letter dated September 15, 1997, petitioners submitted their untimely 1994, 1995, and 1996 joint Federal income tax returns. These returns were filed by respondent on September 29, 1997. Petitioners reported tax due for 1994, 1995, and 1996 on their returns in the amounts of $402.04, $402.03, and $1,480.66, respectively.

On October 27, 1997, respondent assessed the 1994 income tax liability, a late-filing penalty in the amount of $100, a failure to pay tax penalty in the amount of $62.32, and accrued interest in the amount of $128.35, for a total assessment of $692.71. On that same date, respondent assessed the 1995 income tax liability, a late-filing penalty in the amount of $100, a failure to pay tax penalty in the amount of $38.19, and accrued interest in the amount of $73.03, for a total assessment of $613.25. On November 17, 1997, respondent assessed the 1996 income tax liability, a late-filing penalty in the amount of $333.15, a failure to pay tax penalty in the amount of $59.23, and accrued interest in the amount of $99.21, for a total assessment of $1,972.25.

Events Leading to the Issuance of the Notice of Determination
On December 21, 1999, respondent mailed two separate Notices of Intent to Levy and Notice of Your Right to a Hearing to petitioners. The notices reflected petitioners' unpaid Federal income tax liabilities for 1990 through 1992 and 1994 through 1996. On January 26, 2000, petitioners informed respondent of their desire to submit an offer in compromise to resolve all of their individual and joint liabilities. In response, respondent mailed petitioners a package of materials for the submission of offers in compromise for their outstanding individual and joint liabilities.

On April 19, 2000, respondent received petitioners' offer to compromise the 1994 through 1996 joint liabilities for $1,150. On that same date respondent received petitioner's offer to compromise the 1990 through 1992 liabilities for $360. Both offers in compromise were submitted on Form 656, Offer in Compromise. Petitioners' offer was to make monthly payments to satisfy the liabilities. Petitioners planned to pay a portion of the offer amount from their expected tax refund for 1999.

On May 19, 2000, respondent's revenue officer advised petitioners that their offers in compromise could not be processed until petitioners' 1999 Federal income tax return was filed. Under respondent's procedures, offers are not processed while taxpayers are not in compliance with the internal revenue laws.

Petitioners had already filed for an extension of time to file for 1999 because they were awaiting information from third parties to complete the return. On June 15, 2000, respondent filed two Notices of Federal Tax Lien (NFTL) at the county recorder's office in Orange County, California, with respect to the individual and joint tax liabilities. Respondent sent petitioners the filed NFTLs and Notices of Right to a Collection Due Process Hearing. On July 14, 2000, petitioners submitted Form 12153, Request for a Collection Due Process Hearing (administrative hearing), contesting the NFTLs filed by respondent and noting the pending offers in compromise.

Sometime in 2001, petitioners' claims were assigned to respondent's Appeals officer. On June 20, 2001, the Appeals officer and petitioners had a telephone conversation discussing petitioners' desire to compromise all of the liabilities. The Appeals officer requested more information from petitioners, which they timely provided with a copy of their filed 1999 Federal income tax return. At some time in the process, petitioners submitted an amended offer in compromise for $2,400, to be paid in $100-monthly installments. Under those terms, the $2,400-offer could be paid in full in 2 years.

On October 16, 2001, respondent's Appeals officer sent petitioners a letter informing them that he had reviewed the offers in compromise. The Appeals officer determined that the minimum offer to compromise both the individual and joint liabilities should be a total of $2,400. The Appeals officer used petitioners' estimate of their primary vehicle3 to calculate a quick sale value of $2,400, which was determined to be the minimum acceptable offer. The Appeals officer then attempted to determine whether petitioners would be able to meet the monthly installment offer obligation. In calculating petitioners' financial capability, the Appeals officer used petitioners' submitted monthly gross income figure of $4,608, but did not use petitioners' submitted $3,989 monthly expense figure. Instead of using the $3,989 expense figure provided by petitioners, the Appeals officer used $4,644, an estimated amount based on national statistical averages. Using $4,644 resulted in petitioners' estimated monthly expenses exceeding their monthly income by $36 and rendering petitioners ineligible due to their projected inability to make the $100-monthly payments.

The Appeals officer rejected petitioners' offers in compromise. Petitioners requested an in person hearing, but a hearing was not held due to petitioners' unavailability. On February 21, 2002, respondent issued two separate notices of determination for the individual and joint liabilities sustaining the filing of the notices of Federal tax liens and rejecting petitioners' offers in compromise. Petitioners timely appealed to this Court for review of respondent's determinations.

OPINION

Petitioners contend that the Appeals officer abused his discretion by rejecting their offers in compromise and by sustaining the filing of the Federal tax liens.

Section 6320 provides that a taxpayer shall be notified in writing by the Secretary of the filing of a Federal tax lien and provided with an opportunity for an administrative hearing. Sec. 6320(b). Hearings under section 6320 are conducted in accordance with the procedural requirements set forth in section 6330. Sec. 6320(c).

When an Appeals officer issues a determination regarding a disputed collection action, section 6330(d) allows a taxpayer to seek judicial review with the Tax Court or a District Court. Where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000). However, when the validity of the underlying tax is not at issue, the Court will review the Commissioner's administrative determination for an abuse of discretion. Id. Petitioners do not dispute the validity of the underlying tax. Accordingly, our review is for an abuse of discretion.

We do not conduct an independent review of what would be acceptable offers in compromise. We review only whether the Appeals officer's refusal to accept the offers in compromise was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). The Court considers whether the Commissioner abused his discretion in rejecting a taxpayer's position with respect to any relevant issues, including challenges to the appropriateness of the collections action, and offers of collection alternatives. See sec. 6330(c)(2)(A). This case involves collection alternatives.

Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. There are three standards that the Secretary may use to compromise a liability. The first standard is doubt as to liability, the second being doubt as to ability to collect, and the third being promotion of effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999); see sec. 7122(c)(1). The record reflects that petitioners' offers are with respect to doubt as to collectibility.4

Section 7122(c) provides the standards for evaluation of such offers. Under section 7122(c)(2):

(A) * * * the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.

(B) Use of schedules. --The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses. [Emphasis added.]

The Appeals officer chose to use the national averages and that use resulted in petitioners' being categorized as not having adequate means to provide for basic living expenses.

The national average statistics are published by the Internal Revenue Service, but use of the statistics by Appeals officers is not mandatory. The Appeals officer exercised discretion in ignoring petitioners' submitted expense amount and, instead, used the national statistical amount as an estimate of petitioners' expenses. The use of the national averages for petitioners' expenses resulted in petitioners' monthly expenses exceeding their monthly income by $36. Therefore, by using the average expense figure, petitioners' income was $136 short of producing the $100 per month needed to compromise their tax liabilities for $2,400. We note that, percentagewise, the shortfall is less than 3 percent of petitioners' gross income. The Appeals officer chose to use the national statistical averages rather than the expense figures provided by petitioners. If the Appeals officer had used petitioners' submitted expense figure of $3,989, petitioners would have had $619 monthly and would have been financially capable of satisfying the $100 installments.

The Appeals officer is allowed to use the national schedules when considering the facts and circumstances of this case. However, if use of the schedules results in petitioners' not having adequate means to provide for basic living expenses, as here when the Appeals officer determined a negative $36 amount for basic living expenses, an installment offer may not be appropriate. See sec. 7122(c)(2)(B).

Under the regulations for doubt as to collectibility cases:

A determination of doubt as to collectibility will include a determination of ability to pay. In determining ability to pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living expenses. The determination of the amount of such basic living expenses will be founded upon an evaluation of the individual facts and circumstances presented by the taxpayer's case. To guide this determination, guidelines published by the Secretary on national and local living expense standards will be taken into account. [Sec. 301.7122-1T(b)(3)(ii), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).]

The regulation provides that the guidelines are to be taken into account. When the Appeals officer reviewed petitioners' offers, he decided to use the guidelines because he thought petitioners' actual figures were too low. In that regard, there is no specific explanation why the Appeals officer believed that petitioners' monthly expenses of $3,989 was too low or why the guideline figure of $4,644 was more accurate. The use of the guideline expense figure resulted in a $136 shortfall in petitioners' capability to meet the $100-monthly installment to satisfy the $2,400 compromise. If petitioners' submitted monthly expenses of $3,989 had been used, there would have been a $619 surplus of income over expenses that would have enabled petitioners to meet the $100-monthly installment to satisfy the compromise.

In essence, the Appeals officer decided that petitioners could not live less expensively than the national average (guidelines). We find it curious that the Appeals officer relied on petitioners' figures for their vehicle and for their income, but chose not to use petitioners' figures for their monthly expenses. Petitioners made an estimate of $3,000 for the value of their primary car and the Appeals officer used this figure to calculate the quick sale value of $2,400. Based on this premise, the Appeals officer determined that an offer of $2,400 would be an appropriate amount to settle the outstanding liabilities due for 1990-92 and 1994-96. The Appeals officer requested a lump-sum payment through the sale of petitioners' primary vehicle. Petitioners rejected this approach as this was their primary vehicle and to sell it would have caused great financial harm.

Petitioners submitted an amended offer in compromise for $2,400, to be paid in $100 monthly installments. Under those terms, the $2,400 compromise could be paid in full in 2 years. That offer was rejected due to the Appeals officer's determination that petitioners were financially unable to make the payments. We note that petitioners had cooperated with all requests from the Internal Revenue Service in an attempt to resolve this matter.

Appeals officers, in the consideration of an offer in compromise should verify that the requirements of applicable law and administrative procedures have been met, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." See sec. 6330(c)(3)(C). The verification of applicable law and administrative procedure was met in this case. However, it is questionable as to whether the proposed collection action balanced the need for efficient collection of taxes with the concern of petitioners that any collection action be no more intrusive than necessary.

Payment plans are one possible option for an offer in compromise. According to the instructions that accompany the Form 656, there are three possible payment plans under the short-term deferred payment offer. One plan requires full payment of the realizable value of assets within 90 days from the date the Internal Revenue Service accepts the offer, and payment, within 2 years of acceptance of the amount that they could collect over 60 months. A second plan permits a cash payment for a portion of the realizable value of petitioners' assets within 90 days of the offer being accepted, and the balance of the realizable value plus the remainder of the amount that could have been collected over 60 months within 2 years. The third plan permits monthly payments of the entire offer amount over a period not to exceed 2 years from the date of acceptance by the Internal Revenue Service. Petitioners offered $100 per month for 2 years or 24 months, which equals the $2,400-compromise amount.5

Under the various payment options, respondent would be able to file Federal tax liens to protect his interests until such time as the liability is satisfied. Accordingly, respondent's interest would be protected through the liens while respondent received monthly payments. The result of the Appeals officer's financial analysis, however, was to deny petitioners' offers in compromise. To use the national guidelines rather than actual figures in this instance was arbitrary, capricious, and without a sound basis in fact. Petitioners have stated that they are still willing to compromise their tax liabilities for $2,400, but through monthly payments rather than a lump-sum payment.6

Therefore, based on the facts and circumstances of this case, we hold that respondent abused his discretion in denying petitioners' offer to compromise their tax liabilities for $2,400. We further hold that respondent did not abuse his discretion in sustaining the filing of the Notices of Federal Tax Liens.7

An appropriate decision will be entered.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code.

2 The parties' stipulation of facts is incorporated by this reference.

3 Petitioners estimated the value of their primary vehicle to be $3,000. Respondent used this figure to calculate the $2,400 quick sale value.

4 Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the assessed liability. Sec. 301.7122-1T(b)(3), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).

5 Although not relevant to the facts of this case, there is also a deferred payment offer that provides for a plan similar to the short-term deferred plan (the third plan described above). The deferred payment plan allows the entire offer amount to be made in monthly payments over the life of the collection statute. The deferred plan could result in a longer payment period than 24 months.

6 Petitioners and respondent agreed on the amount of the compromise. The only disagreement here is the method of payment. Based on the financial information submitted by petitioners, a payment plan is a reasonable option.

7 Petitioners have made no argument of merit from which an abuse of discretion could be found with respect to respondent's determination that the filing of the Notices of Federal Tax Liens was appropriate.
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There was no acceptance of a compromise settlement, which was negotiated during the trial, where the government's acceptance was not timely and unequivocal and where the taxpayer's counsel decided not to accept the settlement offer. Therefore, the taxpayer was not bound by the settlement agreement.

B.R. Kurio, DC Tex., 71-1 USTC ¶9112.

The Commissioner effectively accepted an offer to compromise a refund claim when he mailed the taxpayer's attorney a letter accepting the offer and informing the taxpayer that the refund settlement would be credited against the unpaid tax liability of a later tax year. The court rejected the taxpayer's argument that the IRS letter constituted a counteroffer rather than an acceptance because it materially altered the terms of the offer.

J.P. Kehoe, DC N.Y., 79-2 USTC ¶9524.

A taxpayer's offer of compromise that contained a waiver of limitations was rejected by the IRS, and, therefore, the IRS could not assert that it accepted the portion of the offer containing the waiver.

G. Hamm, DC Ky., 79-2 USTC ¶9731.

The IRS was not estopped from denying that it settled tax liabilities, even though it retained money offered as a settlement, because the procedures set forth for settling disputes were not followed. Since the statutory requirements were not followed, there could be no settlement, and thus no estoppel.

W.F. Brooks, DC W.Va., 86-2 USTC ¶9548.

Correspondence between a mutual insurance corporation and the government did not reflect an intention that the filing of a stipulation of dismissal would be a condition precedent to the completion of settlement negotiations. Because the parties entered into a valid settlement agreement, the government's acceptance letter merely stated that a stipulation of dismissal would "reflect" the agreement which had already been reached. As such, a stipulation was not essential to the validity of the parties' settlement agreement.

Principal Mutual Life Insurance Co., FedCl, 93-2 USTC ¶50,480, 29 FedCl 157. Aff'd on another issue, CA- FC, 95-1 USTC ¶50,160, 50 F3d 1021.

The co-owner of property foreclosed by a federal tax lien failed to show that he and the government had reached a settlement to release the property from the lien. There was no evidence that the government accepted his offer in compromise.

E.F. Ressler, DC Ala., 98-1 USTC ¶50,417.

A Cayman Islands corporation's suit for refund of federal withholding taxes was dismissed, with prejudice, in accordance with a closing agreement with the government. A letter sent by the taxpayer that purported to modify its settlement offer to include an offer-in-compromise with regard to tax years not at issue was ineffective. The taxpayer presented no evidence that the proper parties received the letter before the government accepted its offer.

Inverworld, Ltd., DC D.C., 2001-1 USTC ¶50,350. Aff'd, per curiam, CA-D.C. (unpublished opinion), 2002-1 USTC ¶50,113.

A proposed tax levy and collection action against an individual was not barred because the government failed to entertain a settlement or other compromise of her liability. The taxpayer failed to assert any Internal Revenue Code provision that establishes the government's legal obligation to compromise its action against her. The government has discretion to accept or reject any offer in compromise of a tax liability but is not legally obligated to even consider such an offer.

D.G. Asbury, DC Pa., 2002-1 USTC ¶50,117.

Married debtors' tender of a check to the government did not constitute an offer in compromise that would have discharged their tax liability. The government and the debtors agreed that an offer to compromise the tax liability of the debtors was never accepted in writing by an authorized official. Moreover, a certificate of assessment reflected that the debtors' offer in compromise was rejected.

L.M. Smallwood, BC-DC Ark., 2002-1 USTC ¶50,166.

A notice of deficiency was not invalidated on account of a prior assessment where it was sent to a taxpayer who, along with her husband (who was also her business partner), had signed a Form 870-L(AD) settlement offer that was not signed by the IRS until after the husband filed for bankruptcy. The settlement agreement was void as to both spouses because acceptance of the offer was precluded by the automatic stay provision of the Bankruptcy Code.

N.J. Gillian, 66 TCM 398, Dec. 49,218(M), TC Memo. 1993-366.

The government was not bound by an alleged proposed settlement between a former attorney and his wife and the IRS. A proposed decision document did not conform to the formalities required to execute a binding settlement. Even if the document constituted a formal settlement offer, there was no evidence that the taxpayers executed the agreement. Moreover, the IRS never executed the agreement, and no such document was filed with the Tax Court.

B.J. O'Sullivan, 68 TCM 407, Dec. 50,046(M), TC Memo. 1994-395. Aff'd, CA-9 (unpublished opinion), 96-2 USTC ¶50,496.

The IRS and an investor did not enter into a binding settlement agreement on deficiencies related to a tax shelter because the parties did not mutually assent to a settlement. The taxpayer failed to indicate his belief that a settlement agreement had been entered into until six months after he received written indications that the IRS did not believe that a settlement agreement existed.

T.W. Heil, 68 TCM 513, Dec. 50,071(M), TC Memo. 1994-417.

Married taxpayers who were assessed deficiencies did not have a binding settlement agreement with the IRS regarding the years at issue. Although the taxpayers submitted several Forms 656, Offer in Compromise in Any Civil or Criminal Case, and District Director's Recommendation, the IRS never accepted any of their settlement offers. An IRS employee's signing of the forms to indicate that the IRS accepted the taxpayers' waiver of the limitations period did not constitute an acceptance of their offers. Further, the IRS employee and the taxpayers' accountant testified that the IRS employee never orally agreed to accept the taxpayers' proposals. Since the husband had a history of dishonest, criminal behavior, his testimony with respect to the alleged oral agreement lacked credibility. Thus, the taxpayers failed to establish that a binding agreement existed.

D.L. Streck, 74 TCM 545, Dec. 52,240(M), TC Memo. 1997-407. Aff'd, CA-6 (unpublished opinion), 99-2 USTC ¶50,650.

The IRS's action in cashing a check submitted by an exempt association with a letter that purported to be an offer in compromise did not amount to an acceptance of the entity's offer and did not bar the IRS from asserting that its income activity gave rise to unrelated business taxable income. Rather, the letter merely constituted a settlement offer to resolve the dispute resulting from the IRS audit of the taxpayer for three of the tax years in issue. Moreover, no compromise was effected because the letter failed to meet the specific requirements of Code Sec. 7122.

Education Athletic Assoc., Inc., 77 TCM 1525, Dec. 53,284(M), TC Memo. 1999-75.

A married couple's offer to settle their tax liability for the amount of their deficiency, but excluding penalties and interest, did not constitute a binding compromise agreement. The taxpayers had received an oral confirmation from the IRS auditor that their offer had been accepted; however, the auditor believed their offer was a request for additional time to pay. In fact, the taxpayers had not submitted the offer on the appropriate form and had not received a written confirmation that the offer was accepted. Further, there was no mutual assent to the offer since the auditor misunderstood the nature of their request.

J. Ringgold, 86 TCM 28, Dec. 55,218(M), TC Memo. 2003-199.

Married taxpayers' challenge to an adverse Collection Due Process determination was rejected because they failed to establish an abuse of discretion on the part of the IRS. The officer's determination that the taxpayers had some ability to pay was supported by their proposed offer in compromise. In light of the unresolved question regarding the taxpayers' ownership of real property, the rejection of their proposed offer in compromise was sustained.

D.G. Willis, 86 TCM 506, Dec. 55,334(M), TC Memo. 2003-302.

Chief Counsel determined that a Compliance Area Director is entitled to compromise a case notwithstanding an opinion by Associate Area Counsel that opposed acceptance of a taxpayer's offer based upon a purported economic hardship that would ensue from collection in full. Although Code Sec. 7122(b) requires the opinion of the Associate Area Counsel whenever an offer in compromise is made, the opinion need not favor acceptance of the compromise in order for the IRS to accept the offer. The ultimate determination of whether an offer is accepted lies with the Area Director or other delegated official. However, an offer may not be accepted unless one of the bases for compromise recognized by Reg. 301.7122-1T has been established.

CCA Letter Ruling 200128054, May 29, 2001.

In a case involving a delinquent taxpayer who entered into a compromise agreement with the IRS to discharge the federal tax lien on her home in order to facilitate its sale, and who subsequently sought to compromise her tax liability after a collateral agreement was signed, Chief Counsel determined that the Service could accept the offer. The taxpayer submitted a separate offer in compromise conditioned on the Service's release of the mortgage on her home. However, acceptance of such an offer did not require the IRS to release the mortgage. A collateral agreement in which the taxpayer grants additional security to the IRS creates an independent cause of action and, thus, the original unpaid taxes giving rise to the statutory liens remain as separate liabilities. Absent language to the contrary in the compromise agreement, the mortgage remains unaffected.

IRS Letter Ruling 200133028, July 17, 2001.

The IRS could exercise its discretion to accept an offer in compromise in spite of the fact that processability rules pertaining to deposit, payment and filing of employment taxes changed prior to acceptance of the offer. Chief Counsel determined that the in-business corporation could not compel the IRS to apply the former rule that it demonstrated compliance by showing that it had been current in the preceding two quarters, rather than demonstrating compliance by having timely filed and timely deposited the previous two quarters' taxes. Nothing in the Internal Revenue Code or regulations prevented the Service from exercising its discretion to process an offer based on criteria that existed when the offer was first submitted.

CCA Letter Ruling 200137001, April 12, 2001.

An IRS Appeals officer abused his discretion in denying a couple's offer in compromise on the grounds that the taxpayers had inadequate income to meet their living expenses and pay the proposed monthly payments. The officer appeared to rely exclusively on the IRS's prescribed schedule of national and local average living expenses to determine that the taxpayers' basic living expenses exceeded their monthly income. However, all of the facts and circumstances, including the schedule of actual expenses submitted by the taxpayers, should have been considered in determining whether the taxpayers could pay both their expenses and the installment payments (Code Sec. 7122(c)(2)). The filing of the federal tax liens to secure the IRS's interest in the unpaid tax liability was not an abuse of discretion.

M. Fowler, 88 TCM 17, Dec. 55,689(M), TC Memo. 2004-163.

A settlement agreement between an individual and the IRS did not allow the taxpayer to claim business losses related to his wife's furniture business in a specific tax year. The IRS disallowed the losses, categorizing the expenses as start-up costs required to be capitalized. The IRS and the taxpayer reached a settlement for that year that included, in part, the disallowance of the business loss. The taxpayer argued, however, that the prior to signing the settlement an agreement was reached to allow the loss in the following year. Although the IRS agreed that the loss might be allowed in a subsequent year, there was no assent to allow the loss in any specific tax year. Moreover, the settlement did not contain any express agreement as to the business losses. Therefore, there was no binding agreement as to the losses.

K.J. Barela, 88 TCM 65, Dec. 55,707(M), TC Memo. 2004-175.

The IRS did not abuse its discretion in refusing to accept an individual's multiple offers to compromise her liability for the trust fund recovery penalty. The taxpayer's first offer was for significantly less than her collection potential, and she failed to explain why the IRS's two counter offers would pose a hardship. In calculating its counter offers, the IRS took into consideration the taxpayer's age and numerous medical problems. The IRS also offered to forgo collection until the taxpayer's financial situation improved, or the collection action expired. The taxpayer made the second offer at a Collection Due Process (CDP) hearing, arguing that there was doubt as to her liability for the penalty. Assuming that the issue of her liability was properly raised at the CDP hearing, sufficient evidence identified her as a responsible person.

A. Siquieros, DC Texas, 2005-1 USTC ¶50,244. Aff'd, per curiam, CA-5 (unpublished opinion), 2005-1 USTC ¶50,245.
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Ronald J. and June M. Speltz, Petitioners v. Commissioner, Respondent, Dkt. No. 15382-03L , 124 TC --, No. 9, March 23, 2005.

Offer in compromise: Abuse of discretion: Effective tax administration: Alternative minimum tax: Equity: Judicial review. --
Timothy J. Carlson, for petitioners; Albert B. Kerkhove and Stuart D. Murray, for respondent.
Ps incurred AMT liability as a result of their exercise of incentive stock options in 2000. The stock declined precipitously in value after the date of exercise. Ps partially paid the tax liability and submitted an offer in compromise with respect to the unpaid balance. The IRS rejected the offer in compromise and filed a lien on Ps' property. Held : It was not an abuse of discretion to reject Ps' offer in compromise and to continue the lien.

OPINION
COHEN, Judge: This case is before the Court on respondent's motion for summary judgment, seeking a determination sustaining an Appeals officer's rejection of petitioners' offer in compromise. Petitioners seek a summary determination that it was an abuse of discretion to refuse their offer in compromise because of the unfair application of the alternative minimum tax (AMT) based on their exercise of incentive stock options (ISOs) where the stock acquired by exercise of the ISOs has lost substantially all of its value subsequent to the acquisition of the stock. Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background
In ruling on respondent's motion for summary judgment, factual inferences are viewed in the light most favorable to petitioners. Preece v. Commissioner, 95 T.C. 594, 597 (1990). Thus, the background facts set forth herein are based primarily on petitioners' declaration in opposition to the motion for summary judgment and on other materials submitted by petitioners.
Petitioners resided in Ely, Iowa, at the time that they filed their petition. For some years prior to 2000, petitioner Ronald J. Speltz (petitioner) was employed by McLeodUSA (McLeod). By 2000, petitioner was a senior manager at McLeod earning wages in excess of $75,000. By 2004, petitioner's wages were approximately $90,000 per year. As part of his compensation at McLeod, petitioner received ISOs for acquisition of McLeod stock.
During the year 2000, petitioner exercised certain of the ISOs that he previously had received. On petitioners' Form 1040, U.S. Individual Income Tax Return, for 2000, petitioners reported, for purposes of the AMT, those ISOs as resulting in "excess of AMT income over regular tax income" of $711,118. On their Form 1040, petitioners reported that their "regular" adjusted gross income was $142,070. Their taxable income was $105,461, and their "regular" tax was $18,678. Petitioners reported AMT of $206,191 for a total tax liability of $224,869. After application of Federal income tax withheld, the balance owed on petitioners' tax liability for 2000 was $210,065. Petitioners also filed a 2000 Iowa Individual Income Tax Long Form, IA 1040, on which they reported Iowa minimum tax of $46,792 and a total tax liability of $56,769.

The value of petitioners' McLeod stock dropped precipitously. On their tax return for 2000, petitioners reported that they sold 200 shares of McLeod stock on January 14 for a total of $14,011 and 500 shares of McLeod stock on March 10 for a total of $52,282. On their tax return for 2002, petitioners reported that they sold 2,070 shares of McLeod stock on December 30 for a total of $1,647.Petitioners partially paid the liability reported on their 2000 Form 1040 at the time that it was filed and paid an additional $75,000 in installments prior to November 2, 2001. Petitioners borrowed $134,000 from a bank to pay State and Federal taxes reported on their 2000 returns.
On or about November 2, 2001, petitioners submitted to the Internal Revenue Service (IRS) a Form 656, Offer in Compromise. Petitioners offered a cash payment of $4,457, the cash value of petitioner's life insurance policy, against the liability that then exceeded $125,000. On the Form 656, petitioners checked the box for "Doubt as to Collectibility --`I have insufficient assets and income to pay the full amount.' " Petitioners also attached to Form 656 a statement in which they explained that an offer in compromise was necessary because of the impact the AMT in 2000 had on their finances and their lifestyle. Specifically, petitioner's income in 2000 was at a comfortable level for a family of five including three young daughters; the McLeod stock they held was nearly worthless and declining and had been used to secure a $134,000 loan with a bank to pay part of the 2000 Federal and State taxes; and, in the event of a sale of the stock (forced or otherwise), petitioners would be unable to carry back the capital loss to offset their 2000 gain. They began building a new home in 2000 and sold their prior home in 2001, using the proceeds of sale to repay the bank. Lifestyle changes were necessary, including: Petitioner June M. Speltz had to get a job instead of staying home with the children; the oldest daughter had to switch schools; petitioners were unable to contribute to their retirement and to their children's education fund; and they had to reduce their charitable donations. Finally, they could not afford to have a fourth child, which they had wanted.
Petitioners offered in compromise $4,457, the cash surrender value on petitioner's life insurance. In the statement, petitioners expressed their mental anguish and frustration with the unfairness of their situation. Petitioners' offer in compromise was reviewed by Revenue Officer Robert G. Dallas (Dallas), an offer in compromise specialist. Dallas indicated to petitioners that he was rejecting the offer in compromise because petitioners had the ability to pay the outstanding tax liability in full. On October 6, 2002, petitioners wrote to Dallas disputing amounts that Dallas had used in his calculation. On October 9, 2002, Dallas indicated that certain adjustments that were requested by petitioners had been made. He wrote, however:
The adjustments to the Income/Expense table you requested have not been granted because the allowed amount * * * is the allowable housing and utility standard for families of your number in Linn County, Iowa. The excess expenses you have claimed * * * cannot be moved * * * solely to circumvent the allowable standard amount.
Based upon your current financial condition, we have determined that you have the ability to pay your liability in full within the time provided by law. We have made this determination based on the following computations:


  Total net equity in assets: ............................    $77,948.00

  Total future ability to pay and retire debt: ...........   $113,568.00

  Total ability to pay: ..................................   $191,516.00

  Total balance due: .....................................   $148,744.64

  Amount you offered: ....................................     $4,457.00

Copies of our worksheets are enclosed for your review.
Your options at this time are to pay your liability in full, enter into an installment agreement, withdraw your offer using the withdrawal letter previously provided or withhold your response and appeal your offer's failure to gain acceptance through the appeal procedure that you will be offered. Please advise of your preferred course of action.
Please respond within 14 days of the date of this letter. If you fail to respond or if your response is egregiously inadequate, a Federal Tax Lien will be filed if one is not already a matter of record and the case will be forwarded to an independent reviewer without a recommendation for approval. If the reviewer concurs with the conclusion of my investigation, you will be notified by mail and advised of your appeal rights. If there is a need for additional information you will be notified.
On December 17, 2002, respondent sent to petitioners a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, with respect to their unpaid income tax liability for 2000, advising that petitioners could request a hearing with respondent's Office of Appeals. On January 13, 2003, petitioners submitted a Form 12153, Request for a Collection Due Process Hearing. Petitioners stated that they were disagreeing with the Notice of Federal Tax Lien because:
Forms 433-A and 656 have been prepared and filed with the IRS as an Offer in Compromise. The only real estate owned by the taxpayers is their personal residence * * *. Such residence constitutes exempt property, and therefore, the IRS' attempted lien is unenforceable.
Petitioners' Request for a Collection Due Process Hearing was signed by their then attorney.
On February 12, 2003, a telephone conference was held between respondent's Appeals Officer Eugene H. DeBoer (DeBoer) and petitioners' attorney. On February 13, 2003, DeBoer wrote to petitioners' attorney a letter summarizing their discussion and stating the following:
In regards to your question about changes to the alternative minimum tax laws. At this time there is no pending legislation that would retroactively change how the AMT was computed for 2000. Accordingly, the tax as reported appears to be correct.

Neither petitioners nor their attorney responded to the February 13, 2003, letter from DeBoer. Instead, petitioners' attorney contacted their Senator and the Taxpayer Advocate Service.

On August 12, 2003, a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 was sent to petitioners. The attachment to the notice explained the determination as follows:

SUMMARY AND RECOMMENDATION

Should the lien be released or withdrawn?
No, the tax as assessed is deemed correct and the offer in compromise proposed by the taxpayers has been rejected.
BRIEF BACKGROUND
Mr. and Mrs. Speltz filed their 2000 return showing a liability of $209,749.77. They made a payment with the return of $17,565. Payments of $70,000 were made prior to an installment agreement which was entered into for $2,500. Two payments of $2,500 made prior to the filing of an offer in compromise of $4,457 on 11/2/2001. The offer was rejected due to the taxpayers having assets and the ability to full pay the liability. A lien was then filed. The taxpayers' representative states on the request for a collection due process hearing that the personal residence constitutes exempt property and therefore the IRS' attempted lien is unenforceable. A phone conference was held with the representative, * * * who questioned whether there was any pending legislation aimed at changing how the alternative minimum tax is computed. A check with the national office shows that there is no pending legislation to retroactively adjust how the alternative minimum tax is computed.

DISCUSSION AND ANALYSIS

1. Verification of legal and procedural requirements; Yes
2. Issues raised by the taxpayer; The offer in compromise was rejected.
3. Balancing of need for efficient collection with taxpayer concern that the collection action be no more intrusive than necessary. The collection action balances the need for the efficient collection of taxes with the Speltz's legitimate concern that the collection action be no more intrusive than necessary.
The petition in this case was filed by petitioners pro se; counsel entered his appearance after respondent filed a motion for summary judgment. In their petition, petitioners do not allege any specific abuse of discretion with respect to the notice of determination. Instead, they refer to their communications with the Taxpayer Advocate's Office and to the office of their Senator.

Discussion

Section 6321 imposes a lien in favor of the United States on all property and rights to property of a person when a demand for the payment of the person's taxes has been made and the person fails to pay those taxes. Section 6322 provides that such a lien arises when an assessment is made. To protect the Government's rights to recover its unpaid taxes, section 6323(a) provides that the IRS may file a notice of Federal tax lien in order to establish the priority of its claims against the taxpayer's other creditors.
In the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3401, 112 Stat. 746, Congress enacted sections 6320 (pertaining to liens) and 6330 (pertaining to levies) to provide protections for taxpayers in tax collection matters. Section 6320 requires that the Secretary notify a person who has failed to pay a tax liability of the filing of a notice of lien under section 6323. The notice required by section 6320 must be provided not more than 5 business days after the day of the filing of the notice of lien, pursuant to section 6320(a)(2). Section 6320 further provides that the person so notified may request administrative review of the matter (in the form of a hearing) within 30 days beginning on the day after the 5-day period. Under section 6320(c), the hearing generally is to be conducted consistent with the procedures set forth in section 6330(c), (d), and (e). Section 6330(c) permits the person notified to raise collection issues such as spousal defenses, the appropriateness of the Commissioner's intended collection action, and possible alternative means of collection.
Section 6330(d) provides for judicial review of the administrative determination. Where the validity of the underlying tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000); see also H. Conf. Rept. 105-599, at 266 (1998), 1998-3 C.B. 747, 1020.
Also in 1998, Congress amended section 7122, which authorizes compromise of any civil case arising under the internal revenue laws. RRA 1998, sec. 3462, 112 Stat. 764. Subsections (c) and (d) of section 7122 were amended for proposed offers in compromise and installment agreements submitted after July 22, 1998, and provide as follows:
SEC. 7122(c). Standards for Evaluation of Offers. --

(1) In general.--The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute.

(2) Allowances for basic living expenses. --

(A) In general.--In prescribing guidelines under paragraph (1), the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.

(B) Use of schedules.--The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.

(3) Special rules relating to treatment of offers.--The guidelines under paragraph (1) shall provide that --

(A) an officer or employee of the Internal Revenue Service shall not reject an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer; and

(B) in the case of an offer-incompromise which relates only to issues of liability of the taxpayer --

(i) such offer shall not be rejected solely because the Secretary is unable to locate the taxpayer's return or return information for verification of such liability; and

(ii) the taxpayer shall not be required to provide a financial statement.

(d) Administrative Review.--The Secretary shall establish procedures --

(1) for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer under this section or section 6159 before such rejection is communicated to the taxpayer; and

(2) which allow a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals.

Regulations adopted pursuant to section 7122 set forth three grounds for the compromise of a liability: (1) Doubt as to liability; (2) doubt as to collectibility; or (3) promotion of effective tax administration. Sec. 301.7122-1, Proced. & Admin. Regs. With respect to the third ground, paragraph (b)(3)(i) of the regulation allows for a compromise to be entered into to promote effective tax administration where collection in full could be achieved but would cause economic hardship. Paragraph (c)(3)(i) sets forth factors that would support (but are not conclusive of) a finding of economic hardship. With respect to the third ground, those regulations state:

(3) Compromises to promote effective tax administration.--(i) Factors supporting (but not conclusive of) a determination that collection would cause economic hardship within the meaning of paragraph (b)(3)(i) of this section include, but are not limited to --

(A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;

(B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and

(C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.

The regulation states that no compromise may be entered into if such compromise of liability would undermine compliance by the taxpayer with the tax laws. Sec. 301.7122-1(b)(3)(iii), Proced. & Admin. Regs. Paragraph (c)(3)(ii) then sets forth factors that support (but are not conclusive of) a determination that a compromise would undermine compliance with the tax laws. These factors include: (A) A taxpayer who has a history of noncompliance with the filing and payment requirements of the Internal Revenue Code; (B) a taxpayer who has taken deliberate action to avoid the payment of taxes; and (C) a taxpayer who has encouraged others to refuse to comply with the tax laws. Sec. 301.7122-1(c)(3)(ii), Proced. & Admin. Regs. The regulation continues:

(iii) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the economic hardship provisions of paragraph (b)(3)(i) of this section:

Example 1. The taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full time care and assistance to her dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer's overall compliance history does not weigh against compromise.

Example 2. The taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer's overall compliance history does not weigh against compromise.

Example 3. The taxpayer is disabled and lives on a fixed income that will not, after allowance of basic living expenses, permit full payment of his liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate his disability. The taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer. The taxpayer's overall compliance history does not weigh against compromise.

Under the regulations, a compromise may also be entered into to promote efficient tax administration if there are compelling public policy or equity considerations identified by the taxpayer. Compromise is justified where, due to exceptional circumstances, collection would undermine public confidence that tax laws are being administered fairly. Sec. 301.7122-1(b)(3)(ii), Proced. & Admin. Regs. Some examples where a compromise is allowed for purposes of public policy and equity are: (1) A taxpayer who was hospitalized regularly for a number of years and was unable, at that time, to manage his financial affairs and (2) a taxpayer learns at audit that he was given erroneous advice and is facing additional taxes, penalties, and additions to tax. Sec. 301.7122-1(c)(3)(iv), Proced. & Admin. Regs. In addition to the regulations, detailed instructions concerning offers in compromise are contained in the Internal Revenue Manual, sections 5.8. Relevant portions are as follows:

Sec. 5.8.11.2.2 (05-15-2004)

Public Policy or Equity Grounds

1. Where there is no Doubt as to Liability (DATL), no Doubt as to Collectibility (DATC), and the liability could be collected in full without causing economic hardship, the Service may compromise to promote Effective Tax Administration (ETA) where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for accepting less than full payment. Compromise is authorized on this basis only where, due to exceptional circumstances, collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner. Because the Service assumes that Congress imposes tax liabilities only where it determines it is fair to do so, compromise on these grounds will be rare.

2. The Service recognizes that compromise on these grounds will often raise the issue of disparate treatment of taxpayers who can pay in full and whose liabilities arose under substantially similar circumstances. Taxpayers seeking compromise on this basis bear the burden of demonstrating circumstances that are compelling enough to justify compromise notwithstanding this inherent inequity.

3. Compromise on public policy or equity grounds is not authorized based solely on a taxpayer's belief that a provision of the tax law is itself unfair. Where a taxpayer is clearly liable for taxes, penalties, or interest due to operation of law, a finding that the law is unfair would undermine the will of Congress in imposing liability under those circumstances.

Example:

The taxpayer argues that collection would be inequitable because the liability resulted from a discharge of indebtedness rather than from wages. Because Congress has clearly stated that a discharge of indebtedness results in taxable income to the taxpayer it would not promote Effective Tax Administration (ETA) to compromise on these grounds. See Internal Revenue Code (IRC) 61(a)(12).

Example:

In 1983, the taxpayer invested in a nationally marketed partnership which promised the taxpayer tax benefits far exceeding the amount of the investment. * * * [T]he IRS made a global settlement offer in which it offered to concede a substantial portion of the interest and penalties that could be expected to be assessed if the IRS's determinations were upheld by the court. The taxpayer rejected the settlement offer. After several years of litigation, the partnership level proceeding eventually ended in Tax Court decisions upholding the vast majority of the deficiencies asserted in the FPAA on the grounds that the partnership's activities lacked economic substance. The taxpayer has now offered to compromise all the penalties and interest on terms more favorable than those contained in the prior settlement offer, arguing that TEFRA [Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324] is unfair and that the liabilities accrued in large part due to the actions of the Tax Matters Partner (TMP) during the audit and litigation. * * *

Note:

In both of these examples, the taxpayers are essentially claiming that Congress enacted unfair statutes and are arguing that the Service should use its compromise authority to rewrite those statutes based on a perception of unfairness. Compromise for that reason would not promote effective tax administration. The compromise authority under Section 7122 is not so broad as to allow the Service to disregard or override the judgments of Congress. [1 Administration, Internal Revenue Manual (CCH), sec. 5.8.11.2.2, at 16,385-7 to 16,385-8.]

We need not detail in this opinion the complexities of the AMT imposed by sections 55 and 56 or the taxation of ISOs under sections 421 and 422. Petitioners do not dispute the applicability of those sections or the computations under them. The tax liability in this case was based on petitioners' reporting on their Form 1040 for 2000. Nonetheless, petitioners devote a substantial portion of their posthearing memorandum to arguing that:

The Speltzes request for relief under the OIC Statute, from the unintended harm being caused them by the rote application of the AMT ISO Statute, does not put the IRS or this Court in a position where Section 7122 is undermining Congressional intent with respect to any other statute--including the AMT ISO Statute. Rather, based on their special circumstances in their particular situation, the rote and literal application of the internal revenue laws is imposing an impossible-to-pay 220% tax rate or 11x the tax required of a similarly situated taxpayer--an unintended result not consistent with the legislative purpose of Congress for any internal revenue law. In such a special case, Congress intended that the OIC Statute would operate to step in and provide relief from this unintended and unfair tax liability arising from unintended results arising from the literal application of the internal revenue laws (in this case, the AMT ISO Statute).

Petitioners contend that there was an abuse of discretion because:

The IRS failed to consider (or if it did consider it failed to properly consider), under the principles and processes laid out in Section 7122, corresponding regulations 26 CFR 301.7122, and the corresponding IRM provisions, the special circumstances raised by the Speltzes in their offer in compromise.

Petitioners argue that "under their special circumstances the tax liability being imposed on them is unfair and inequitable, a situation for which Congress has fashioned a remedy in the law --Section 7122." The crux of petitioners' position is that section 7122 "trumps" the literal application of statutes imposing a tax in their situation and that, therefore, it was an abuse of discretion by the Appeals Office not to accept their offer in compromise.
Respondent, on the other hand, contends that the Appeals officer correctly applied the statute, the regulations, and the Internal Revenue Manual provisions. For the reasons explained below, we agree with respondent.
The unfortunate consequences of the AMT in various circumstances have been litigated since shortly after the adoption of the AMT. In many different contexts, literal application of the AMT has led to a perceived hardship, but challenges based on equity have been uniformly rejected. See, e.g., Alexander v. Commissioner, 72 F.3d 938 (1st Cir. 1995), affg. T.C. Memo. 1995-51; Okin v. Commissioner, 808 F.2d 1338 (9th Cir. 1987), affg. T.C. Memo. 1985-199; Warfield v. Commissioner, 84 T.C. 179 (1985); Huntsberry v. Commissioner, 83 T.C. 742, 747-753 (1984); Prosman v. Commissioner, T.C. Memo. 1999-87; Klaassen v. Commissioner, T.C. Memo. 1998-241, affd. without published opinion 182 F.3d 932 (10th Cir. 1999).
In Kenseth v. Commissioner, 259 F.3d 881, 885 (7th Cir. 2001), affg. 114 T.C. 399 (2000), the Court of Appeals for the Seventh Circuit commented:

it is not a feasible judicial undertaking to achieve global equity in taxation * * * especially when the means suggested for eliminating one inequity (that which Kenseth argues is created by the alternative minimum income tax) consists of creating another inequity (differential treatment for purposes of that tax of fixed and contingent legal fees). And if it were a feasible judicial undertaking, it still would not be a proper one, equity in taxation being a political rather than a jural concept. * * *

Most recently, in Commissioner v. Banks, 543 U.S. ___, 125 S.Ct. 826 (2005), the U.S. Supreme Court emphasized that the issue of the effect of the AMT on cases such as Kenseth v. Commissioner, supra, involving the deductibility of attorney's fees, has partially been addressed by Congress. We believe that here, too, the solution must be with Congress.

Petitioners have submitted materials from congressional, Taxpayer Advocate, and bar association sources, dealing with a widespread perception that application of the AMT to ISOs is unfair and should be the subject of redress. Respondent argues that petitioners did not raise efficient tax administration as a ground in their original offer in compromise and that we should not consider materials beyond the administrative record. The Court has indicated that we are not confined to the administrative record. Robinette v. Commissioner, 123 T.C. 85, 94-104 (2004). However, most of the material that petitioners attached to their filings is not part of the administrative record, is not admissible evidence, and was in large part generated subsequent to the notice of determination that is the basis of this case. Such material does not show that there was an abuse of discretion by the Appeals officer when the notice of determination was sent on August 12, 2003. See Sego v. Commissioner, 114 T.C. 604, 612 (2000).

Petitioners' materials, in any event, could support arguments both for and against petitioners' position. Petitioners assert that those materials show "public policy". In our view, however, those materials show that Congress is well aware of the claimed inequities resulting from the application of the AMT and has, so far, declined to act. In the absence of congressional action, we cannot discern public policy from the materials tendered by petitioners. Moreover, the materials submitted by petitioners show that their situation is, unfortunately, not unique.

We do not discern in section 7122 an intent of Congress to override application of specific provisions of the tax laws in every instance in which the liability is perceived to be unfair or inequitable. As the Court of Appeals for the Seventh Circuit observed in Kenseth v. Commissioner, supra, this is not a feasible judicial function. A fortiori, individual revenue officers and Appeals officers, carrying out their respective functions in the IRS collection process, cannot be expected to engage in the type of statutory interpretation urged on us by petitioners or to nullify unfortunate consequences of the tax laws on a case-by-case basis. The terms of section 7122, the regulations adopted under it, and the Internal Revenue Manual are consistent with the experience and expertise of IRS personnel in evaluating financial circumstances. Petitioners do not argue that the regulations or the Internal Revenue Manual provisions are invalid. They claim that they were not followed. But terms such as "promotion of effective tax administration", "special circumstances", and "compelling public policy or equity considerations" have a narrower meaning than that urged by petitioners, and the explanations of those terms in the regulations and in the Internal Revenue Manual are not unreasonable.

Unlike the examples set forth under section 301.7122-1(c), Proced. & Admin. Regs., petitioners do not claim illness or a medical condition or disability; they do not have income that is exhausted providing for the care of dependents; and they have sufficient income to meet "basic living expenses". Petitioners' hardship argument is essentially that the tax liability is disproportionate to the value that they received from the ISOs and that they have already been forced to change their lifestyle unreasonably. Although we sympathize with their situation, this type of hardship is not unique.

Petitioners argue that the AMT imposed on their exercise of ISOs is a "prepayment" of tax on value that they never received. Under the statutory scheme, however, the tax imposed at the time of exercise of ISOs is a deferred tax on a form of compensation that petitioners received at an earlier time. See Commissioner v. LoBue, 351 U.S. 243 (1956). As explained in Luckman v. Commissioner, 418 F.2d 381, 384 (7th Cir. 1969), revg. and remanding on other grounds 50 T.C. 619 (1968), stock options "represent a form of compensation paid to employees in connection with successful present and future business performance. They constitute a particularly rewarding form of bonus." See generally 1 Mertens, Law of Federal Income Taxation, sec. 601 (2005 rev.). Because of sections 421(a) and 422, regular tax at ordinary rates that would normally be imposed on compensation is not imposed on the receipt or exercise of ISOs. See sec. 83(a), (e)(1). The offset, however, is that ISOs are treated as "tax preference items" for AMT purposes in section 56(b)(3).

In addition to affecting the time of taxation, the complexity of statutes applicable to stock options involves differences between taxation at ordinary income rates and capital gains rates. See generally Luckman v. Commissioner, supra at 386-387. Accepting petitioners' position would result in nullification of a portion of the statutory scheme by administrative or judicial action. We cannot conclude that section 7122 gives the Court a license to make adjustments to complex tax laws on a case-by-case basis. Cf. Rank v. United States, 345 F.2d 337, 344-345 (5th Cir. 1965) (describing other circumstances in which "the attention of Congress was once again focused on this highly complex, if not controversial, question of employee stock options"). Moreover, we cannot conclude that it is an abuse of discretion for the Appeals officer to decline to do so. In this case, we conclude that the Appeals officer correctly applied the provisions of the regulations and of the Internal Revenue Manual, specifically those portions cautioning against granting relief based on inequity where to do so would undermine congressional intent.

The Appeals officer considered and adjusted the financial information submitted by petitioners and concluded that petitioners could pay the balance of their tax liability by use of an installment agreement. See generally Orum v. Commissioner, 123 T.C. 1, 13-14 (2004). Neither the information provided to the Appeals officer nor that provided to the Court in this case shows that it was not reasonable for the Appeals officer to conclude that petitioners have the ability to pay over time the balance of the tax liability. Petitioners contend that they should not be required to pay the full amount. We are not unsympathetic to the burdens and lifestyle changes that petitioners have and may suffer as a result of their tax liability. Petitioners have not contended or shown, however, any invalidity in the Appeals officer's determination of their basic living expenses as that term is used in section 7122. Petitioners seek to have the Court redefine "hardship", "special circumstances", and "efficient tax administration" in a manner different from that set forth in the regulations and in the Internal Revenue Manual.

There is a dispute between the parties with respect to the individual adjustments used by the Appeals officer in determining that petitioners could pay the remaining tax liability under an installment plan. Respondent has suggested some revised computations and a remand for further consideration of petitioners' offer in compromise if the motion for summary judgment is denied. Petitioners have repudiated this suggestion and asked us to decide this case on the arguments presented. In view of petitioners' position, for purposes of this case, that they should not be required to pay any more than the amount that they offered, differences as to the calculation of their ability to pay installments are not material and do not preclude resolution of this case on summary judgment. See Rule 121(b). We are not in a position to determine the amount or duration of any installments that petitioners could or should be required to pay. The only issue before us is whether there was an abuse of discretion in refusing the offer in compromise in the amount of $4,457 and concluding that the lien filed by the IRS should remain in place. As respondent points out, any levy on particular assets of petitioners that the IRS proposes to pursue in the future will also require notice and an opportunity to be heard under section 6320 or 6330. Petitioners may submit another offer in compromise. Petitioners' income and expenses may change. We conclude, however, that there was no abuse of discretion in declining to accept petitioners' offer dated November 2, 2001, and continuing the lien in effect.

Order and Decision will be entered for respondent.

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William Negron Ramos v. Internal Revenue Service,U.S. District Court, No. Dist. N.Y.; 1:04-CV-540 (LEK/RFT), January 3, 2005, 2005-1 USTC 50,160

Practice and procedure: Collection Due Process hearing: IRS abuse of discretion: Notice of determination. --
The IRS properly determined that collection proceedings could proceed against a delinquent accountant. Since the taxpayer did not challenge his underlying tax liability, the court's review of his Collection Due Process (CDP) hearing was limited to whether the IRS abused its discretion. The taxpayer's notice of determination properly explained how the requirements of applicable law and administrative procedure were met, and how the determination balanced efficient tax administration with the least intrusive collection actions. The delay in issuing the notice did not entitle him to damages because the IRS is not required to issue the notice within a certain period, and the damages allegedly arose from IRS collection activities rather than the determination of the taxpayer's liability.

Offer in compromise: Rejection of: Likelihood of collection. --
The IRS properly rejected a delinquent accountant's offer in compromise because he had not questioned his tax liability, and collection of the full liability would not cause him economic hardship. Although the taxpayer was unemployed, that appeared to be a temporary situation. Moreover, he had adequate income and assets to pay the liability; his spouse was employed; and he received financial assistance from his adult children who lived at home. Further, no compelling public policy or equity considerations compelled acceptance of the offer.
The District Court lacked jurisdiction over a delinquent accountant's claim for damages that he alleged were caused by the IRS's delay in reaching a determination after his Collection Due Process (CDP) hearing. CDP jurisdiction did not apply because his claim arose after the hearing, and related to the collection of his liability, rather than its determination. Jurisdiction under the Administrative Procedures Act was limited to relief other than money damages. Finally, the taxpayer was not entitled to damages for unauthorized collection activities because he failed to allege that any IRS officer violated any provision of the Internal Revenue Code or its regulations.]

A delinquent accountant was not entitled to be reinstated in the IRS electronic filing program. The IRS has the authority to suspend program participants for failure to pay any tax liabilities or assessed penalties. The taxpayer did not dispute that he owed money to the IRS for taxes and penalties, nor did he allege any wrongful action on the part of the IRS.

MEMORANDUM-DECISION AND ORDER 1

I. Background

K AHN, District Judge: Plaintiff William Negron Ramos ("Negron") filed this action to dispute Defendant Internal Revenue Service's ("IRS") April 14, 2004 determination ("determination") with respect to his tax liability. Negron seeks to have the Court overturn this determination of the IRS Appeals Office and order in its place Negron's Offer in Compromise ("OIC"). Negron requests damages in the amount of $2,500 for a business investment that he made in reliance on representations made to him by an IRS agent regarding the amount of time it would take the IRS Appeals Office to issue a determination of his tax liability. He also requests that his suspension from the electronic tax filing program based upon his outstanding tax liability be limited to the current tax year only. Currently before the Court are the IRS' motion to affirm its determination concerning collection action and motion to dismiss Negron's claims for damages and alteration of his suspension from the electronic filing program.

II. Facts

The IRS assessed a trust fund recovery penalty against Negron for the tax period ending September 30, 1995 for failure to pay income and Federal Insurance Contribution Act (FICA) taxes owed by a failed business for which he was a principal. Complaint (Dkt. No. 1) at 3; IRS Motion (Dkt. No. 7) at 2. The original debt was approximately $13,000. Complaint (Dkt. No. 1) at 3. On April 17, 2003, the IRS sent him a Final Notice of Intent to Levy and Notice of Your Right to a Hearing letter. Final Notice (Dkt. No. 7, Ex. B) at 1; Complaint (Dkt. No. 1) at 7. According to this letter, Negron owed $23,121.38, which included the assessment of $12,899.73 plus statutory additions of $10,221.65. Final Notice (Dkt. No. 7, Ex. B) at 2. Negron timely requested a Collection Due Process ("CDP") hearing, seeking a reconsideration of his last OIC because he had been unemployed for six months. Request (Dkt. No. 7, Ex. C) at 1; Complaint (Dkt. No. 1) at 4. The CDP hearing was held on September 9, 2003. Complaint (Dkt. No. 1) at 3. Negron claims that at the close of this hearing, the IRS agent said, "I will evaluate your new offer, I will at least like to recover the original debt, but I would not be able to get back to you probable [ sic] until next month." Id.

Negron has been unemployed since November 2002, and his employment benefits ceased in October 2003. Id. After the termination of his unemployment benefits, he started a business providing accounting services, including tax preparation. Id. At the end of October, Negron called the IRS about the status of his case, and was told by an IRS agent that "I am in the middle of finishing another case, your case is next." Id.

Negron was previously authorized to participate in the IRS' electronic tax filing program, but had to be readmitted into the program. Id. He borrowed and invested approximately $2,500 and began the process for readmission. Id. On February 2, 2004, Negron was denied authorization to participate in the program because, although he was trying to rectify the issue, he still had a balance due to the IRS. Program Denial Letter (Dkt. No. 1) at 10. Negron wrote a letter to appeal that denial, explaining that his case was still being decided by the IRS Appeals Office. Program Appeal (Dkt. No. 1) at 12. On February 17, 2004, his appeal of the February 2 decision was denied because, regardless of his situation, his civil penalty issue remained unresolved and his balance was still unpaid. Program Appeal Denial (Dkt. No. 1) at 13. He was suspended from participation in the program until January 1, 2006. Id. This denial stated that Negron had a right to appeal that decision. Id. Negron contends that between February 1 and April 15, 2004, he had 123 inquiries regarding tax preparation services, but he was only able to prepare seven tax returns because the other 116 people wanted electronic filing. Complaint (Dkt. No. 1) at 3.

On April 14, 2004, the IRS Appeals Office issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, which stated that the collection action proposed by the IRS could resume and that the OIC submitted by Negron was denied. Determination (Dkt. No. 1) at 7-8. Negron timely commenced this proceeding on May 13, 2004, seeking judicial review of this determination. Complaint (Dkt. No. 1). Negron also seeks $2,500 in damages for his business investment and for a reduction in his suspension from the electronic tax filing program. Id. at 4.

III. Discussion

A. Motion to Affirm IRS Determination

This Court has jurisdiction to review an IRS determination pursuant to 26 U.S.C. §6330(d)(1)(B), which states in pertinent part that a "person may, within 30 days of a determination under this section, appeal such determination ... (B) to a district court of the United States" when, as in this case, the Tax Court does not have jurisdiction. 26 U.S.C. §6330(d)(1)(B); see Pelliccio v. United States [ 2003-1 USTC ¶50,293], 253 F.Supp.2d 258, 262 (D. Conn. 2003); see also Anderson v. Comm'r of Internal Revenue [ CCH Dec. 54,071(M)], 80 T.C.M. (CCH) 461 (2000) (Because the Tax Court's jurisdiction is generally limited to income, estate, gift, and certain excise taxes, it does not have jurisdiction to review an employment tax liability determination under §6330. When the underlying tax liability is not at issue, as is true in this case, the court reviews the determination for abuse of discretion. Pelliccio [ 2003-1 USTC ¶50,293], 253 F.Supp. at 262. For judicial review of administrative appeals, a decision "would be an abuse of discretion if it were made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis, or ... on other considerations that Congress could not have intended to make relevant." MCRA Info. Servs. v. United States [ 2000-2 USTC ¶50,683], 145 F.Supp.2d 194, 199 (D. Conn. 2000) (citing Wong Wing Hang v. I.N.S., 360 F.2d 715, 719 (2d Cir. 1966)) (internal quotations omitted).

Pursuant to §6330(c)(3), in making a determination, the IRS officer must take into consideration (1) the verification that "the requirements of any applicable law or administrative procedure have been met"; (2) the issues raised by the taxpayer, which may include spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives; and (3) "whether any proposed collection action balances the need for efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. §6330(c).

The IRS officer considered each of the three criteria prior to issuing the determination. The Summary and Recommendation included with the Notice of Determination explains how the requirements of applicable laws and administrative procedures were met and how the levy balanced the need for efficient collection with taxpayer concern that the collection action be no more intrusive than necessary. Determination (Dkt. No. 1) at 7-8. Negron did not raise anything relating to these issues at the hearing, nor does he challenge these conclusions in his complaint.

At the hearing, Negron did propose an OIC to reduce his overall liability to $8,000, the acceptance of which he also requests in his complaint. Id.; Complaint (Dkt. No. 1) at 3-4. The IRS has the authority to compromise any civil liability pursuant to 26 U.S.C. §7122(a). Regulations promulgated under that section give broad discretion to the IRS to determine whether an OIC will be accepted. 26 C.F.R. §301.7122-1(a)(1). There are three grounds that make an OIC eligible for acceptance, namely (1) doubt as to liability; (2) doubt as to collectibility; and (3) promotion of effective tax administration ("ETA") when collection of the tax liability would cause the taxpayer economic hardship. 26 C.F.R. §301.7122-1(b)(1)-(3)(i).

The IRS officer determined that Negron did not question the liability, and that he had the income and/or assets available to pay it in full. Determination (Dkt. No. 1) at 7-8. Further, the officer found that collection of the full liability would not cause economic hardship. Id. The IRS officer analyzed Negron's current financial circumstances, as well as his ability to obtain employment based upon his education, experience, and overall good health. Id. He concluded that his unemployment did not appear to be permanent, and that it would not be an economic hardship considering that his spouse was employed, his at-home adult children assist him financially, and he can meet his basic living expenses. Id. Further, the IRS officer noted that he had or had access to assets sufficient to pay the entire liability. Id.

If none of the three grounds listed above are applicable, the IRS may compromise to promote ETA where "compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability." 26 C.F.R. §301.7122-1(b)(3)(ii). For this to apply, there must exist exceptional circumstances which would cause public confidence in the fair administration of the tax laws to be undermined. Id. The taxpayer has the burden of demonstrating such circumstances. Id. The IRS found that no exceptional circumstances existed, and Negron did not allege any in his complaint. Determination (Dkt. No. 1) at 8.

In its determination, the IRS fully addressed all of the factors contained in the regulations for the acceptance of an OIC. There are no allegations by Negron that the IRS officer failed to consider any information, or that any of the factual findings were incorrect. Therefore, the Court finds no basis to conclude that the IRS abused its discretion, and the motion to affirm is granted. See, e.g., Pelliccio [ 2003-1 USTC ¶50,293], 253 F.Supp.2d at 262. Accordingly, Negron's request that his liability be reduced to $8,000 is denied.

B. Motion to Dismiss

1. Standards

A motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure must be denied "'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In assessing the sufficiency of a pleading, the Court must "assume all well-pleaded factual allegations to be true, and ... view all reasonable inferences that can be drawn from such allegations in the light most favorable to the plaintiff." Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999). Consideration is limited to the complaint, written instruments that are attached to the complaint as exhibits, statements or documents that are incorporated in the complaint by reference, and documents on which the complaint heavily relies. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (citations omitted).

A motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), however, has a different standard. The Court "need not accept as true contested jurisdictional allegations." Shenandoah v. Halbritter, 275 F.Supp.2d 279, 284 (N.D. N.Y. 2003) (Mordue, J.) (citations omitted). A court "may resolve disputed jurisdictional facts by referring to evidence outside the pleadings." Id. (citing Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000); Filetech S.A. v. France Telecomm. S.A., 157 F.3d 922, 932 (2d Cir. 1998). The burden is on the plaintiff to show that a court has subject matter jurisdiction. Lunney v. United States, 319 F.3d 550, 554 (2d Cir. 2003); Shenandoah, 275 F.Supp. at 285. If at any time it comes to the court's attention, by the parties or otherwise, that subject matter jurisdiction is lacking, the action must be dismissed. Fed. R. Civ. P. 12(h)(3).

2. Damages

Negron requests damages from the IRS in the amount of $2,500 for his business investment, claiming that he spent this amount in reliance upon an IRS officer's representation that he would receive a determination based upon the September 9, 2003 CDP hearing in October 2003. Complaint (Dkt. No. 1) at 3. He also claims that the denial of authorization to participate in the electronic tax filing program resulted from the outstanding case. Id. The IRS contends that the Court does not have jurisdiction to hear this claim. IRS Memo. (Dkt. No. 7) at 9.

The IRS, as part of the United States government, is immune from suit, "except where [C]ongress, by specific statute, has waived sovereign immunity." Liffiton v. Keuker, 850 F.2d 73, 77 (2d Cir. 1988). If Congress has not waived sovereign immunity for this type of claim, the Court does not have subject matter jurisdiction. Chayoon v. Chao, 355 F.3d 141, 142-43 (2d Cir. 2004). Negron does not present any basis upon which to invoke this Court's jurisdiction in his complaint, 2 and a review of the possible bases for subject matter jurisdiction demonstrates that this Court does not have jurisdiction to hear this claim.

There are few provisions that allow suit to be brought in a district court for money damages against the IRS. Section 6330, which is the basis for this Court's review of the IRS determination, does not authorize the Court to provide such relief for Negron in this case. Review under §6330(d) is limited to issues raised in the CDP hearing. Pelliccio [ 2003-1 USTC ¶50,293], 253 F.Supp.2d at 261. As Negron's claim is for money invested after the hearing based upon the length of time it took for a post-hearing determination to be issued, this issue could not have been brought up at the hearing. Therefore, this relief cannot be awarded under §6330.

Further, this Court cannot award money damages under the Administrative Procedure Act ("APA"), 5 U.S.C. §702. Congress waived sovereign immunity under the APA for a "legal wrong because of agency action" only when seeking relief other than money damages. 5 U.S.C. §702; see, e.g., Presidential Gardens Assocs. v. United States, 175 F.3d 132, 143 (2d Cir. 1999). Because Negron is seeking monetary damages as compensation, it cannot be allowed under the APA. Additionally, the Federal Torts Claims Act retains sovereign immunity for "[a]ny claim arising in respect of the assessment or collection of any tax." 28 U.S.C. §2680(c).

The exclusive provision for recovering monetary damages in connection with any collection of a federal tax is 26 U.S.C. §7433(a):
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.

26 U.S.C. §7433(a). 3 However, Negron fails to state a claim under §7433 because he does not allege that any officer violated any provision of the Internal Revenue Code or any regulation promulgated thereunder. CPS Elec. Ltd. v. United States [ 2002-1 USTC ¶50,425], 200 F.Supp.2d 120, 128-29 (N.D. N.Y. 2002) (Scullin, C.J.). The only allegation that Negron makes respecting his investment of $2,500 for which he seeks compensation is the amount of time that it took for the IRS to issue a determination as to his liability, and that it took longer than an IRS officer estimated. Complaint (Dkt. No. 1) at 3. However, this Court is not aware of any statute or regulation that requires a determination to be issued within a certain time period, and Negron has not pointed to any. Furthermore, this section only applies to the collection of a tax, not a determination of a tax, which is what is at issue in this case. See Arnett v. United States [ 95-1 USTC ¶50,319], 889 F.Supp. 1424, 1430 (D. Kan. 1995) ("Congress was undoubtedly aware of the distinction between the 'determination' of a tax and the 'collection' of a tax, and that distinction is clearly evidenced by the language of the statute"). Therefore, §7433 does not provide Negron with an avenue of relief.

3. Suspension from Electronic Filing Program

Negron also asks this Court to alter his suspension from the electronic tax filing program to limit it to the current tax year only. Complaint (Dkt. No. 1) at 4. The Court's authority to review the decision to exclude Negron from the program would have to come from §704 of the APA. See, e.g., Brenner Income Tax Ctrs. Inc. v. Dir. of Practice of the IRS [ 2000-1 USTC ¶50,308], 87 F.Supp.2d 252, 257 (S.D. N.Y. 2000). Although Negron does not phrase his complaint in APA terms, he is proceeding pro se, and this Court will read his complaint liberally. See, e.g., Haines v. Kerner, 404 U.S. 519, 520-21 (1972); Gill v. Pidlypchak, 389 F.3d 379, 385 (2d Cir. 2004). For an agency decision to be reviewed under the APA, it must be a "final agency action." 5 U.S.C. §704. "A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action." Id.

The IRS contends that Negron is not the subject of a final agency decision, and thus, this Court does not have the authority to review the decision under the APA. IRS Memo. (Dkt. No. 7) at 10. Negron alleges that his appeal of the IRS' initial decision to suspend him was denied and that he has been suspended from the program. Complaint (Dkt. No. 1) at 3. In this letter denying his first appeal, he was informed of his right to a second appeal. Appeal Denial (Dkt. No. 1) at 13. Negron did not appeal again, and therefore, as of March 2004, the sanction should have been imposed. Id. However, the failure to take advantage of the opportunity to appeal does not necessarily deprive this Court of jurisdiction. Under the APA, "if Congress has not enacted an explicit exhaustion requirement, courts may not exercise their judicial discretion to impose one." Bastek v. Fed. Crop Ins. Corp., 145 F.3d 90, 94 (2d Cir. 1998) (quoting Darby v. Cisneros, 509 U.S. 137, 153-54 (1993)). The Court is not aware of any provision that requires Negron to exhaust all of his administrative remedies before filing suit in district court. It appears that Negron has been subjected to a final agency action, considering that he has no further recourse with the IRS and his suspension should be in effect as of March 2004. Appeal Denial (Dkt. No. 1) at 13. Therefore, the Court will not dismiss this action for a lack of final agency action.

The IRS also contends that Negron fails to state a claim under the APA. IRS Memo. (Dkt. No. 7) at 11. In relevant part, the APA states that agency action, findings, and conclusions can only be set aside when they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. §706(2)(a). "An agency rule may be deemed arbitrary, capricious, or an abuse of discretion 'if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.'" Henley v. Food & Drug Admin., 77 F.3d 616, 620 (2d Cir. 1996) (quoting Motor Vehicle Mfrs. Assoc. of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).

The IRS has the authority to develop guidelines and procedures for participation in the electronic tax filing program. Rev. Proc. 2000-31. Authorized electronic filers must adhere to all revenue procedures and publications related to the program, and sanctions for violations include suspension. Id. at §4.04, 7.02. The IRS may suspend an electronic filer for, inter alia, failure to pay any tax liability or assessment of penalties. IRS, Pub. No. 3112, IRS e-file Application and Participation, 15, 25 (2004). This rule is rationally related "to the IRS' mission of assuring taxpayers that paid preparers understand and will abide by all relevant rules." Brenner [ 2000-1 USTC ¶50,308], 87 F.Supp.2d at 257.

In this case, the IRS suspended Negron from the program because he had a balance due based upon the assessment that is the subject of the instant action. Program Denial Letter (Dkt. No. 1) at 10. On appeal, the IRS considered the issues he raised, but as he still had a balance due, his request for authorization was denied. Appeal Denial (Dkt. No. 1) at 13. Negron does not dispute that he owed money to the IRS or that penalties were assessed against him. Complaint (Dkt. No. 1) at 3. He does not assert any wrongdoing on the part of the IRS officials that made the determination to suspend him from the program. Id. Negron offers no reason for this Court to award him this relief under the APA, other than his desire to make money by preparing and electronically filing tax returns and his understandable frustration with the length of time it took the IRS Appeals Office to make a determination. Id. As Negron does not allege any wrongful action on the part of the IRS specifically respecting the decision to suspend him from the electronic tax filing program, the IRS' motion to dismiss is granted.

IV. Conclusion

Based on the foregoing discussion, it is hereby

ORDERED, that the IRS' motion to affirm is GRANTED; and it is further

ORDERED, that the IRS' motion to dismiss Negron's claim for $2,500 in damages is GRANTED; and it is further

ORDERED, that the IRS' motion to dismiss Negron's claim for an alteration to his suspension from the electronic tax filing program is GRANTED; and it is further

ORDERED, that Negron's complaint is DISMISSED in its entirety; and it is further

ORDERED, that the Clerk serve a copy of this order on all parties.

1 For printed publication in the Federal Reporter.

2 Negron did not file a response to the IRS' motions to affirm and to dismiss.

3 Section 7432, regarding the failure to release a lien, does not apply to this action.

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S.D. Powers, T.C. Summary Opinion 2005-21, February 24, 2005, UNITED STATES TAX COURT. Docket No. 5057-04S. Filed February 23, 2005.

Shirley Dean Powers, a.k.a. Shirley Powers Gilchrist, pro se.

Innessa Glazman Molot, for respondent.

PANUTHOS, Chief Special Trial Judge : This case was heard pursuant to the provisions of sections 6330(d) and 7463.1 The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

Respondent issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) for unpaid Federal income tax and related liabilities for 1996 and 1997.2 The notice of determination asserts that the unpaid balance is $4,249.07.

The issue for decision is whether respondent abused his discretion by rejecting petitioner's offer in compromise (OIC).

Background

Some of the facts have been stipulated, and they are so found. Petitioner resided in Cheverly, Maryland, at the time the petition was filed.

Petitioner filed a 1996 Federal income tax return on June 17, 1997, and timely filed a 1997 Federal income tax return on or before April 15, 1998. The 1996 and 1997 returns each reflected tax due. There was no remittance with either of the returns. Respondent assessed the taxes due for 1996 and 1997.

Respondent issued petitioner a notice of intent to levy for the 1993 through 1997 taxable years. Petitioner submitted a timely Form 12153, Request for a Collection Due Process Hearing. Petitioner also submitted an OIC. The Appeals officer rejected petitioner's OIC, noting that petitioner's offered amount of $100 for the liabilities outstanding for the tax years 1993 through 1997 was inadequate. The Appeals officer concluded that petitioner's monthly disposable income was $463.39 and that the monthly disposable income for the next 48 months totaled $22,242.72. After conceding the liabilities for 1993, 1994, and 1995 the Appeals officer concluded that the offer of $100 was "paltry" considering the outstanding debt of $4,249.07 for 1996 and 1997.

On February 24, 2004, the Appeals Office issued the notice of determination sustaining its determination to proceed with collection of the outstanding liabilities for the 1996 and 1997 taxable years. As indicated, the notice of determination also indicated that collection action would not be sustained with respect to the outstanding tax liabilities for 1993, 1994, and 1995, and that said liabilities should be abated.

Discussion

This Court has jurisdiction under section 6330 to review the Commissioner's administrative determinations. Sec. 6330(d). Where, as here, the validity of the underlying tax liability is not at issue, we review the determination for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 183 (2000). In so doing, we do not conduct an independent review of what would be an acceptable offer in compromise. Van Vlaenderen v. Commissioner, T.C. Memo. 2003-346. We review only whether the Appeals officer's refusal to accept petitioner's OIC was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

Under section 6330, a taxpayer is entitled to a hearing in which he or she may raise any relevant issue relating to the unpaid tax or the proposed levy, including offers of collection alternatives such as an offer in compromise. Sec. 6330(b) and (c)(2). Petitioner appears to contend that the Appeals officer should have conceded the tax liabilities for 1996 and 1997, consistent with his concession of the tax liabilities for 1993, 1994, and 1995. Petitioner does not otherwise present any argument that the Appeals officer's rejection of the OIC was an abuse of discretion.

The Appeals officer conceded petitioner's tax liabilities for 1993, 1994, and 1995 because the IRS had failed to maintain the administrative files and the IRS records were insufficient to pursue collection. However, this was not the situation with respect to 1996 and 1997. Petitioner's position simply makes no sense given the disparate circumstances. Respondent's rejection of the OIC was based on an analysis of petitioner's financial information. On the basis of the information considered by the Appeals officer, we cannot conclude that rejection of petitioner's OIC was an abuse of discretion. See Van Vlaenderen v. Commissioner, supra; Crisan v. Commissioner, T.C. Memo. 2003-318; Willis v. Commissioner, T.C. Memo. 2003-302; O'Brien v. Commissioner, T.C. Memo. 2003-290; Schulman v. Commissioner, T.C. Memo. 2002-129. Petitioner's OIC of $100 was not based on any analysis. Petitioner failed to provide information or explain how she arrived at her conclusions. Indeed, when the Court asked petitioner to explain why she disagreed with respondent's analysis of her OIC, she failed to provide an adequate explanation. We are satisfied that respondent did not abuse his discretion in making his determination.

Reviewed and adopted as the report of the Small Tax Case Division.

To give effect to the foregoing,

An appropriate decision will be entered for respondent.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended.

2 Respondent, in the notice of determination, conceded the outstanding tax liabilities for 1993, 1994, and 1995.
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Mark Fowler and Joylyn Souter-Fowler v. Commissioner.

Dkt. No. 6650-02L , TC Memo. 2004-163, July 13, 2004.

Appealable, barring stipulation to the contrary, to CA-9. -

An IRS Appeals officer abused his discretion in denying a married couple's offer in compromise on the grounds that the taxpayers had inadequate income to meet their living expenses and pay the proposed monthly payments. The officer appeared to rely exclusively on the IRS's prescribed schedule of national and local average living expenses to determine that the taxpayers' basic living expenses exceeded their monthly income. However, all of the facts and circumstances, including the schedule of actual expenses submitted by the taxpayers, should have been considered to determine whether the taxpayers could pay both (Code Sec. 7122(c)(2)). The filing of the federal tax liens to secure the IRS's interest in the unpaid tax liability was not an abuse of discretion.
Mark Fowler and Joylyn Souter-Fowler, pro sese; Guy H. Glaser, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GERBER, Chief Judge: Respondent, on February 21, 2002, sent Mark Fowler (petitioner) a Notice of Determination Concerning Collection Action(s) Under Section 63201 and/or 6330, in which respondent sustained the filing of a Federal tax lien for petitioner's 1990-92 tax liabilities. In that same notice respondent also rejected petitioner's offer in compromise. On that same date respondent sent Mark Fowler and Joylyn Souter-Fowler (petitioners) a second Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. In this notice respondent sustained the filing of a Federal tax lien with respect to petitioners' 1994-96 tax liabilities, and respondent again rejected petitioners' offer in compromise.
Prior to these determinations, petitioners sought and were offered an Appeals hearing, but they did not attend due to personal reasons. One month after the scheduled hearing date, the Appeals officer issued the above determinations sustaining the filing of the Federal tax liens and rejecting petitioners' offers in compromise. With respect to both determinations, petitioners appealed to this Court.

The issue for consideration is whether respondent abused his discretion by rejecting petitioners' offers in compromise and by sustaining the filing of the Federal tax liens.
FINDINGS OF FACT2
Petitioners resided in Garden Grove, California, when the petition in this case was filed.

Separate Liabilities
Petitioner filed his 1990 Federal income tax return late on September 6, 1991. On July 21, 1993, respondent mailed a statutory notice of deficiency to petitioner for his 1990 taxable year. Petitioner did not petition this Court to dispute the deficiency. On December 20, 1993, respondent assessed the $399 income tax deficiency and a $98.74 late-filing penalty under section 6651(a)(1). In addition, $104.40 of interest was assessed. Petitioner does not contest the 1990 tax liability.
Petitioner timely filed his 1991 Federal income tax return that contained several mathematical errors. Respondent corrected the mathematical errors in accord with section 6213(b)(1), and assessments were made to correct the errors. Respondent subsequently selected petitioner's 1991 return for an audit examination. On April 5, 1994, respondent mailed petitioner a statutory notice of deficiency for his 1991 taxable year determining a $545 income tax deficiency. Petitioner did not petition this Court with respect to the 1991 notice of deficiency. On September 5, 1994, respondent assessed the $545 deficiency and $103.37 of accrued interest.
Petitioner filed his 1992 Federal income tax return late on July 28, 1993. Respondent selected petitioner's 1992 return for an audit examination. On January 11, 1995, respondent mailed petitioner a statutory notice of deficiency for his 1992 taxable year determining a $1,193 income tax deficiency and a $189 penalty for late filing under section 6651(a)(1). On July 17, 1995, respondent assessed the deficiency, the late-filing penalty, and accrued interest in the amount of $265.92. On the same day, the late-filing penalty was abated leaving an unpaid balance of $1,458.92 for 1992.
Joint Liabilities
Petitioners were married in 1993. Under cover of a letter dated September 15, 1997, petitioners submitted their untimely 1994, 1995, and 1996 joint Federal income tax returns. These returns were filed by respondent on September 29, 1997. Petitioners reported tax due for 1994, 1995, and 1996 on their returns in the amounts of $402.04, $402.03, and $1,480.66, respectively.
On October 27, 1997, respondent assessed the 1994 income tax liability, a late-filing penalty in the amount of $100, a failure to pay tax penalty in the amount of $62.32, and accrued interest in the amount of $128.35, for a total assessment of $692.71. On that same date, respondent assessed the 1995 income tax liability, a late-filing penalty in the amount of $100, a failure to pay tax penalty in the amount of $38.19, and accrued interest in the amount of $73.03, for a total assessment of $613.25. On November 17, 1997, respondent assessed the 1996 income tax liability, a late-filing penalty in the amount of $333.15, a failure to pay tax penalty in the amount of $59.23, and accrued interest in the amount of $99.21, for a total assessment of $1,972.25.

Events Leading to the Issuance of the Notice of Determination
On December 21, 1999, respondent mailed two separate Notices of Intent to Levy and Notice of Your Right to a Hearing to petitioners. The notices reflected petitioners' unpaid Federal income tax liabilities for 1990 through 1992 and 1994 through 1996. On January 26, 2000, petitioners informed respondent of their desire to submit an offer in compromise to resolve all of their individual and joint liabilities. In response, respondent mailed petitioners a package of materials for the submission of offers in compromise for their outstanding individual and joint liabilities.
On April 19, 2000, respondent received petitioners' offer to compromise the 1994 through 1996 joint liabilities for $1,150. On that same date respondent received petitioner's offer to compromise the 1990 through 1992 liabilities for $360. Both offers in compromise were submitted on Form 656, Offer in Compromise. Petitioners' offer was to make monthly payments to satisfy the liabilities. Petitioners planned to pay a portion of the offer amount from their expected tax refund for 1999.
On May 19, 2000, respondent's revenue officer advised petitioners that their offers in compromise could not be processed until petitioners' 1999 Federal income tax return was filed. Under respondent's procedures, offers are not processed while taxpayers are not in compliance with the internal revenue laws.
Petitioners had already filed for an extension of time to file for 1999 because they were awaiting information from third parties to complete the return. On June 15, 2000, respondent filed two Notices of Federal Tax Lien (NFTL) at the county recorder's office in Orange County, California, with respect to the individual and joint tax liabilities. Respondent sent petitioners the filed NFTLs and Notices of Right to a Collection Due Process Hearing. On July 14, 2000, petitioners submitted Form 12153, Request for a Collection Due Process Hearing (administrative hearing), contesting the NFTLs filed by respondent and noting the pending offers in compromise.
Sometime in 2001, petitioners' claims were assigned to respondent's Appeals officer. On June 20, 2001, the Appeals officer and petitioners had a telephone conversation discussing petitioners' desire to compromise all of the liabilities. The Appeals officer requested more information from petitioners, which they timely provided with a copy of their filed 1999 Federal income tax return. At some time in the process, petitioners submitted an amended offer in compromise for $2,400, to be paid in $100-monthly installments. Under those terms, the $2,400-offer could be paid in full in 2 years.
On October 16, 2001, respondent's Appeals officer sent petitioners a letter informing them that he had reviewed the offers in compromise. The Appeals officer determined that the minimum offer to compromise both the individual and joint liabilities should be a total of $2,400. The Appeals officer used petitioners' estimate of their primary vehicle3 to calculate a quick sale value of $2,400, which was determined to be the minimum acceptable offer. The Appeals officer then attempted to determine whether petitioners would be able to meet the monthly installment offer obligation. In calculating petitioners' financial capability, the Appeals officer used petitioners' submitted monthly gross income figure of $4,608, but did not use petitioners' submitted $3,989 monthly expense figure. Instead of using the $3,989 expense figure provided by petitioners, the Appeals officer used $4,644, an estimated amount based on national statistical averages. Using $4,644 resulted in petitioners' estimated monthly expenses exceeding their monthly income by $36 and rendering petitioners ineligible due to their projected inability to make the $100-monthly payments.
The Appeals officer rejected petitioners' offers in compromise. Petitioners requested an in person hearing, but a hearing was not held due to petitioners' unavailability. On February 21, 2002, respondent issued two separate notices of determination for the individual and joint liabilities sustaining the filing of the notices of Federal tax liens and rejecting petitioners' offers in compromise. Petitioners timely appealed to this Court for review of respondent's determinations.

OPINION
Petitioners contend that the Appeals officer abused his discretion by rejecting their offers in compromise and by sustaining the filing of the Federal tax liens.

Section 6320 provides that a taxpayer shall be notified in writing by the Secretary of the filing of a Federal tax lien and provided with an opportunity for an administrative hearing. Sec. 6320(b). Hearings under section 6320 are conducted in accordance with the procedural requirements set forth in section 6330. Sec. 6320(c).
When an Appeals officer issues a determination regarding a disputed collection action, section 6330(d) allows a taxpayer to seek judicial review with the Tax Court or a District Court. Where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000). However, when the validity of the underlying tax is not at issue, the Court will review the Commissioner's administrative determination for an abuse of discretion. Id. Petitioners do not dispute the validity of the underlying tax. Accordingly, our review is for an abuse of discretion.
We do not conduct an independent review of what would be acceptable offers in compromise. We review only whether the Appeals officer's refusal to accept the offers in compromise was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). The Court considers whether the Commissioner abused his discretion in rejecting a taxpayer's position with respect to any relevant issues, including challenges to the appropriateness of the collections action, and offers of collection alternatives. See sec. 6330(c)(2)(A). This case involves collection alternatives.
Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. There are three standards that the Secretary may use to compromise a liability. The first standard is doubt as to liability, the second being doubt as to ability to collect, and the third being promotion of effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999); see sec. 7122(c)(1). The record reflects that petitioners' offers are with respect to doubt as to collectibility.4
Section 7122(c) provides the standards for evaluation of such offers. Under section 7122(c)(2):
(A) * * * the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.
(B) Use of schedules. --The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses. [Emphasis added.]
The Appeals officer chose to use the national averages and that use resulted in petitioners' being categorized as not having adequate means to provide for basic living expenses.
The national average statistics are published by the Internal Revenue Service, but use of the statistics by Appeals officers is not mandatory. The Appeals officer exercised discretion in ignoring petitioners' submitted expense amount and, instead, used the national statistical amount as an estimate of petitioners' expenses. The use of the national averages for petitioners' expenses resulted in petitioners' monthly expenses exceeding their monthly income by $36. Therefore, by using the average expense figure, petitioners' income was $136 short of producing the $100 per month needed to compromise their tax liabilities for $2,400. We note that, percentagewise, the shortfall is less than 3 percent of petitioners' gross income. The Appeals officer chose to use the national statistical averages rather than the expense figures provided by petitioners. If the Appeals officer had used petitioners' submitted expense figure of $3,989, petitioners would have had $619 monthly and would have been financially capable of satisfying the $100 installments.
The Appeals officer is allowed to use the national schedules when considering the facts and circumstances of this case. However, if use of the schedules results in petitioners' not having adequate means to provide for basic living expenses, as here when the Appeals officer determined a negative $36 amount for basic living expenses, an installment offer may not be appropriate. See sec. 7122(c)(2)(B).
Under the regulations for doubt as to collectibility cases:
A determination of doubt as to collectibility will include a determination of ability to pay. In determining ability to pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living expenses. The determination of the amount of such basic living expenses will be founded upon an evaluation of the individual facts and circumstances presented by the taxpayer's case. To guide this determination, guidelines published by the Secretary on national and local living expense standards will be taken into account. [Sec. 301.7122-1T(b)(3)(ii), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).]
The regulation provides that the guidelines are to be taken into account. When the Appeals officer reviewed petitioners' offers, he decided to use the guidelines because he thought petitioners' actual figures were too low. In that regard, there is no specific explanation why the Appeals officer believed that petitioners' monthly expenses of $3,989 was too low or why the guideline figure of $4,644 was more accurate. The use of the guideline expense figure resulted in a $136 shortfall in petitioners' capability to meet the $100-monthly installment to satisfy the $2,400 compromise. If petitioners' submitted monthly expenses of $3,989 had been used, there would have been a $619 surplus of income over expenses that would have enabled petitioners to meet the $100-monthly installment to satisfy the compromise.
In essence, the Appeals officer decided that petitioners could not live less expensively than the national average (guidelines). We find it curious that the Appeals officer relied on petitioners' figures for their vehicle and for their income, but chose not to use petitioners' figures for their monthly expenses. Petitioners made an estimate of $3,000 for the value of their primary car and the Appeals officer used this figure to calculate the quick sale value of $2,400. Based on this premise, the Appeals officer determined that an offer of $2,400 would be an appropriate amount to settle the outstanding liabilities due for 1990-92 and 1994-96. The Appeals officer requested a lump-sum payment through the sale of petitioners' primary vehicle. Petitioners rejected this approach as this was their primary vehicle and to sell it would have caused great financial harm.
Petitioners submitted an amended offer in compromise for $2,400, to be paid in $100 monthly installments. Under those terms, the $2,400 compromise could be paid in full in 2 years. That offer was rejected due to the Appeals officer's determination that petitioners were financially unable to make the payments. We note that petitioners had cooperated with all requests from the Internal Revenue Service in an attempt to resolve this matter.
Appeals officers, in the consideration of an offer in compromise should verify that the requirements of applicable law and administrative procedures have been met, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." See sec. 6330(c)(3)(C). The verification of applicable law and administrative procedure was met in this case. However, it is questionable as to whether the proposed collection action balanced the need for efficient collection of taxes with the concern of petitioners that any collection action be no more intrusive than necessary.
Payment plans are one possible option for an offer in compromise. According to the instructions that accompany the Form 656, there are three possible payment plans under the short-term deferred payment offer. One plan requires full payment of the realizable value of assets within 90 days from the date the Internal Revenue Service accepts the offer, and payment, within 2 years of acceptance of the amount that they could collect over 60 months. A second plan permits a cash payment for a portion of the realizable value of petitioners' assets within 90 days of the offer being accepted, and the balance of the realizable value plus the remainder of the amount that could have been collected over 60 months within 2 years. The third plan permits monthly payments of the entire offer amount over a period not to exceed 2 years from the date of acceptance by the Internal Revenue Service. Petitioners offered $100 per month for 2 years or 24 months, which equals the $2,400-compromise amount.5
Under the various payment options, respondent would be able to file Federal tax liens to protect his interests until such time as the liability is satisfied. Accordingly, respondent's interest would be protected through the liens while respondent received monthly payments. The result of the Appeals officer's financial analysis, however, was to deny petitioners' offers in compromise. To use the national guidelines rather than actual figures in this instance was arbitrary, capricious, and without a sound basis in fact. Petitioners have stated that they are still willing to compromise their tax liabilities for $2,400, but through monthly payments rather than a lump-sum payment.6
Therefore, based on the facts and circumstances of this case, we hold that respondent abused his discretion in denying petitioners' offer to compromise their tax liabilities for $2,400. We further hold that respondent did not abuse his discretion in sustaining the filing of the Notices of Federal Tax Liens.7
An appropriate decision will be entered.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code.

2 The parties' stipulation of facts is incorporated by this reference.

3 Petitioners estimated the value of their primary vehicle to be $3,000. Respondent used this figure to calculate the $2,400 quick sale value.

4 Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the assessed liability. Sec. 301.7122-1T(b)(3), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).

5 Although not relevant to the facts of this case, there is also a deferred payment offer that provides for a plan similar to the short-term deferred plan (the third plan described above). The deferred payment plan allows the entire offer amount to be made in monthly payments over the life of the collection statute. The deferred plan could result in a longer payment period than 24 months.

6 Petitioners and respondent agreed on the amount of the compromise. The only disagreement here is the method of payment. Based on the financial information submitted by petitioners, a payment plan is a reasonable option.

7 Petitioners have made no argument of merit from which an abuse of discretion could be found with respect to respondent's determination that the filing of the Notices of Federal Tax Liens was appropriate.

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In the Matter of Charles Peterson, Debtor, U.S. Bankruptcy Court, Dist. Neb.; BK03-40948, November 4, 2004.

MEMORANDUM

MAHONEY, Chief Judge: Hearing was held in Lincoln, Nebraska, on October 18, 2004, on the United States' motion to alter, amend, or reconsider (Fil. #144) and resistance by the debtor (Fil. #147). John Hahn appeared for the debtor, and Gerald Leedom and Ellyn Grant appeared for the Internal Revenue Service. This memorandum contains findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. This is a core proceeding as defined by 28 U.S.C. §157(b)(2)(B) and (O).

This matter arises from the debtor's efforts to deal with a debt of approximately $102,000 for payroll taxes, a priority claim in this case. He proposes to make an "offer in compromise" to the Internal Revenue Service, which the IRS will not process for any taxpayer in bankruptcy. At the debtor's request, I ordered the IRS to process and consider the debtor's offer in compromise as it would for a taxpayer outside of bankruptcy. See Order of Sept. 2, 2004 (Fil. #142). The government then filed this motion to alter or amend or reconsider that order.

The Internal Revenue Code permits the Treasury Secretary to compromise any civil or criminal case arising under the revenue laws. The Secretary, through the Commissioner of Internal Revenue, has promulgated guidelines for IRS employees to follow in considering such offers, and has left to IRS discretion the decision of which offers in compromise are "processable." In accordance with such guidelines and procedures, the IRS has determined that offers in compromise from taxpayers in bankruptcy are not "processable" and will not be accepted for processing, on the basis that resolution of the claim is best accomplished in the bankruptcy case under the bankruptcy code and procedural rules.

The IRS's Office of Chief Counsel has published a notice reiterating the agency's position that in accordance with protecting the government's interests, the IRS will not accept less than is required to be repaid by the bankruptcy code unless the debtor can demonstrate that agreeing to accept less through the plan is in the government's best interest. This decision is to be made on a case-by-case basis by evaluating the reorganization plan, not a proposed offer in compromise.

In essence, the IRS takes the position that by choosing to file a Chapter 13 case, a debtor acknowledges full payment of the IRS's priority claim is required. Such a debtor may propose alternate terms for payment of the IRS claim in his or her plan. The IRS will review the plan and determine whether to object to or negotiate the proposed terms. However, the IRS has given no example of a Chapter 13 case in which it has accepted a plan that gave it less than full payment of a priority claim.

Counsel for the United States asserts that exercise of discretion on the part of the IRS in determining it will not entertain offers in compromise from those in bankruptcy is an agency action that is not subject to judicial review, and that a court order to the contrary is in the nature of a writ of mandamus.

I continue to stand by my prior ruling. I am not attempting to interfere with internal agency procedures. However, as suggested in the prior order, the debtor is not asking for special treatment or consideration contrary to law. The position taken by the IRS on this issue is set forth in a revenue procedure and in a notice from chief counsel. Neither of these carry the force and effect of law, and may not even be entitled to much deference.

Neither the Internal Revenue Code nor the Treasury Regulations contain the prohibition against accepting offers in compromise from taxpayers in bankruptcy. That provision appears in Revenue Procedure 2003-71 and is clarified in the July 12, 2004, notice from the Office of Chief Counsel.

A revenue procedure is an internal procedural guide. It represents official IRS position on a matter of procedure, but it is not mandatory. See Estate of Shapiro v. Commissioner [ 97-1 USTC ¶60,267], 111 F.3d 1010, 1017-18 (2d Cir. 1997), cert. denied, 118 S.Ct. 686 (1998). Interestingly, the Shapiro case involved a taxpayer who wanted to force the IRS to accept supplemental estate tax returns which recomputed tax liability based on annual interest payments, as provided for in the revenue procedure. The IRS argued that despite what the procedure stated, its "administratively convenient" practice was to not accept such supplemental returns from a taxpayer who was also involved in a Tax Court case, citing the difficulty of coordinating collection activities when the amount of tax liability had not been finally determined. The court found this to be a reasonable policy and ruled that the IRS was not bound by this particular revenue procedure, and thereby ruled against the taxpayer.

In Shapiro, the Second Circuit discussed the "well-established" rule that revenue procedures generally are directory, not mandatory, and are mere guidelines without the force of law. [ 97-1 USTC ¶60,267], 111 F.3d at 1017. The court also noted, however, that if a revenue procedure is properly characterized as a substantive statement instead of a procedural directive, the IRS may be required to follow it in every case. Id. "The IRS will be bound by a published rule if 1) the rule prescribes substantive rules --not interpretive rules, general statements of policy or rules of agency organization, procedure or practice, and 2) the agency promulgated the rules pursuant to a specific statutory grant of authority and in conformance with the procedural requirements imposed by Congress." Id. at 1017-1018 (quoting Ward v. Commissioner [ 86-1 USTC ¶9286], 784 F.2d 1424, 1430-31 (9th Cir. 1986)).

Because most revenue procedures are simply procedural rules promulgated by the Internal Revenue Commissioner without the need for approval by the Secretary of the Treasury, and because the revenue procedure at issue in this case states on its face that its purpose is to "explain the procedures applicable to the submission and processing of offers to compromise", it clearly is not substantive and does not have the force of law. Where an agency's interpretation is made informally, without "the rigors of notice and comment," it is not entitled to Chevron deference. Demma Fruit Co. v. Old Fashioned Enter., Inc. (In re Old Fashioned Enter., Inc.), 236 F.3d 422, 425-26 (8th Cir. 2001) (citing King v. Morrison, 231 F.3d 1094, 1096 (8th Cir. 2000)).

While cases such as Shapiro are in the IRS's favor in that the court found the IRS is not bound by the revenue procedure, it seems to me to be almost disingenuous to apply the reasoning of such cases only to the IRS's benefit. In other words, Shapiro said the IRS does not have to follow its own non-mandatory procedure. Here, the IRS wants me to enforce a non-mandatory agency procedure so it does not have to entertain the debtor's offer in compromise. I am not inclined to do so. After a considered review of the arguments made and authorities cited by the IRS, I nevertheless arrive at the same conclusion as I did previously and again follow the reasoning of Holmes v. United States (In re Holmes) [ 2003-2 USTC ¶50,685], 298 B.R. 477 (Bankr. M.D. Ga. 2003), aff'd, 309 B.R. 824 (M.D. Ga. 2004). Apparently the IRS ignored the order of the court in Holmes, even after affirmance, but the fact it was ignored does not make it bad law.

In this case, the IRS may either process an offer in compromise, which the tax code authorizes any taxpayer to submit, or take seriously its stated position that it will, in good faith, consider accepting less than the bankruptcy code requires in a Chapter 13 plan.

Separate order will be entered.
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Sal Alaniz and Ruth Alaniz v. Commissioner, Dkt. No. 5814-03L , TC Memo. 2005-4, January 11, 2005.

David P. Leeper, for petitioners; Erin K. Huss, for respondent.
Ps filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R to proceed with collection by levy of assessed income tax liabilities, plus penalties and interest, for 1994, 1996, and 1997. Both parties filed motions for summary judgment under Rule 121, Tax Court Rules of Practice and Procedure.
Held: R's rejection of a $2,000 offer in compromise proposed by Ps did not constitute an abuse of discretion.
Held, further, R's motion for summary judgment is granted, and R may proceed with collection of balances due as determined in a Notice Of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. Ps' motion for summary judgment is denied.
MEMORANDUM OPINION
NIMS, Judge: This case is before the Court on both parties' motions for summary judgment pursuant to Rule 121. The instant proceeding arises from a petition for judicial review filed in response to a Notice Of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. The parties do not challenge the Court's jurisdiction over this case. Petitioners do not dispute their liability for underlying taxes, penalties, and interest. The sole issue for decision is whether respondent's rejection of petitioners' offer in compromise constitutes an abuse of discretion.

Background
Some of the facts are stipulated and are incorporated herein by this reference. At the time the petition was filed in this case, petitioners resided in El Paso, Texas.
Petitioner Sal Alaniz is a 73-year-old insurance salesman who has been diagnosed with high blood pressure and severe vision impairment. Petitioner Ruth Alaniz assists her husband in the operation of his business, but is otherwise not employed outside the home. Petitioners filed joint Forms 1040, U.S. Individual Income Tax Return, for the taxable years 1994, 1996, and 1997. As of October 28, 2003, petitioners' total unpaid income tax liability, plus penalties and interest, for the foregoing taxable years was $221,372.
On February 29, 2000, petitioners offered to settle their tax liabilities for $4,650. Following submission of their settlement offer, petitioners purchased two new automobiles and took out additional life insurance on Mr. Alaniz. These transactions increased petitioners' monthly expenses by approximately $1,000. Petitioners also transferred their 1964 Ford Thunderbird to a son-in-law for below market value. On February 20, 2001, respondent rejected the settlement offer.
On March 11, 2002, respondent issued to petitioners a letter entitled "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" relating to petitioners' unpaid income tax liabilities for the taxable years at issue. Thereafter, on March 21, 2002, petitioners sent a Form 12153, Request for a Collection Due Process Hearing, to respondent's Appeals Office. Petitioners indicated they were unable to pay their tax liabilities because they could not meet basic living expenses. On August 14, 2002, petitioners filed Form 656, Offer in Compromise (OIC), which proposed to compromise petitioners' liabilities for $2,000.
As a basis for the OIC, petitioners submitted personal financial information that showed monthly expenses exceeding monthly income by $1,170. Petitioners' claimed $2,895 housing expense and $500 insurance expense accounted for a large portion of the deficit. Petitioners made no reference to the Ford Thunderbird. The Appeals officer questioned the "arm's length nature" of the automobile's transfer and concluded that the asset belonged in the offer calculation. Petitioners do not dispute this conclusion.
Respondent rejected petitioners' OIC on March 13, 2003. Respondent followed prescribed guidelines to determine petitioners' collection potential. See 1 Administration, Internal Revenue Manual (CCH), sec. 5.8.5.5., at 16,339. The Appeals officer adjusted petitioners' claimed housing and life insurance expenses to $789 and $200, respectively. The Appeals officer used monthly income of $4,860, consisting of $3,411 reflected on petitioners' 2001 Schedule C, Profit or Loss From Business, and $1,449 of Social Security income, less national standard expenses of $4,148 to arrive at net monthly income of $712. Respondent fixed the present value of petitioners' net income for 48 months at $34,176. Petitioners argue that this figure is too high and claim that their income will decline in future years because of Mr. Alaniz's advanced age and "deteriorating health."
The value of the Ford Thunderbird was not stipulated by the parties. The Appeals officer referred to the Internet National Auto Dealers of America Guide for classic cars to arrive at a forced sale value of $11,008 for the automobile in "deteriorated restoration" condition. Petitioners argue that the Ford Thunderbird is "junked" and only worth between $2,200 and $4,000.
The Appeals officer determined that an appropriate offer amount approached $46,000, or approximately petitioners' net income for 48 months plus respondent's valuation of the Ford Thunderbird. Negotiations between the Appeals officer and petitioners' counsel suggested the parties were too far apart to reach an acceptable compromise. The Appeals officer pointed out that petitioners' future earnings from the insurance business, interest in the Ford Thunderbird, and increased personal expenditures did not warrant acceptance of the $2,000 OIC. The Appeals officer also offered to suspend collection activities for 1 year to provide petitioners the opportunity to adjust their finances and reduce expenses. Petitioners' counsel declined the offer.
Petitioners contend in their Motion that respondent failed to consider Mr. Alaniz's advanced age, ill health, and declining income from the insurance business. Petitioners argue that the Appeals officer's calculations were unreasonable and rejection of the $2,000 OIC was an abuse of discretion.
Discussion

Summary judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact, and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶50,092] 17 F.3d 965 (7th Cir. 1994). Because the underlying tax liability is not in dispute, we review the Appeals officer's actions under an abuse of discretion standard. Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181-182 (2000). Under the abuse of discretion standard, a determination will be affirmed unless the respondent took action that was arbitrary or capricious, lacks sound basis in fact, or is not justifiable in light of the facts and circumstances. Mailman v. Commissioner [Dec. 45,218], 91 T.C. 1079, 1084 (1988).
Before a levy may be made on any property or right to property, a taxpayer is entitled to notice of intent to levy and notice of the right to a fair hearing before an impartial officer of the IRS Appeals Office. Secs. 6330(a) and (b), 6331(d). Taxpayers may raise challenges to "the appropriateness of collection actions" and may make "offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise". Sec. 6330(c)(2)(A). The Appeals officer must consider those issues, verify that the requirements of applicable law and administrative procedures have been met, and consider "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person [involved] that any collection action be no more intrusive than necessary." Sec. 6330(c)(3)(C). Here, petitioners do not dispute that all administrative procedures have been met so the sole issue for our consideration is whether respondent's rejection of petitioners' OIC was an abuse of discretion.
Section 7122 provides respondent with the authority to grant an offer in compromise as an alternative to collection action. Respondent grants an offer in compromise when there is a doubt as to the actual tax liability, doubt as to collectibility, or for other purposes relating to effective tax administration. Sec. 301.7122-1, Proced. & Admin. Regs.; 1 Administration, Internal Revenue Manual (CCH), sec. 5.8.1.1.2, at 16,253.
The Appeals officer considered petitioners' $2,000 offer on the grounds of "doubt as to collectibility" (as such term is used in the context of the foregoing reference to the regulations and the Internal Revenue Manual). The Appeals officer also took into consideration as a potential ground for compromise the promotion of effective tax administration. See sec. 301.7122-1(b)(3), Proced. & Admin. Regs. Respondent may accept an offer in compromise based on doubt as to collectibility when there are questions concerning whether the tax liability will be collected in full, as in petitioners' case, and where the offered amount reflects realistic collection potential. 1 Administration, Internal Revenue Manual (CCH), sec. 5.8.1.1.3, at 16,253.
We conclude that respondent's rejection of the OIC was reasonable in light of petitioners' collection potential. The Appeals officer followed prescribed guidelines based on section 7122(c)(1) to determine whether the $2,000 OIC was acceptable. The Appeals officer permitted petitioners national and local allowances in accordance with section 7122(c)(2). Respondent based his calculation of Mr. Alaniz's future net income on the amount found in petitioners' 2001 Schedule C less allowable expenses. The parties disagree about the exact value of the Ford Thunderbird, but we agree with respondent that liquidation of the automobile will generate more than $2,000 without rendering petitioners penniless. The Appeals officer valued the car at $11,000, which, while not conclusive, is sufficient to create serious questions as to petitioners' valuation of the asset.
The record shows that the Appeals officer considered Mr. Alaniz's age and health. Cf. sec. 301.7122-1(c)(3)(i)(A), Proced. & Admin. Regs., relating to effective tax administration. The Appeals officer noted that Mr. Alaniz remains active in the insurance business despite his age and medical conditions. No evidence of petitioners' "deteriorating" health was given to the Appeals officer at the administrative hearing. Furthermore, the Appeals officer's offer to suspend collection activities for one year demonstrates respondent's willingness to give petitioners more time to reduce their expenses, including those incurred after rejection of the first settlement offer.
Petitioners attached a number of exhibits to their Motion, most of which were unavailable to the Appeals officer at the time of the hearing, to support their argument that respondent's determination was an abuse of discretion. Petitioners included a Schedule C for 2002 reflecting monthly income of $2,605, a junkyard's appraisal of the Ford Thunderbird, and documentation of petitioners' medical problems. However, it is self-evident that the Appeals officer may not be held to have committed an abuse of discretion where information that might have supported petitioners' position was not forthcoming at the time of the administrative hearing. In any event, we are unable to conclude that the production of such additional information at the time of the hearing might have led to a different result. See Van Vlaenderen v. Commissioner [Dec. 55,382(M)], T.C. Memo. 2003-346.
We have reviewed the financial information which the record reveals was available to the Appeals officer at the time of the administrative hearing, and we conclude that respondent's rejection of the $2,000 offer in compromise was not arbitrary. Respondent's refusal of the de minimis offer was justified by income generated from the insurance business, value in the Ford Thunderbird, and petitioners' increased expenditures since the first settlement offer. See Razo v. Commissioner [Dec. 55,616(M)], T.C. Memo. 2004-101.
We have considered all of the contentions and arguments of the parties that are not discussed herein, and we find them to be without merit, irrelevant, or moot.
We hold that respondent did not abuse his discretion and correctly determined that collection efforts should proceed.
To reflect the foregoing,
An appropriate order and decision will be entered for respondent.
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Billy G. Asemani, Plaintiff v. United States of America, Defendant, U.S. District Court, Mid. Dist. Pa.; CIV. 3:CV-04-0846, October 19, 2004.

Collection Due Process hearing: District court jurisdiction: Offer in compromise. --
An individual's action to set aside an IRS determination denying his offer in compromise (OIC) was dismissed for lack of subject matter jurisdiction. Because the OIC was not considered a collection alternative in a Collection Due Process hearing, the plaintiff was not entitled to a judicial review of the IRS's denial of his OIC. In addition, none of the alternative grounds for the district court's jurisdiction offered by the plaintiff under the Mandamus Act, the Administrative Procedure Act and the Federal Torts Claims Act provided an opportunity for a judicial review of the IRS's determination.
MEMORANDUM AND ORDER

NEALON, District Judge: The Plaintiff, Billy G. Asemani, initiated this civil action by the pro se filing of a document entitled "Petition for Review of Final Administrative Agency Action" on April 19, 2004, in which he challenges the denial of an Offer in Compromise that he submitted to the Internal Revenue Service (IRS). (Doc. 1). The Government filed a motion to dismiss the action for lack of subject matter jurisdiction on August 25, 2004. (Doc. 21). A brief in support of the motion was filed on August 31, 2004. (Doc. 22). Plaintiff filed a brief in opposition to the motion to dismiss on September 8, 2004, alleging only that the Government's motion to dismiss should be denied as it was filed untimely. 1 (Doc. 23). The Government filed a reply brief on September 10, 2004, (Doc. 24). On September 17, 2004, the Plaintiff filed a request for an extension of time in which to file a brief on the issue of subject matter jurisdiction. Since the Plaintiff did not address the question of jurisdiction in his original brief in opposition to the motion to dismiss, he was granted an extension of time to file a supplemental brief on this issue. (Doc. 27). On September 27, 2004, the Plaintiff filed a supplemental brief in opposition to the Government's motion to dismiss. (Doc. 28). A reply was filed by the Government on October 12, 2004. (Doc. 29). The motion is ripe for consideration and, for the reasons that follow, will be granted.

Background

The Plaintiff submitted an Offer in Compromise, IRS Form 656, dated August 30, 2001, to the IRS attempting to settle his outstanding liabilities for the tax years 1997 and 1998. (Complaint, Doc. 1, Exhibit A). Plaintiff offered the amount of $20,000 in compromise of an obligation which the Government avers exceeds $500,000. Asemani stated an inability to pay as justifying his offer on the Form 656 that he submitted to the IRS. (Complaint, Doc. 1, Exhibit A). The IRS rejected Asemani's Offer in Compromise initially and at all levels of administrative appeal that the taxpayer pursued. The IRS found that the Plaintiff did indeed have an ability to pay his outstanding obligations. Plaintiff now contends that the decision of the IRS to deny his Offer in Compromise was and abuse of discretion by an administrative agency and that the finding that he had an ability to pay was made without any basis in fact. He requests this court to set aside the decision of the IRS and to remand the matter for further proceedings. The Government contends that this court lacks jurisdiction over Plaintiff's claim.

Discussion

The United States District Court for the Eastern District of Louisiana recently addressed a district court's jurisdiction to review the IRS's actions in processing a taxpayer's Offer in Compromise in Desire Community Housing Corp. v. U.S., 2004 WL 838041 (E.D. La. March 3, 2004). There, the Court noted: "The authority to compromise a tax liability is stated in 26 U.S.C. §7122. The statute provides 'the Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense.' Section (c) further states that 'the Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute'.... Under Treasury Regulation §301.7122-1(b), the Secretary may only compromise a tax liability on one of three grounds. They include (1) doubt as to liability; (2) doubt as to collectibility; and (3) the promotion of effective tax administration." Id. at *2. In Desire, the IRS denied the taxpayers Offer in Compromise because it was not processable due to the taxpayer's failure to comply with certain procedural requirements. The Court held that no jurisdiction existed to review the IRS's determination.

Here, Asemani claimed before the IRS that there was a doubt as to collectibility of his outstanding obligations as he purportedly did not have sufficient assets to pay his outstanding taxes, interest and penalties. The IRS rejected that contention. Plaintiff now requests this court to set aside the IRS's determination and remand the mater to that agency.

In its first brief in support of its motion to dismiss, the Government argued that a taxpayer's only recourse in obtaining judicial review of a determination by the IRS to deny an Offer in Compromise is pursuant to 26 U.S.C. §§6630(c)(2)(iii) and 6320(c). This argument is well taken. Section 6630 of the Internal Revenue Code, addressing the notice and opportunity to be heard requirements before levy states, in relevant part:
(a)(1) In general. --No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made. Such notice shall be required only once for the taxable period to which the unpaid tax specified in paragraph (3)(A) relates....
(c) Matters considered at hearing. --In the case of any hearing conducted under this section --
(1) Requirement of investigation. --The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.
(2) Issues at hearing. --
(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including --
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

26 U.S.C. §§6630(c)(2)(iii) (emphases added). As indicated by the Government, the IRS has not commenced collection activity and has not indicated that it intends to do so. Should the IRS commence collection of Plaintiff's outstanding obligations, he will then have an opportunity to have the denial of his Offer in Compromise reviewed under the above procedure. Outside this setting, the Internal Revenue Code provides no opportunity for the type of review that the Plaintiff now seeks.

In his supplemental brief, Asemani proffered three alterative grounds for this court's jurisdiction to address his claim, viz., mandamus jurisdiction, the Administrative Procedures Act (APA) and the Federal Tort Claims Act (FTCA). None of these grounds, however, provide an avenue for judicial review in a district court of the IRS's decision to deny a taxpayer's Offer in Compromise.

The federal mandamus statute, 28 U.S.C. §1361 states: "The district courts shall have original jurisdiction of any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff." As this court has previously noted:
Issuance of a writ of mandamus is carefully circumscribed and used "only in extraordinary situations," since it is a "drastic" remedy. Allied Chemical Corp. v. Daiflon, Inc., 449 U.S. 33, 34 (1980) ( per curiam). The petitioner seeking mandamus must satisfy the "burden of showing that [his] right to issuance of the writ is 'clear and indisputable.'" Bankers Life & Casualty Co. v. Holland, 346 U.S. 379, 384 (1953) ( quoting United States v. Duell, 172 U.S. 576, 582 (1899). The Third Circuit has consistently adhered to this stringent standard. See, e.g., PAS v. Travelers Ins. Co., 7 F.3d 349, 357 (3d Cir. 1993) (denying writ of mandamus because it was not clear and indisputable that state claims were not preempted by ERISA); Sunbelt Corp. v. Noble, Denton & Associates, Inc., 5 F.3d 28 (3d Cir. 1993) (granting writ because it was clear and indisputable that district court did not have the legal authority to transfer a case to a district where personal jurisdiction was lacking); Travellers International AG v. Robinson, 982 F.2d 96, 98 (3d Cir. 1992), cert. denied, 113 S.Ct. 1946 (1993) (denying writ of mandamus because it was not clear and indisputable that petitioner was entitled to jury trial).

Hillyer v. Commissioner of Internal Revenue, 1994 WL 240348, *5 (M.D. Pa. Mar 30, 1994). Here, the Plaintiff has no clear and indisputable right to have the denial of his Offer and Compromise overturned. His remedies are circumscribed by the Internal Revenue Code as discussed above. Accordingly, he is not entitled to mandamus relief. See also Martin v. Commissioner of Internal Revenue [ 84-1 USTC ¶9183], 584 F.Supp. 977, 978 (N.D. Ohio 1984).

Similarly, the Administrative Procedures Act is inapplicable to this matter. "[T]he APA does not provide an independent source of jurisdiction, and in any case 'only applies to a final agency decision where there is no other adequate remedy.'" Helvie v. Beach, 2003 WL 22073142; at *3 (S.D. Fla. July 16, 2003) ( citing Einhorn v. DeWitt [ 80-2 USTC ¶9486], 618 F.2d 347, 350 (5th Cir. 1980). Moreover, the APA provides that "This chapter applies, according to the provisions thereof, except to the extent that --(1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law." 5 U.S.C. §701(a). As noted above, section 7122 of the Internal Revenue Code states that the "the Secretary may compromise any civil or criminal case arising under the internal revenue laws..." 26 U.S.C. §7122(a). The discretionary denial of the Plaintiff's Offer in Compromise by the IRS is not reviewable under the APA.

Lastly, Plaintiff has not stated a cognizable claim under the Federal Tort Claims Act. "The FTCA was designed primarily to remove the sovereign immunity of the United States from suits in tort and, with certain specific exceptions, to render the Government liable in tort as a private individual would be under like circumstances.... The Act accordingly gives federal district courts jurisdiction over claims against the United States for injury caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred." Sosa v. Alverez-Machain, _____ U.S._____, 124 S.Ct. 2739, 2747 (2004). However, as the Supreme Court further recognized "the Act also limits its waiver of sovereign immunity in a number of ways." Id. at 2747-8. Indeed, 28 U.S.C. §2680(c) specifically states that the waiver of immunity does not apply to "[a]ny claim arising in respect of the assessment or collection of any tax..." The United States District Court for the Eastern District of New York has considered this specific issue and has concluded that the §2860(c) exception to the FTCA bars a taxpayer's challenge to the IRS's denial of an Offer in Compromise. Higgins v. United States [ 2003-2 USTC ¶50,563], 2003 WL 21693717 (E.D. N.Y. May 27, 2003). See also, Wheeler v. Baugh, 2002 WL 373461 (W.D. Pa. Jan. 29, 2002) ("The United States has waived its immunity for certain tort claims under the Federal Tort Claims Act ('FTCA'), 28 U.S.C. §2671 et seq. and 1346(b), although this immunity does not apply to torts allegedly committed by the IRS concerning the assessment and collection of taxes; the FTCA in fact explicitly exempts from its coverage 'any claims arising in respect of the assessment or collection of any tax.' 28 U.S.C. §2680(c).")

Based on the forgoing, the court concludes that there is no subject matter jurisdiction to hear this case and, therefore, the Government's motion to dismiss will be granted.

An appropriate Order is attached.

AND NOW, this 19 th day of October, 2004, consistent with the accompanying Memorandum of this date, IT IS HEREBY ORDERED THAT:
1) The Defendant's Motion to Dismiss, ( Doc. 21), is GRANTED.
2) The Clerk of Court is directed to close this case.

1 Even assuming that the motion was filed untimely, subject matter jurisdiction can be examined at any time during the pendency of an action. Accordingly, Plaintiff's assertion must be rejected.

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Jacob R. Evseroff, Plaintiff v. United States of America, Defendant, U.S. District Court, East. Dist. N.Y.; Civ. 03-CV-0317 (DGT), September 22, 2004.
MEMORANDUM AND ORDER

TRAGER, District Judge: On January 17, 2003, plaintiff Jacob R. Evseroff ("Evseroff") filed this action pursuant to the Taxpayers' Bill of Rights ("TBR"), I.R.C. §7433, alleging "negligent and/or intentionally tortious conduct that employees and agents of the Internal Revenue Service perpetrated against Mr. Evseroff." (Compl. ¶1). In particular, Evseroff's first claim alleges that the IRS referred a collection action against him to the United States Department of Justice ("DOJ") Tax Division while one or more offers to compromise were pending, in violation of Treas. Reg. §301.7122-1(g)(6). Evseroff's second claim alleges that the omission of the text of what is now Treas. Reg. §301.7122-1(g)(6) from the temporary regulations promulgated in 1999 constituted failure "to follow the provisions of the TBR and the Internal Revenue Code that authorized such language and regulations." (Compl. ¶139). Evseroff requests monetary damages and a "permanent injunction prohibiting the United States from further pursuing the collection litigation and ordering the collection litigation dismissed with prejudice." (Compl. at 26).

The government has moved to dismiss and/or for summary judgment, arguing: (1) the action is barred by res judicata, (2) failure to exhaust administrative remedies, (3) the conduct complained of was not collection activity, (4) the conduct complained of was not committed by the IRS, (6) the IRS did not receive a September 28, 1993 offer in compromise, and (7) no injunctive relief is authorized under I.R.C. §7433. The government has also moved for sanctions under Rule 11 and/or 28 U.S.C. §1927.
Background

(1)

Evseroff's difficulties with the IRS arose from a series of tax shelter investments he purchased between 1978 and 1982. In December 1990, the IRS sent Evseroff a notice indicating a deficiency in his income taxes for the years 1978-1982. On November 5, 1992, the Tax Court entered a decision for $209,113 in taxes and penalties on consent. See Evseroff v. Commissioner, No. 7381-92 (T.C. Nov. 5, 1992).

In 1993, Evseroff retained James Graves, a public accountant, to represent him before the IRS. (Compl. ¶31). Evseroff alleges he authorized Graves to submit an offer in compromise of $110,000 to the IRS as settlement for his tax liability. (Compl. ¶¶36-37). Evseroff further alleges that this offer in compromise was submitted on or about September 28, 1993, and was received by the IRS in or around October 1993. (Compl. ¶¶38, 40).

Evseroff received documents purportedly from the IRS showing acceptance of this offer in compromise. However, these documents were forgeries, likely committed by Graves; the IRS never actually accepted a September 28, 1993 offer in compromise. 1 The IRS has never rejected or otherwise responded to a September 28, 1993 offer. (Compl. ¶76). The government maintains no such offer was ever received by the IRS. ( See Decl. of Tonni Gillis dated 2/6/2003, Decl. of Jeff Powers dated 2/6/2003, Decl. of Mark Newman dated 2/6/2003).

In 1994, the IRS placed a lien on Evseroff's home in Florida and ordered his checking account seized. Evseroff has claimed it was only then that he learned the IRS had no record of accepting his offer in compromise. (Evseroff Aff. dated 5/30/2001, ¶13).

From 1992 to 1997, the IRS assessed Evseroff additional tax liabilities based on his 1991, 1992, and 1996 tax returns. These assessments were not part of the Tax Court decision and were not covered by the September 28, 1993 offer in compromise.

From 1994 to 1996, Evseroff submitted at least six other offers in compromise to the IRS. (Compl. ¶75). All of these were rejected or returned as "unprocessable." ( See Compl. ¶¶52-75; Evseroff Dep. at 205 ("[A]ll of the [offers in compromise] that [Mr. Ragusa] submitted he always got a response, unprocessable or rejected.... The one that Graves submitted, there was never a response.")). In particular, a June 27, 1996 offer in compromise, covering the years 1978-1982, 1991, and 1992, was stamped "unprocessable," and returned to Evseroff. (Compl. ¶70). Evseroff alleges that since he did not receive written notice advising him the June 27, 1996 offer had been rejected (Compl. ¶ 80), the offer is still "pending" with the IRS (Compl. ¶95).

In 1997, Evseroff brought a lawsuit under I.R.C. §7433 alleging the IRS had improperly attempted to collect taxes from him. The complaint in the present action includes a recitation of many of the same alleged wrongs complained of in 1997, including the IRS's failure to respond to Evseroff's correspondence, their failure to grant an appeal of a rejection of an offer in compromise, and their deposit of checks Evseroff submitted in compliance with the offer in compromise he believed had been accepted. The 1997 action was dismissed. Evseroff v. Internal Revenue Service [ 2000-2 USTC ¶50,807], No. 97-cv-2317, 2000 WL 1728112, 86 A.F.T.R.2d 2000-6711 (E.D. N.Y. Sept. 28, 2000) (Hurley, J.) ("Evseroff I"), aff'd, Evseroff v. Internal Revenue Service [ 2001-2 USTC ¶50,486], No. 00-6331, 2001 WL 668528 (2d Cir. June 12, 2001). The court noted that Graves had forged the letters purportedly showing the IRS's acceptance of the offer. Evseroff I [ 2000-2 USTC ¶50,807], at *1 ( citing Martin Aff. Supp. Appl. for Arrest Warrant, United States v. Graves, No. 96-0594M (E.D. N.Y. Apr. 23, 1996)).

(2)

The Collection Action

On June 25, 1997, the Office of Chief Counsel for the IRS referred Evseroff's case to the DOJ Tax Division in a letter sent to Loretta C. Argrett, which stated in relevant part: "[W]e hereby request and authorize you to take any legal action necessary to defend the Internal Revenue Service ... and collect the taxes owed in the above-entitled case, including moving to reduce the tax claim to judgment." (Def't Reply Mem. of Law, Ex. 1).

On October 5, 2000, the United States commenced a collection action against Evseroff ("the collection action"), seeking to reduce to judgment federal tax assessments against Evseroff, establish the validity of liens on his property, foreclose on those liens, and determine the interests of various parties in some of that property. Evseroff II [ 2001-2 USTC ¶50,783], at *1. On November 6, 2001, the government's motion to reduce to judgment federal tax assessments against Evseroff for the tax years 1978-82, 1991-92 and 1996 was granted. Id. At that time, a final judgment was entered under Rule 54(b). On July 8, 2002, an amended judgment was issued against Evseroff in the amount of $1,546,682.08 plus statutory interest from May 31, 2000. United States v. Evseroff [ 2002-2 USTC ¶50,599], No. 00-cv-6029, 2002 WL 1973196, 90 A.F.T.R.2d (RIA) 5541 (E.D. N.Y. July 8, 2002) (Trager, J.) ("Evseroff III").

On January 3, 2003, the government brought a motion for summary judgment in the collection action, seeking a ruling that Evseroff retained beneficial ownership of the property he had transferred to an irrevocable trust, that the transfers to the trust were fraudulent conveyances, and requesting a judgment foreclosing the federal tax liens on the property transferred to the trust. In response, Evseroff argued that the government was estopped from pursuing the collection action because it had been commenced in violation of Treas. Reg. §301.7122-1(g)(6). Evseroff also commenced this lawsuit, on January 17, 2003, alleging the same violation of IRS regulations.

On September 30, 2003, the government's motion for summary judgment was denied. United States v. Evseroff, No. 00-cv-6029, 2003 WL 22872522, 92 A.F.T.R.2d (RIA) 6987 (E.D. N.Y. Sept. 30, 2003) ("Evseroff IV"). However, the estoppel argument was held to be barred by res judicata, because it was not raised prior to the final judgment on the question of Evseroff's tax liability. Id. at *8. Evseroff's contention that the estoppel argument could not have been raised prior to the enactment of the permanent regulations in July 2002 was rejected. Id.

Discussion

a. The Taxpayers' Bill of Rights

This action was brought under the TBR, which states in relevant part:
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.
I.R.C. §7433(a) (1998). This section does not provide an exception to the anti-injunction provisions of I.R.C. §7421 (2000). The taxpayer is not entitled to any injunctive relief under I.R.C. §7433, and Evseroff's request for injunctive relief is denied. 2

The legislative history of the TBR clearly demonstrates that actions undertaken for assessing and determining the amount of tax liability are not actionable collection activities under I.R.C. §7433. See, e.g., Miller v. United States [ 95-2 USTC ¶50,516], 66 F.3d 220, 223 (9th Cir. 1995) ( citing H.R.Conf.Rep. No. 1104, 100th Cong., 2d Sess. 229 (1988), reprinted in 1988 U.S.C.C.A.N. 5048, 5289). Similarly, the IRS's conduct in drafting temporary regulations is not an activity undertaken "in connection with any collection of Federal tax with respect to a taxpayer" for purposes of I.R.C. §7433. Accordingly, the IRS's failure to include, in the temporary regulations promulgated in 1999, a provision barring the referral of a case to the DOJ while an offer in compromise is pending is not actionable under the TBR.

Evseroff alleges that the referral of his case to the DOJ occurred while one or more offers in compromise were pending, violating Treas. Reg. §301.7122-1(g)(6) (2002). Evseroff takes the remarkable position that IRS employees "recklessly or intentionally, or by reason of negligence disregard[ed]" a regulation promulgated after the employees' actions took place. 3 Evseroff argues that the government was obligated to behave in accordance with what the "content of the temporary regulations was supposed to be" in 1999, while maintaining that the temporary regulations did not put him on notice of the government's obligation to behave in this manner. (Pl. Mem. of Law in Opp. at 5 n.3). In making this dubious argument, he seems to conflate the date of referral with the date the collection action was commenced. 4 In reply, the government offers conclusive evidence that the referral complained of occurred in 1997, and not in 2000. 5 (Def't Reply Mem. of Law, Ex. 1). Because the timing of the relevant regulations is crucial to both parties' legal arguments, a review of the history of Treas. Reg. §301.7122-1(g)(6) is in order.

b. The Restructuring and Reform Act of 1998

On July 21, 1999, the IRS promulgated temporary regulations regarding procedures for handling offers to compromise, reflecting changes to the Internal Revenue Code made by the Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA 1998") and the Taxpayer Bill of Rights II. Temp. Treas. Reg. §301.7122-1T, 64 Fed. Reg. 39020 (July 21, 1999). RRA 1998 amended I.R.C. §6331 to add, in relevant part:
(k) NO LEVY WHILE CERTAIN OFFERS PENDING OR INSTALLMENT AGREEMENT PENDING OR IN EFFECT. --
(1) OFFER-IN-COMPROMISE PENDING. --No levy may be made under subsection (a) on the property or rights to property of any person with respect to any unpaid tax --
(A) during the period that an offer-in-compromise by such person under section 7122 of such unpaid tax is pending with the Secretary; ... For purposes of subparagraph (A), an offer is pending beginning on the date the Secretary accepts such offer for processing ...
(3) CERTAIN RULES TO APPLY. --Rules similar to the rules of paragraphs (3), (4), and (5) of subsection (i) shall apply for purposes of this subsection.

Section 3462(b) of Pub. L. 105-206, 112 Stat. 685 (1998). Paragraph (4) of subsection (i) was also changed by RRA 1998 to read, in relevant part:
(4) LIMITATION ON COLLECTION ACTIVITY; AUTHORITY TO ENJOIN COLLECTION. --
(A) LIMITATION ON COLLECTION. --No proceeding in court for the collection of any unpaid tax to which paragraph (1) applies shall be begun by the Secretary during the pendency of a proceeding under such paragraph.

Section 3433(a) of Pub. L. 105-206, 112 Stat. 685 (1998). The temporary regulations included a provision stating that the IRS would not "make any levies to collect the liability that is the subject of the compromise during the period the IRS is evaluating whether such offer will be accepted or rejected..." Temp. Treas. Reg. §301.7122-1T(f)(2). However, the temporary regulations did not contain a provision limiting court proceedings while offers were pending.

On July 23, 2002, the IRS promulgated permanent regulations which, as explained in the "Supplementary Information" printed in the Federal Register, reflected the amendment of the I.R.C. by section 3462 of RRA 1998, and "correct[ed] for an omission in the temporary regulations by providing that the IRS may not refer a case to the Department of Justice to collect an unpaid tax through a judicial proceeding while an offer to compromise that tax is pending." 67 Fed. Reg. 48025, 48028 (July 23, 2002); see Treas. Reg. §301.7122-1(g)(6).

(1)

The Referral Did Not Disregard Any Statute or Regulation

No amount of discovery would enable Evseroff to show the referral of his case to the DOJ occurred after July 21, 1999, the date temporary regulations were promulgated, or, for that matter, after the effective date of RRA 1998. Although the government partially redacts the June 25, 1997 letter to Ms. Argrett in the DOJ Tax Division, the first page clearly authorizes, and asks, the DOJ to commence a proceeding in court against Evseroff for collection of his taxes. (Def't Reply Mem. of Law, Ex. 1). Prior to RRA 1998, there was no statute or regulation preventing the referral of a case to the DOJ for commencement of a court proceeding while an offer in compromise is pending. Since there was no relevant provision of the I.R.C. or temporary treasury regulation in effect on June 25, 1997, the IRS could not have "disregard[ed]" one. 6 Accordingly, the referral of Evseroff's case to the DOJ was proper.

(2)

No Offers in Compromise are Pending

Even if the referral of Evseroff's case had not predated the regulations barring referrals while offers in compromise are pending, the government would still be entitled to summary judgment because Evseroff has not shown any offer in compromise was pending when his case was referred to the DOJ.

Under the 1999 temporary regulations and the 2002 permanent regulations, "[a]n offer to compromise becomes pending when it is accepted for processing.... The IRS may also return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the IRS returns the offer to the taxpayer." Temp. Treas. Reg. §301.7122-1T(c)(2) (July 21, 1999); Treas. Reg. §301.7122-1(d)(2) (2002).

As acknowledged in the complaint, the June 27, 1996 offer in compromise was returned to Evseroff, stamped as "unprocessable." (Compl. ¶ 70). Accordingly, this offer in compromise was not "pending," as defined in Treas. Reg. §301.7122-1, when the IRS referred Evseroff's case to the Department of Justice for the commencement of the collection action.

In order for the September 28, 1993 offer in compromise to be pending at the time the IRS referred Evseroff's case to the Department of Justice, the IRS would have had to receive the offer and accept it for processing. However, no reasonable juror could conclude on the basis of the current record that the offer was accepted for processing. Evseroff's insistence that Graves actually submitted a September 28, 1993 offer in compromise to the IRS defies common sense. Although the complaint alleges "on or about September 28, 1993, Mr. Evseroff authorized Graves to submit another [offer]" (Compl. ¶36 (emphasis added)), Evseroff's belief that the offer was submitted rests on the word of Graves, the very person who admitted to forging the letters Evseroff received regarding the offer. 7 Whatever Graves's motivations for delivering the forged documents to Evseroff, properly submitting the September 28, 1993 offer to the IRS would only have increased the likelihood that his criminal activities were discovered. If Evseroff had received both fake and genuine responses to the offer, he would have known something was amiss. It was only because the IRS did not respond to any offer, and did not refund his checks as submitted pursuant to a rejected offer, that Evseroff failed to realize he had been duped.

Moreover, even if Graves had mailed the offer to the IRS, that alone is insufficient to show an offer in compromise was "pending" within the meaning of Treas. Reg. §301.7122-1. Evseroff must show, at a minimum, that the September 28, 1993 offer in compromise had been "accepted for processing." The IRS has no record of having received any offer from Evseroff in the amount of $110,000. ( See Decl. of Tonni Gillis dated 2/6/2003, Decl. of Jeff Powers dated 2/6/2003, Decl. of Mark Newman dated 2/6/2003). It is highly speculative that the IRS computer records would show no indication of an offer accepted for processing, even if the IRS sometimes loses documents.

Evseroff submits no affidavit pursuant to Rule 56(f) requesting further discovery, other than alleging "the issue of whether the September 28, 1993 offer in compromise was received by the IRS cannot be decided without discovery." (Pl. Mem. of Law in Opp. at 14). In particular, Evseroff cites internal reports prepared by the IRS noting that the agency loses millions of documents every year, claiming "the Court could take judicial notice of the possibility, or even the likelihood that the [September 28, 1993 offer] was lost. Certainly, this area is fair game for discovery and the Court should reserve decision on the factual issue of whether the Government received his 1993 offer-in-compromise until such discovery is completed." ( Id. at 15).

Evseroff's failure to submit a Rule 56(f) affidavit is fatal to his claim that he is entitled to further discovery, particularly in light of the decision in the collection action specifically explaining the necessity of such an affidavit. Evseroff II [ 2001-2 USTC ¶50,783], at *5. Evseroff has not shown what specific discovery he would take and what evidence he thinks it would produce. Furthermore, he has not shown what effort he has made to obtain the facts sought, and why he was previously unsuccessful. In the collection action, he was denied any further discovery he alleged was needed to demonstrate that the IRS accepted the September 28, 1993 offer in compromise, in part because he had a "fully adequate opportunity for discovery." Evseroff II [ 2001-2 USTC ¶50,783], at *7.

(3)

Sanctions

The government has also moved for sanctions, repeating the arguments it made in a previous motion for sanctions brought in the collection action, and also arguing that the September 30, 2003 decision on the motion for summary judgment in the collection action made it clear that Evseroff's estoppel argument was barred by res judicata. The previous motion for sanctions was denied. Evseroff IV at *8 n.7. As previously noted, "it is obvious that neither side has been pleasant to each other," Evseroff III [ 2002-2 USTC ¶50,599], at *7, which has thus far made a settlement in the collection action all but impossible. Still, "the efforts of Evseroff's representatives are perilously close to improper." Id. In particular, the claim that an offer in compromise remains pending after it is returned as unprocessable is clearly meritless. Moreover, there is no question that counsel cannot use the TBR to launch a collateral attack on the judgment in the collection action. The TBR might provide some relief to a taxpayer against whom judgment has been entered, but cannot extricate him from liability for the amount of the judgment, which seems to be what Evseroff is really seeking. Nonetheless, it is not clear that the action as a whole was brought in bad faith, and neither Evseroff nor his attorneys will be sanctioned at this time.

Conclusion

For the foregoing reasons, the government's motion for summary judgment is granted. The Clerk of the Court is directed to close the case.

1 For a discussion of the IRS's evidence proving it had not accepted a September 28, 1993 offer in compromise from Evseroff, see United States v. Evseroff [ 2001-2 USTC ¶50,783], No. 00-cv-6029, 2001 WL 1571881 at *2, 88 A.F.T.R.2d (RIA) 6926 (E.D. N.Y. Nov. 6, 2001) (Trager, J.) ( "Evseroff II").

2 Moreover, Evseroff cannot relitigate his claim that the government is estopped from pursuing the collection action when that claim has already been rejected in the collection action.

3 The only support Evseroff cites for his contention that Treas. Reg. §301.7122-1(g)(6) should be applied retroactively is I.R.C. §7805(b)(1). However, Evseroff ignores the rest of the provision, which specifies "[t]he limitation of paragraph (1) shall not apply to any regulation renting to internal Treasury Department policies, practices, or procedures." I.R.C. §7805(b)(5).

4 Plaintiff's brief states that his first TBR lawsuit "was dismissed on September 28, 2000 --i.e., before the conduct complained of here, the referral by the IRS to DOJ, had even occurred." (Pl. Mem. of Law in Opp. at 7). The DOJ began the collection action on October 5, 2000.

5 Prior to the government's submission of this evidence, Evseroff could not have known the precise date on which the referral occurred, and his belief that the referral occurred closer in time to the filing of the collection action was not unreasonable.

6 Although the government concedes that an action for a violation of Treas. Reg. §301.7122-1 could not have been commenced prior to the promulgation of Treas. Reg. §301.7122-1 (Def't Reply Mem. of Law at 15), note that any claim that the referral to the DOJ disregarded a provision of the I.R.C. or regulation in existence at the time the referral took place would be untimely.

7 Evseroff also cites the following circumstantial evidence in support of his contention that the September 28, 1993 offer in compromise was pending before the IRS: a telephone conversation in November 1994 with James Martin, an IRS investigator, who reportedly said, "We have not been able to verify that your offer has been accepted," and a fax from Joseph Tawquina of the IRS's Taxpayer Assistance Office, requesting "a copy of your copy of the original acceptance letter re: your offer in compromise of $110,000." See Evseroff IV at *4 ( quoting Evseroff Decl. Ex. F and Ex. H). Contrary to Evseroff's interpretation, these statements do not indicate that the IRS employees had knowledge of a pending offer independently from Evseroff having informed them of such an offer.

……………………………………………………………………………………….

Bobby R. Splawn, Plaintiff v. United States of America, Defendant,
U.S. District Court, East. Dist. Tenn., at Chattanooga; 1:03-cv-108, August 3, 2004.

The IRS did not abuse its discretion when it rejected an individual's offer in compromise. The taxpayer made his offer to compromise his tax liability for unpaid trust fund taxes based on doubt as to the collectibility of the taxes. After reviewing the taxpayer's offer and his available assets, the IRS proposed to accept an offer in compromise for a larger sum of money because there was evidence that the taxpayer had additional assets that could be used to pay his tax liability. However, the taxpayer did not respond to the IRS counter offer. Since the taxpayer did not dispute his underlying tax liability, the court's review was limited to whether the IRS abused its discretion. Although the taxpayer submitted an affidavit stating that he did not own certain assets, he failed to produce any evidence or documents to support this statement. Because the taxpayer's offer was based on the uncollectibility of the tax due, the court concluded that the IRS did not abuse its discretion when it rejected the taxpayer's offer in compromise.

MEMORANDUM

EDGAR, Chief District Judge: This action is brought by taxpayer and plaintiff, Bobby R. Splawn ("Splawn"), against the United States of America seeking judicial review pursuant to 26 U.S.C. §6330. Splawn seeks to have this Court review an Internal Revenue Service ("IRS") Office of Appeals decision and determine that the IRS abused its discretion when it rejected an offer in compromise of $5,000 to settle Splawn's $118,179.99 tax obligation. The IRS has filed a motion for summary judgment [Court File No. 10], Splawn has responded [Court File No. 12], and the IRS has filed a reply [Court File No. 15].

I. Facts

On November 26, 2001, the IRS sent Bobby Splawn a "Final Notice of Intent to Levy" for collection of a trust fund recovery penalty assessed pursuant to 26 U.S.C. §6672 for taxes owed for the second quarter of 1992. The amount of the tax obligation was calculated at $118,179.99, representing the total of an "assessed balance" of $58,392.19 and "statutory additions" of $59,787.80. [Court File No. 11, Ex. 1, Ex. A]. Splawn states that his liability arises due to his role as an owner of John Cuneo, Inc., a corporation which owns Safety Fire Sprinkler, Inc., the company where the debt originated. [Court File No. 13 at 2]. He does not dispute his liability based on this relationship, and neither Splawn, nor the IRS, address the source of Splawn's liability further.

On December 4, 2001, Splawn filed a request for a collection due process hearing pursuant to 26 U.S.C. §6330. This hearing occurred on October 31, 2002, before Scott Biggs ("Biggs"), a Settlement Officer with the IRS Office of Appeals. Biggs had no prior involvement in the determination of Splawn's tax liability. [Court File No. 11 at 2].

After the hearing, Splawn filed an Offer in Compromise using IRS Form 656. [Court File No. 11, Ex. 1, Ex. C]. Splawn offered $5,000 payable within 60 days to settle his tax obligation of $118,179.99. In the area of the form marked "Explanation of Circumstances," Splawn wrote: "Due to age and health considerations my ability to continue to work beyond additional two years is extremely doubtful. I am currently recovering from colon cancer." [Court File No. 11, Ex. 1, Ex. C]. In his affidavit, Splawn specifies that he is 70 years old. [Court File No. 14].

Biggs subsequently informed Splawn, through his attorney, that he would accept a offer in compromise in the amount of $110,994, a figure that includes settlement of the joint income tax liability of Splawn and his wife, or in the amount of $60,602, if the joint income tax liability was not included. [Court file No. 11, Ex. 1, Ex. D]. Splawn did not submit any further offers in compromise to the IRS. On March 6, 2003, a notice of determination was issued which informed Splawn of the denial of his proposed collection alternative and his right to dispute the determination in the United States District Court. [Court File No. 11, Ex. 1, Ex. F]. On April 4, 2003, this action asserting that the IRS Office of Appeals "erred in finding that the collection enforcement action was appropriate," because "[c]ertain factors were considered that should not have been considered, and certain factors were disregarded instead of being appropriately considered." [Court File No. 1].

II. Standard of Review

Summary judgment is appropriate where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). In ruling on a motion for summary judgment, the Court must view the facts contained in the record and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); National Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 907 (6th Cir. 2001). The Court cannot weigh the evidence or determine the truth of any matter in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material factual dispute. Celotex Corp., 477 U.S. at 322. A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252; McLean v. Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). The Court's role is limited to determining whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248, 249; National Satellite Sports, 253 F.3d at 907.

In addition to the general summary judgment standard, the Court must also consider the standard of review as determined by the relevant portions of the tax code. 26 U.S.C. §6330(d) provides the United States District Courts with jurisdiction over certain appeals from hearings before agents of the Internal Revenue Service regarding levies on taxpayers' assets. Although, §6330(d) does not set forth the appropriate standard of review, the statute's legislative history does:
The determination of the appeals officer may be appealed to Tax Court or, where appropriate, the Federal district court. Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is part of the appeal, no levy may take place during the pendency of the appeal. The amount of the tax liability will in such cases be reviewed by the appropriate court on a de novo basis. Where the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. In such cases, the appeals officer's determination as to the appropriateness of collection activity will be reviewed using an abuse of discretion standard of review.

H.Rep. No. 105-599 at 266 (1998) (emphasis added). In this case, because liability is not contested, the abuse of discretion standard applies. Although the Sixth Circuit has not yet addressed the application of the abuse of discretion standard in the context of 26 U.S.C. §6330, several district courts within the circuit have adopted the abuse of discretion standard. See Dudley's Commercial and Indus. Coating Inc. v. United States Internal Revenue Service [ 2003-1 USTC ¶50,397], 292 F.Supp.2d 976, 985 (M.D. Tenn. 2003) (citing Geller v. United States [ 2001-2 USTC ¶50,703], No. C2-00-1116, 2001 WL 1346669 (S.D. Ohio 2001); Jon H. Berkey, P.C. v. Dept of Treasury [ 2001-2 USTC ¶50,708], No. 00-CV-75149, 2001 WL 1397680 (E.D. Mich. 2001)).

The Sixth Circuit has provided some guidance in defining the application of the abuse of discretion standard when a court reviews an agency's exercise of discretion. See Dudley's, 292 F.Supp.2d at 985 (citing Gonzales v. I.N.S., 996 F.2d 804, 808 (6th Cir. 1993); Balani v. I.N.S., 669 F.2d 1157, 1161 (6th Cir. 1982); N.R.L.B. v. Guernsey-Muskingum Electric Coop., Inc., 285 F.2d.8, 11 (6th Cir. 1960)). "The Sixth Circuit has held that an agency abuses its discretion if its decision 'was made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis ....'" Id.

III. Analysis

Splawn does not dispute the validity of his tax liability and, to the best of the Court's ability to determine, Splawn did not dispute his liability at the hearing before the Office of Appeals. Following his proposal of an offer in compromise during the hearing, Splawn submitted a written offer in compromise as permitted by 26 U.S.C. §7122.

The IRS has identified three grounds for compromising the amount of a tax obligation: (1) "doubt as to liability," (2) "doubt as to collectibility," and (3) to "promote effective tax administration." 26 C.F.R. §301.7122-1(b). On the form used for offers in compromise, Splawn identified "doubt as to collectibility" as the reason for his offer. [Court File No. 11, Ex.1, Ex. C]. The regulations explain that "[d]oubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the liability." 26 C.F.R. §301.7122-1(b)(3).

Splawn argues that the IRS Office of Appeals abused its discretion when it rejected his offer in compromise in the amount of $5,000 to settle a $118,179.99 tax liability. In his complaint, Splawn suggests that Biggs's refusal of this offer was improperly based on "[c]ertain factors which should not have been considered," and others that were improperly "disregarded." [Court File No. 1].

Although not identified in the complaint, in his response to the government's motion for summary judgment Splawn elaborates on the "factors" that were improperly considered or not considered. It appears that Splawn believes real estate owned by his wife was improperly considered when Biggs reached the determination that the $5,000 offer was insufficient. [Court File No. 13 at 2]. Splawn also suggests that Biggs failed to consider that his age and health would prevent him from continuing employment, and that this resulted in the inaccurate calculation that after allowing for living expenses, from his income, Splawn could pay a total of $28,875 over the 15 months toward satisfying his trust fund recovery penalty tax obligation. [Court File No. 13 at 2; Court File No. 11, Ex.1, E at 3].

In reply, the IRS points out that even if the value of the real estate Splawn argues is owned by his wife ($7,533), and Splawn's estimated future income ($28,875) were subtracted from the amount deemed by Biggs to be a sufficient offer in compromise to settle the trust fund recovery penalty tax obligation ($60,602), the value of Splawn's interest in other collectable assets would be $24,194, a figure nearly five times the amount that Splawn offered in compromise. [Court File No. 15 at 2].

Notably, in response to the motion for summary judgment, Splawn has not offered any evidence of his current income or any other financial documents to suggest that Biggs's calculations inaccurately assessed the value of his assets. While he does submit his own affidavit stating that the real estate included in Biggs's calculation is "owned by ... [his] wife," he provides no further evidence in support of this contention. [Court File No. 14]. Absent some assertion or further evidence identifying the property and the circumstances under which Splawn's wife acquired ownership, it is impossible for this Court to consider Splawn's affidavit statement to be more than a mere scintilla of evidence. See Anderson, 477 U.S. at 252. Accordingly, this statement is insufficient to prevent the Court from granting summary judgment to the government where the IRS's decision is considered only for an abuse of discretion. Furthermore, the government correctly notes that even without including the real property or income figures that Splawn disputes, his remaining assets suggest he is capable of meeting much more of his tax obligation. Splawn does not contend that the IRS inaccurately attributed ownership of any other assets.

Splawn does point to an unpublished case from the Southern District of Ohio which helpfully summarizes some of the factors upon which a hearing officer may reject a collection alternative.
Decisions by appeals officers to reject collection alternatives may be based upon a number of factors, including, but not limited to: (1) whether the taxpayer had previously agreed to a collection alternative, but failed to fulfill the obligations under the alternative; (2) whether the taxpayer supported a collection alternative with relevant financial information to show that payments could be made under the alternative; (3) whether the taxpayer is current on its tax obligations; (4) the escalating amount of the outstanding tax liability; and (5) the IRS's need to collect the tax liability.

Stop 26-Riverbend, Inc. v. U.S. [ 2003-1 USTC ¶50,360], No. C2-02-0285, 2003 WL 1908747, *2 (S.D. Ohio March 12, 2003); see also 26 C.F.R. §301.6330-1(e)(1) (matters considered at a Collection Due Process hearing). However, Splawn's response brief does not apply these factors to the facts of the case before this Court. [Court File No. 13].

As the Court applies the factors, the third and fifth appear to weigh strongly against Splawn's position that the IRS abused its discretion in rejecting his offer in compromise. Regarding the third factor, although Splawn repeatedly states that he has offered to pay the approximately $12,000 he and his wife owe in income tax for 2000, beyond stating that he "had agreed to pay those taxes," at no time does he say that he has in fact paid that tax liability. [Court File No. 14; Court File No. 13 at 2]. This suggests that it is questionable whether Splawn is now current on all other tax obligations. Addressing the fifth factor, the IRS's need to collect a tax liability is hardly satisfied when a taxpayer offers $5,000 to satisfy a $18,179.99 obligation assessed as a trust fund recovery penalty.

Splawn also makes the sweeping and unsupported claim that "[t]he settlement officer's decision [to reject his offer in compromise] failed to balance the need for efficient collection of taxes with Mr. Splawn's legitimate concern that any collection be no more intrusive than necessary, particularly in view of the nature of the tax, the date of the obligation, and statutory additions to the amount owed." [Court File No. 13 at 3]. The Internal Revenue Code provides that a determination by an IRS appeals officer must take into consideration "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. §6330(c)(3)(C). In the absence of additional evidence or argument in support of Splawn's position that the appeals officer failed to consider this balance, this Court will not conclude that the IRS abuses its discretion when rejecting an offer in compromise of $5,000 for a debt of $118,179.99, a mere four percent of the amount owed, and where the appeals officer has determined that after allowing for living expenses, the taxpayer is capable of meeting much more of his tax obligation.

III. Conclusion

For the reasons stated above, the IRS's motion for summary judgment will be GRANTED. Splawn's claims will be DISMISSED. A judgment will enter.

JUDGMENT

For the reasons stated in the accompanying memorandum, the United States of America's motion for summary judgment [Court File No. 10] is GRANTED. Bobby R. Splawn's claims are DISMISSED. The parties shall bear their own costs.

This is a final judgment. The Clerk of Court shall close the case.

SO ORDERED.

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T.C. Summary Opinion 2004-147, WILLIAM C. EBERHARDT, JR. AND SUSAN A. EBERHARDT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

UNITED STATES TAX COURT. Docket No. 1918-03S. Filed October 21, 2004.

William C. Eberhardt, Jr. and Susan A. Eberhardt, pro sese.

Kevin W. Coy, for respondent.

DEAN, Special Trial Judge : This case was heard pursuant to the provisions of sections 6330(d) and 7463 of the Internal Revenue Code in effect at the time that the petition was filed. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

The petition in this case was filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. Pursuant to section 6330(d), petitioners seek review of respondent's determination to proceed with collection of their tax liability of $40,094.22 for 1995. At trial, petitioners also challenged the amount of interest that has accrued on their tax liability. The issues for decision are whether: (1) The Appeals officer abused her discretion in rejecting petitioners' Offer in Compromise (OIC) and sustaining a proposed levy to collect petitioners' unpaid income tax liability; and (2) the Appeals officer should have abated interest assessed with respect to petitioners' liability for the 1995 tax year.

The stipulation of facts and the exhibits received into evidence are incorporated herein by reference. Petitioners resided in Riverside, California, at the time the petition was filed.
Background

A. Examination of Petitioners' Individual Income Tax Return for 1995

On April 15, 1996, petitioners filed a joint Form 1040, U.S. Individual Income Tax Return, for 1995. On September 23, 1997, respondent notified petitioners that their 1995 return had been selected for examination. On November 5, 1997, respondent mailed to petitioners a letter containing a report of proposed adjustments. In that report, respondent determined that petitioners were liable for the 10-percent additional tax for making a premature withdrawal from their retirement plan. On December 2, 1997, petitioners sent respondent a letter detailing petitioner William C. Eberhardt, Jr.'s (Mr. Eberhardt) disability and relying on that condition as authorization to withdraw retirement funds without penalty.

On December 9, 1997, respondent notified petitioners that additional issues had been identified for audit with regard to petitioners' 1995 tax year. The letter contained a Form 4564, Information Document Request (IDR), which solicited documentation pertaining to petitioners' medical expenses, casualty or theft loss, and income and expense items on petitioners' Schedule C, Profit or Loss From Business, as well as additional information pertaining to Mr. Eberhardt's disability.

On January 22, 1998, petitioners sent respondent a letter containing additional documentation regarding the issue of Mr. Eberhardt's disability. Also enclosed was a copy of a letter dated May 6, 1996, in which petitioners were notified that the examination of their 1993 return showed that no change was necessary in the tax reported in that return. Petitioners did not submit any documents pertaining to Mr. Eberhardt's medical expenses or any of the other documents requested in the IDR.

On March 10, 1998, respondent sent petitioners a second IDR regarding petitioners' medical expenses, casualty or theft loss, and Schedule C income and expenses. On May 2, 1998, petitioners submitted to respondent documentation pertaining to their claimed casualty or theft loss, which was related to petitioners' pension plan. They did not submit any medical expense or Schedule C documentation.

On May 24, 1998, petitioners sent respondent a copy of their 1993 Federal income tax return and a copy of a letter respondent sent to petitioners resolving an audit of their 1993 tax year. After reviewing petitioners' 1993 return, respondent's examiner narrowed the scope of the audit of petitioners' 1995 return to their medical expenses and the pension-related casualty or theft loss.

On May 27, 1998, respondent mailed to petitioners a report proposing adjustments to petitioners' medical expense deductions and the pension-related casualty or theft loss. Petitioners had invested in a self-directed IRA with First Pension Corporation (First Pension). In April 1994, First Pension filed for bankruptcy, and the accounts of their investment trustee, Summit Trust Company, were frozen. At the time of the bankruptcy filing, petitioners' account contained a 5-acre parcel of land that petitioners allege decreased in value while their account was frozen.

On August 10, 1998, petitioners submitted to respondent additional documents they had prepared pertaining to the casualty or theft loss issue. Respondent reviewed the documentation and on October 26, 1998, notified petitioners that respondent's determination had not changed. Respondent also provided petitioners with copies of cases supporting respondent's decision to disallow petitioners' casualty or theft loss.

On November 25, 1998, respondent sent petitioners an updated report proposing adjustments to petitioners' medical expense and casualty or theft loss deductions as well as an additional case supporting respondent's decision regarding the casualty or theft loss issue. Respondent also sent petitioners a separate letter soliciting an extension of the period of limitations within which to audit petitioners' 1995 return. On December 14, 1998, petitioners signed a Form 872, Consent to Extend Time to Assess Tax, extending to June 30, 2000, the period within which respondent could assess the tax due for petitioners' 1995 tax year.

Respondent sent petitioners a revised audit report dated January 6, 1999, disallowing petitioners' medical expenses for lack of substantiation and also disallowing their casualty or theft loss. On January 11, 1999, respondent closed out the audit of petitioners' 1995 return as unagreed and forwarded the case to the Appeals Office.

B. Review of Petitioners' Return by the Appeals Office

Petitioners' case file was received in Appeals on or about January 27, 1999, and Appeals Officer Marilyn Radford (Ms. Radford) was assigned to handle the case. Petitioners agreed to hold their initial meeting with Ms. Radford on March 19, 1999. On March 18, 1999, petitioners sent her information setting forth their position on the audit. Ms. Radford asked for a postponement of the initial meeting so she could review the information.

Ms. Radford held telephone conferences with petitioners on March 24, 1999, and March 26, 1999. Petitioners complained that the IRS handled their audit unprofessionally and caused unnecessary delays. Petitioners also blamed the IRS for allowing a qualified plan to "defraud" its investors and for the resulting loss in the value of their IRA. Petitioners did not discuss the medical expense issue at all.

Ms. Radford prepared an Appeals Case Memorandum on April 22, 1999, in which she recommended disallowing petitioners' medical expenses for lack of substantiation. Petitioners provided only a typed list of expenses incurred, not actual receipts or statements as requested in the IDRs. Ms. Radford also recommended disallowing petitioners' claimed casualty or theft loss because petitioners still owned the property. On May 7, 1999, respondent issued a notice of deficiency disallowing the deductions and determining a deficiency of $30,771.

C. Petitioners' Tax Court Case

On August 9, 1999, petitioners filed a petition with this Court seeking a redetermination of the 1995 tax deficiency determined by respondent. Prior to trial, respondent conceded the issue pertaining to petitioners' medical expenses on Schedule A. At trial, the Court entered a decision for respondent sustaining the disallowance of the casualty or theft loss. Eberhardt v. Commissioner, T.C. Summary Opinion 2000-163. Petitioners filed a Motion for Reconsideration which was denied. Subsequently, respondent assessed the tax deficiency and interest.

D. Respondent's Collection Efforts

On April 15, 2001, respondent withheld petitioners' 2000 Federal income tax refund of $754.22 and applied it to their outstanding 1995 tax liability. Between April 23, 2001, and July 2, 2001, respondent mailed to petitioners three separate notices of balance due with respect to the unpaid liability. On December 3, 2001, respondent withheld petitioners' midyear 2000 refund of $600 and applied it to petitioners' outstanding 1995 tax liability.

On February 7, 2002, respondent issued a Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing (Notice of Intent to Levy), with respect to petitioners' taxable year 1995. On February 27, 2002, in response to the Notice of Intent to Levy, respondent received petitioners' Form 12153, Request for a Collection Due Process Hearing (hearing).

E. Petitioners' Section 6330 Hearing

Appeals Officer Wendy Clinger (Ms. Clinger) was assigned to handle petitioners' hearing. Petitioners met with her for their hearing on November 21, 2002.

During the hearing, petitioners disputed their underlying tax liability. Ms. Clinger advised them that they had already had an opportunity to challenge the liability when they had a trial before the Tax Court and could not do so again in the hearing. Ms. Clinger explained that petitioners could discuss the collection alternatives available to petitioners to satisfy their tax liability.

At the hearing, petitioners submitted an OIC offering $1,000 to satisfy their outstanding 1995 tax liability which totaled over $49,000, including accumulated interest. The $1,000 would be paid within 90 days of written acceptance of their OIC. Petitioners requested that their OIC be accepted in the interests of effective tax administration, or doubt as to collectibility.

In support of their grounds for effective tax administration, petitioners revisited the facts and circumstances of their prior Tax Court proceeding. Petitioners claimed that they cannot pay the tax in full because they have a substantial amount of short-term debt, the expenses of deferred maintenance on their home, and the need to fund their retirement savings over a limited number of years.

As to doubt as to collectibility, petitioners pointed to the Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, they submitted to Ms. Clinger. On their Form 433-A, petitioners indicated that they owned their home located in Riverside, California, which they valued at $350,000 with mortgages of $331,290. Petitioners also have retirement accounts valued at $24,815.65 and bank accounts valued at $606.75. Petitioners indicated that their monthly income is $10,834 and their monthly expenses are $12,571. Monthly expenses of $4,473 are attributable to petitioners' debts.


Ms. Clinger concluded that petitioners had the ability to pay $5,378 per month --the net difference between petitioners' monthly income and monthly allowable expenses --toward their outstanding 1995 tax liability. Petitioners declined Ms. Clinger's offer of an installment agreement. Petitioners also requested an abatement of interest on the deficiency because they feel the audit of their 1995 tax year was prolonged due to mistakes of the IRS employees who performed the audit.

Upon consideration of petitioners' submitted documentation, Ms. Clinger prepared a Form 1271-c, Rejection or Withdrawal Memorandum, recommending that petitioners' OIC be rejected. Ms. Clinger concluded that, given petitioners' available asset equity and monthly disposable income, petitioners have the ability to pay the liability in full via an installment agreement. She also noted that petitioners did not demonstrate any special circumstances or grounds for an exception for effective tax administration. On December 12, 2002, Ms. Clinger notified petitioners that respondent was rejecting their OIC.

On January 9, 2003, Ms. Clinger sent petitioners a Notice of Determination Concerning Collection Action Under Section 6330 sustaining respondent's proposed levy as the appropriate means of collecting petitioners' unpaid liability for the 1995 tax year. She also sent petitioners another copy of the letter rejecting their OIC. Additionally, Ms. Clinger sent petitioners a Notice of Full Disallowance --Final Determination denying petitioners' request for an abatement of interest on their 1995 deficiency assessment.

Discussion

Section 6330(c) prescribes the matters that a person may raise at an Appeals Office hearing. Section 6330(c)(2)(A) provides that a person may raise collection issues such as spousal defenses, the appropriateness of the Commissioner's intended collection action, and possible alternative means of collection. See Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180 (2000). In addition, section 6330(c)(2)(B) establishes the circumstances under which a person may challenge the existence or amount of his or her underlying tax liability. Section 6330(c)(2)(B) provides:
(2) Issues at Hearing. --
* * * * * * *
(B) Underlying Liability. --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 otherwise have an opportunity to dispute such tax liability.

A taxpayer, however, is precluded from relitigating issues raised and considered in any previous Appeals hearing or any other administrative or judicial proceeding in which the taxpayer meaningfully participated. Sec. 6330(c)(4); Katz v. Commissioner, 115 T.C. 329, 339 (2000).

Petitioners not only received a notice of deficiency for tax year 1995, they also litigated the matter before this Court. Therefore, they are precluded from challenging the existence or amount of their 1995 tax liability in a subsequent section 6330 hearing. Sec. 6330(c)(2)(B).

Where, as is the case here, the validity of the underlying tax liability is not properly placed at issue, the Court will review the administrative determination of the Appeals Office for abuse of discretion. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 181-183. The Court reviews only whether the Appeals officer's refusal to accept petitioners' OIC was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

A. Petitioners' Offer in Compromise

Section 7122(a) authorizes a compromise of a taxpayer's Federal tax liability. An OIC may be accepted where there is doubt as to liability or collectibility, or where it would promote effective tax administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.

Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the liability. Sec. 301.7122-1(b)(1), Proced. & Admin. Regs. Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the liability. Sec. 301.7122-1(b)(2), Proced. & Admin. Regs.

After reviewing petitioners' financial situation, Ms. Clinger determined that their financial situation enabled them to pay the entire tax liability within a reasonable time. Petitioners' financial information indicated that both petitioners had gainful employment and that their monthly income exceeded their necessary living expenses, thereby allowing the full payment of their liability.

If there is no doubt as to liability or collectibility, a compromise may be entered into to promote effective tax administration when collection of the full liability will create economic hardship within the meaning of section 301.6343-1, Proced. & Admin. Regs. Sec. 301.7122-1(b)(3)(i), Proced. & Admin. Regs. Economic hardship is defined as the inability of the taxpayer to pay his or her reasonable living expenses. Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.

Factors supporting a determination that collection would cause economic hardship within the meaning of section 301.7122-1(b)(3)(i), Proced. & Admin. Regs., include, but are not limited to:
(A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing care and support during the course of the condition;
(B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and
(C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities * * *.

Sec. 301.7122-1(c)(3)(i)(A), (B) and (C), Proced. & Admin. Regs.

Petitioners claim they cannot pay the tax in full because they have a substantial amount of short-term debt, the expenses of deferred maintenance on their home, and the need to fund their retirement savings over a limited number of years. These circumstances fall short of qualifying as economic hardship within the meaning of section 301.6343-1(b)(4), Proced. & Admin. Regs.

When there are no grounds for compromise under the provisions pertaining to doubt as to liability, doubt as to collectibility, or effective tax administration due to economic hardship, the IRS may compromise a liability to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Sec. 301.7122-1(b)(3)(ii), Proced. & Admin. Regs. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the laws are being administered in a fair and equitable manner. A taxpayer proposing such a compromise will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full. Id.

Petitioners have failed to demonstrate that there are any circumstances showing that collection of their full liability would undermine public confidence that the tax laws are being administered fairly and equitably. Petitioners have not shown evidence sufficient to warrant consideration of an OIC based on effective tax administration grounds.

Having reviewed the entire record, including the financial information presented to Ms. Clinger, the Court cannot find that the determination rejecting petitioners' OIC was an abuse of discretion. See Van Vlaenderen v. Commissioner, T.C. Memo. 2003-346; Crisan v. Commissioner, T.C. Memo. 2003-318; Willis v. Commissioner, T.C. Memo. 2003-302. Accordingly, collection by levy of petitioners' unpaid 1995 tax liability reflected in the Notice of Determination may proceed.

B. Abatement of Interest

If, as part of a section 6330 hearing, a taxpayer makes a request for abatement of interest, the Court has jurisdiction over the request for abatement of interest that is the subject of the Commissioner's collection activities. Katz v. Commissioner, 115 T.C. at 340-341.

This Court may order an abatement of interest only if there is an abuse of discretion by the Commissioner in failing to abate interest. See sec. 6404(i) (formerly sec. 6404(g)). In order to demonstrate an abuse of discretion, a taxpayer must prove that the Commissioner exercised his discretion arbitrarily, capriciously, or without sound basis in fact or law. See Rule 142(a); Lee v. Commissioner, 113 T.C. 145, 149 (1999); Woodral v. Commissioner, 112 T.C. at 23.

Under preamendment section 6404(e),2 the Commissioner "may abate the assessment of interest on any payment of tax to the extent that any error or delay in payment is attributable to an officer or employee of the IRS being erroneous or dilatory in performing a ministerial act." Lee v. Commissioner, supra at 148. A ministerial act does not include a "decision concerning the proper application of federal tax law (or other federal or state law)". Sec. 301.6404-2(b)(2), Proced. & Admin. Regs.

An error or delay by the Commissioner can be taken into account only if: (1) It occurs after the Commissioner has contacted the taxpayer in writing with respect to the deficiency, and (2) no significant aspect of the error or delay is attributable to the taxpayer. See sec. 6404(e)(1); Krugman v. Commissioner, 112 T.C. 230, 239 (1999); Hawksley v. Commissioner, T.C. Memo. 2000-354. Section 6404(e)(1) "does not therefore permit the abatement of interest for the period of time between the date the taxpayer files a return and the date the IRS commences an audit, regardless of the length of that time period." H. Rept. 99-426, at 844 (1985), 1986-3 C.B. (Vol. 2) 1, 844; S. Rept. 99-313, at 208 (1986), 1986-3 C.B. (Vol. 3) 1, 208.

Petitioners request abatement partly because respondent did not notify them that their return had been selected for examination until September 23, 1997. They argue that such a length of time constitutes a ministerial error by respondent and warrants an abatement of interest.

For purposes of section 6404(e), an error or delay cannot be considered for the period before September 23, 1997, because that is the date on which respondent first contacted petitioners in writing regarding the deficiency for 1995. See sec. 6404(e); Krugman v. Commissioner, supra at 239; Nerad v. Commissioner, T.C. Memo. 1999-376.

Petitioners also assert that the audit was unreasonably lengthy because several different IRS employees participated in the audit. There is no evidence in the record that any of the employees assigned to petitioners' audit mishandled any portion of the audit. There were no significant delays by respondent replying to contacts or correspondence from petitioners. The greatest delays came in petitioners' responses to respondent's document requests.

Respondent's decisions on how to proceed during the audit necessarily required the exercise of judgment and thus cannot be ministerial acts. Additionally, the mere passage of time does not establish error or delay by the Commissioner in performing a ministerial act. Lee v. Commissioner, supra at 150. The Court, therefore, concludes that the passage of 19 months during the audit of petitioners' 1995 tax year is not attributable to error or delay in performing a ministerial act.

Reviewed and adopted as the report of the Small Tax Case Division.

Decision will be entered for respondent.

2 Sec. 6404(e) was amended under sec. 301 of the Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1457 (1996), to permit the Secretary to abate interest with respect to an "unreasonable" error or delay resulting from "managerial" and ministerial acts. This amendment, however, applies to interest accruing with respect to deficiencies or payments of tax for years beginning after July 30, 1996; therefore, the amendment is inapplicable to the case at bar. See Woodral v. Commissioner, 112 T.C. 19, 25 n.8 (1999).
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Allglass Systems, Inc., et al., Plaintiffs v. Commissioner of Internal Revenue, Defendant, U.S. District Court, East. Dist. Pa.; CIV. 03-4772, August 17, 2004.

Taxpayers failed to show they were denied a fair hearing on their appeal of the IRS's determination to levy their property. The IRS did not abuse its discretion by issuing notices of levy following the taxpayers' failure to submit requested documents in support of an offer in compromise by the designated deadline. Although the taxpayers alleged that a Collection Due Process (CDP) hearing was not properly provided, a series of communications, including a telephone conversation, collectively satisfied the CDP hearing requirement.

ORDER

ROBRENO, District Judge: AND NOW, this day of August 2004, for the reasons set forth in the accompanying memorandum, it is hereby ORDERED that defendant's motion for summary judgment (doc. no. 6) is GRANTED and plaintiffs' cross-motion for summary judgment (doc. no. 9) is DENIED.

It is FURTHER ORDERED that judgment is entered in favor of Defendant and against Plaintiff.

AND IT IS SO ORDERED.

MEMORANDUM

Plaintiffs, AllGlass Systems, Inc., East Coast Fabricators, LLC, and ASI Southeast, LLC (collectively "taxpayers") filed this action, seeking review of the Internal Review Service's ("IRS") issuance of three Notices of Determination Concerning Collection Action under Internal Revenue Code ("IRC") Sections 6320 and/or 6330. There is no dispute as to taxpayers' liability to the IRS for employment taxes not paid in 2000 and 2001. Taxpayers allege that the IRS issued Notices of Levy without properly providing a Collection Due Process ("CDP") hearing as required under 26 U.S.C. §6330(b). In addition, taxpayers allege that, assuming that the communications between the IRS and taxpayers satisfied the requirements under 26 U.S.C. §6330(b), the IRS abused its discretion under 26 U.S.C. §6330(c)(2)(iii) by failing to consider taxpayers' offers-in-compromise, as collection alternatives, on their merits.

Before the Court are the IRS's motion for summary judgment pursuant to Fed. R. Civ. P. 56 and taxpayers' cross-motion for summary judgment. The issues are whether the taxpayers were afforded a fair hearing on their appeal of the IRS's determination to levy certain property and if so, whether the IRS abused its discretion by issuing Notices of Levy because taxpayers' failed to submit requested tax documents by the designated deadline. 1

The facts are largely undisputed and, if disputed, they are viewed in the light most favorable to taxpayers.

I. FACTUAL BACKGROUND

At issue here are the efforts by the IRS to collect certain employment taxes owed by taxpayers for the tax years 2000 and 2001. Taxpayers do not dispute liability for the amounts due. In March 2002, taxpayers filed offers-in-compromise seeking to compromise their liabilities. On October 28, 2002, the IRS rejected taxpayers' first offers-in-compromise on the ground that the taxpayers were tardy with making their current tax payments. 2 Consequently, on October 28, 2002 (AllGlass Systems) and November 11, 2002 (East Coast Fabricators and ASI Southeast), the taxpayers were sent notices of intent to levy against property pursuant to 26 U.S.C. §6330(a). At the same time, taxpayers were notified of their right to a CDP hearing under 26 U.S.C. §6330(b).

On November 22, 2002, taxpayers timely requested a CDP hearing. Initially, ASI's request was assigned to Officer Lee and East Coast Fabricator's and AllGlass System's requests were assigned to Officer Stanton. ASI's request was later transferred to Officer Stanton as well.

In February 2003, taxpayers made a second set of offers-in-compromise to the IRS. Counsel for the taxpayers and Officer Stanton had several telephonic discussions concerning the offers-in-compromise. During one such discussion on June 9, 2003, Officer Stanton requested personal financial statement for the taxpayers' principal, Rein Clabbers, to be submitted to her within fifteen days. Taxpayers' counsel expressed his inability to meet the deadline. After the June 9, 2003 discussion, Officer Stanton memorialized the conversation, including the request deadline, in a letter to taxpayers' counsel. The letter reiterated that the deadline for submission of the principal's financial statement was June 26, 2003. Taxpayers' counsel did not respond to Officer Stanton's letter.

Six weeks later, on July 21, 2003, failing to receive the requested tax forms from taxpayers, Officer Stanton upheld the determination to levy taxpayers' property and issued three Notices of Determination Concerning Collection Actions Under IRC Section 6320 and/or 6330. On August 19, 2003 taxpayers filed this suit seeking review of the determination made by Officer Stanton. Taxpayers forwarded the requested tax information to the IRS on August 26, 2003, after this matter had commenced.

II. DISCUSSION

A. Standards of Review

1. Procedural Posture

While the issues presented before the Court are framed as summary judgment issues, a number of courts have noted that the Rule 56 paradigm is not properly suited to accommodate the procedural posture of judicial review of administrative agency decisions in general. See STA Printing Co. v. Internal Revenue Service [ 2004-1 USTC ¶50,174], No. Civ. A. 02-7133, 2004 U.S. Dist. LEXIS 2126, 2004 WL 257393, (E.D. Pa. Feb. 11, 2004) (Surrick, J.) ( citing Lodge Tower Condo. Ass'n v. Lodge Props., Inc., 880 F.Supp. 1370, 1374 (D. Colo. 1995) ("[a] motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure ... makes no procedural sense when a district court is asked to undertake judicial review of agency action") (other citations omitted)).

More appropriately, perhaps, is to proceed by way of judgment on the pleadings. In any event, in this case, whether framed as a motion for summary judgment or for judgment on the pleadings, the ultimate question is the same. Based on undisputed facts, is the IRS entitled to judgment as a matter of law?

2. Appeal Officer's Determination

i. Jurisdiction

The Court has jurisdiction over this matter as provided for by Section 6330(d)(1)(B) of Title 26 of the United States Code. Section 6330(d)(1)(B), in pertinent part, provides that, "[t]he person may, within 30 days of a determination under this section, appeal such determination...if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States." 26 U.S.C. §6330(d)(1)(B). Under this section, district courts have jurisdiction over matters where the taxpayer is challenging the "procedure used for collection" and is not challenging the amount of liability or the correctness of the assessment, where the U.S. Tax Court would have exclusive jurisdiction. STA Printing Co. [ 2004-1 USTC ¶50,174], 2004 U.S. Dist. LEXIS 2126, at *7. Thus, this Court has jurisdiction over this matter because taxpayers are challenging the "procedure used for collection" and do not dispute the underlying tax liability.

ii. Abuse of Discretion

Although Section 6330(d)(1)(B) of Title 26 provides for judicial review, it does not specify the standard of review to be applied by the courts. Although no courts of appeals have spoken on the issue, all district courts which have construed this section of the Internal Revenue Code, have concluded that abuse of discretion is the proper standard. See e.g. STA Printing Co. [ 2004-1 USTC ¶50,174], 2004 U.S. Dist. LEXIS 2126, at *7-8; Tilley v. United States [ 2004-1 USTC ¶50,259], No. Civ. A. 03-4579, 2004 U.S. Dist. LEXIS 7792 (E.D. Pa. Apr. 4, 2004) (Rufe, J.); Christian v. Comm'r of IRS [ 2003-2 USTC ¶50,562], No. Civ. A. 02-9120, 2003 U.S. Dist. LEXIS 11289 (E.D. Pa. Jun. 5, 2003) (O'Neill, Jr., J.). The Court agrees and will apply the abuse of discretion standard in reviewing Officer Stanton's decision to issue the Notices of Levy.

Under the abuse of discretion standard of review of the decision of an administrative agency, the Court "must consider whether the decision was based on consideration of the relevant factors and whether there has been a clear error of judgment .... Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), overruled on other grounds by, Califano v. Sanders, 430 U.S. 99, 105 (1977); See also Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Auto Ins. Co., 463 U.S. 29, 43 (1983).

B. Taxpayers were given a "fair hearing" under 26 U.S.C. §6330(b).

Taxpayers alleges that a CDP hearing was not properly provided to them as required by 26 U.S.C. §6330(b). Although 26 U.S.C. §6330(b) provides for a taxpayer's right to a CDP hearing, it lends no guidance as to the format or procedures that must be followed in conducting a CDP hearing.

In interpreting the language of 26 U.S.C. §6330(b), the Tax Court has identified certain elements, which at a minimum, must be present to satisfy the requirements of 26 U.S.C. §6330(b): (1) an impartial officer will conduct the hearing; (2) certain issues may be heard such as an offer-in-compromise; (3) the conducting officer will receive verification from the Secretary that the requirements of applicable law and administrative procedure have been met; and (4) a challenge to the underlying tax liability may be raised only if the taxpayer did not receive a statutory notice of deficiency or receive an opportunity to dispute such liability." Day [ CCH Dec. 55,534(M)], T.C. Memo 2004-30, at 5; ( citing 26 U.S.C. 6330(b) and (c); Vossbrinck v. Comm'r [ CCH Dec. 54,713(M)], T.C. Memo 2002-96)). These elements are consistent with ordinary notions of due process and, in the absence of evidence to the contrary suggesting some other unfairness, they will guide the Court's determination of whether the taxpayers were afforded a "fair hearing" in this case.

In regards to the first element, it is undisputed that Officer Stanton is an impartial officer who had no involvement in the matter prior to the taxpayers' current appeal. See Defendant's Motion for Summary Judgment, Declaration of Paula Stanton at 3; See Day [ CCH Dec. 55,534(M)], T.C. Memo 2004-30, at 6 (where the court held "that an Appeal officer is impartial if he or she "did not participate in, and was not involved in, any previous Appeals Office hearing" concerning the taxpayer's tax...").

Next, the second element has been met because the correspondences and conversations between Officer Stanton and taxpayers' counsel included discussions relating to taxpayers' offers-in-compromises and issues and procedures relating to the appeal and CDP hearing itself. See Declaration of Paula Stanton pg. 4-5. These communications satisfy the element that Officer Stanton considered the information offered by the taxpayer.

The recent case of Stewart v. Commissioner of Internal Revenue Service [ 2004-1 USTC ¶50,212], 2004 U.S. Dist. LEXIS 6413 (W.D. Pa. Mar. 1, 2004) (Lancaster, J.), is on point. Stewart involved two disputed claims against taxpayer for different tax periods. Taxpayer claimed that he had been denied a CDP hearing on both claims. The officer on one claim talked to the taxpayer on the phone one day prior to the officially designated CDP hearing date and did not advise the taxpayer that the phone call constituted the CDP hearing. The second officer had an "informal meeting" with the taxpayer and specifically stated to the taxpayer that "this was an informal meeting and was not the due process hearing." Despite the lack of specific advice to taxpayer that the communications were part and parcel of the CDP Hearing process, the Stewart court found that although the officers "did not hold a formal, properly designed 'hearing' in the traditional sense, their reviews of the file and interactions with [taxpayer] complied with the low standard imposed by the applicable regulations. ... In both situations, [plaintiff] had notice of the issue, was informed of the IRS' position, and was given a full opportunity to be heard." Stewart [ 2004-1 USTC ¶50,212], 2004 U.S. Dist. LEXIS 6413, at *7-8.

Similarly, in this case, taxpayers had notice of the issues and were given the opportunity to discuss matters relating to their offers-in-compromise during various telephonic discussions between Officer Stanton and taxpayers' counsel. 3 Moreover, Officer Stanton also discussed with taxpayers the IRS's position and provided taxpayers with the opportunity to submit financial statements, which were necessary for the review of their offers-in-compromise. Under these facts, the Court has no difficulty in concluding that Officer Stanton discussed the issues with taxpayers and considered all of taxpayers' offers.

Taxpayers argue that the IRS has failed to establish that the June 9, 2003 telephone conversation was, in fact, a CDP hearing. This argument imposes upon the IRS a burden not contemplated under 26 U.S.C. §6330(b). To the contrary, there is no burden on the IRS to show that a single meeting or telephone call constitutes the CDP hearing but instead, a series of communications, such as the June 9 th telephone conversation, can collectively satisfy the CDP hearing requirement. See Loofbourrow v. Comm'r [ 2002-1 USTC ¶50,465], 208 F.Supp.2d 698, 707 (S.D. Tex. 2002) (where the court found that numerous written communications between taxpayer and appeals officer are sufficient for the purposes of fulfilling the CDP hearing requirement); TTK Mgmt. V. U.S., 2001-[1]01 U.S. Tax Ct., [50,]185 (C.D. Cal. 2000) (where the court held that communications between the parties from the time a request for hearing was submitted to the issuance of the notice of determination are part of the CDP hearing).

Similarly, without merit is the argument that the lack of specific notice that the communications between counsel and Officer Stanton constituted the CDP hearing deprived taxpayers' the fair opportunity to discuss the issues as provided under 26 U.S.C. §6330(b)(2). Again, under the low threshold of 26 U.S.C. §6330(b), there is no requirement that a CDP hearing be specifically designated as such by the conducting officer so long as the taxpayers and IRS officers, inter se, do in fact address the issues on the merits during the communications. See Stewart [ 2004-1 USTC ¶50,212], U.S. Dist. LEXIS 6413, at *3 (where the court found that taxpayers were given their due process hearing even though the appeals officer stated that the meeting "was an informal meeting and was not the due process hearing"). 4

The third element has also been fulfilled because Officer Stanton received verification from the Secretary that the requirements of applicable law and administrative procedures have been met. Government Exhibits 8A, 8B, and 8C of the Internal Revenue Service's Motion for Summary Judgment; Declaration of Paula Stanton at 6.

Finally, taxpayers' have stipulated that they do not dispute or challenge the underlying tax liability and therefore the forth element does not apply to this matter.

Given the facts of this case, the Court finds that all of the protections necessary under 26 U.S.C. §6330(b) were afforded to taxpayers in this case and that taxpayers have failed to show that they were not given a fair hearing.

C. The IRS did not abuse its discretion in sustaining the Notices of Determination to Levy Property against taxpayers.

Taxpayers allege that Officer Stanton abused her discretion by upholding the Notice of Levy without considering taxpayers' offers-in-compromise on its merits and "capriciously failed to consider plaintiffs' alternative collection offer" based on the fact that the IRS did not receive taxpayers' principal's tax forms, which were provided in due course. Plaintiffs' Complaint at 5.

Under 26 U.S.C. §7122, a challenge of the rejection of an offer-in-compromise is subject to administrative review. 26 U.S.C. §7122(d). 26 U.S.C. §7122(d) in pertinent part provides, "(1) for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer under this section or section 6159 before such rejection is communicated to the taxpayer; and (2) which allow a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals." 26 U.S.C. §7122(d).

Additionally, limited judicial review under the abuse of discretion standard is available but only to the extent that the court may consider whether the IRS's decision was based on consideration of the relevant factors and whether there has been a clear error of judgment. See Motor Vehicle Manufacturers Ass'n, 463 U.S. at 43. Hence, in this case the scope of the Court's review is limited to whether Officer Stanton abused her discretion when she issued the Notices of Levy.

In evaluating the merits of an offer-in-compromise, 26 U.S.C. §6330(c)(3) requires an appeal officer to consider the following factors: (1) whether requirements and applicable law or administrative procedures are satisfied; (2) any issues relating to the unpaid tax or the proposed levy, such as collection alternatives; and (3) "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. §6330(c)(3). The Court will examine each factor in light of the facts of the case.

As to the first factor, Officer Stanton obtained the "required verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." See Declaration of Paula Stanton at 6. Taxpayers' have presented no evidence contrary.

As to the second factor, the administrative record establishes that taxpayers do not challenge their liability for the unpaid employment taxes. There is no evidence of and neither party has raised that the amounts of the offers-in-compromise are at issue here. Additionally, both parties have represented to the Court that numerous conversations took place, inter se, regarding taxpayers' offers-in-compromise. In particular, Officer Stanton communicated to taxpayers' counsel her request for certain financial information necessary to consider taxpayers' offers-in-compromise. It is not disputed that the financial information expected was not provided to Officer Stanton even four weeks past the deadline she provided to taxpayers' counsel, nor did taxpayers contact Officer Stanton regarding the requested financial information and seek an extension of the deadline. In fact, the financial information was not delivered until after this case was commenced with the Court.

The failure to comply, or to seek an extension for compliance, is fatal to the taxpayers' case. As a consequence of taxpayers' failure to provide the requested information, Officer Stanton was faced with incomplete offers-in-compromise and therefore was unable to consider the offers as an alternative to the levy. See Olsen v. U.S. , 2004 U.S. [ 2004-2 USTC ¶50,360]. LEXIS 13193, at *14 (D. Mass. Jun. 16, 2004) (Lindsay, J.) (where the court concluded that the denial of a taxpayer's offer in compromise due to the taxpayer's failure to submit requested financial documents is not an abuse of discretion on the part of the appeals officer); See Roman v. Comm'r of Internal Revenue Service [ CCH Dec. 55,522(M)], T.C. Memo 2004-20, 14 - 16, 2004 Tax Ct. Memo LEXIS 20 (Jan. 28, 2004) (where the Tax Court found that without the requested information, the IRS is not able to determine if the taxpayer met the conditions necessary for compromise of tax liability; therefore the appeals officer did not abuse his discretion to reject the taxpayer's offer-in-compromise and make the determination to proceed with collection). Because of the deleterious effect it would have on the IRS's efforts to enforce the Revenue laws of the United States, taxpayers are not free to disregard administrative deadlines and, without cause, proceed at their own pace. Given these facts, the Court concludes that Officer Stanton sufficiently considered taxpayers alternative collection offers, with the information available to her.

As to the third factor, taxpayers have presented no evidence and do not raise the issue that Officer Stanton abused her discretion when she decided that the collection action proposed by the IRS appropriately balanced the competing concerns of "whether the proposed collection action balanced the need for the efficient collection of taxes with the legitimate concern that any collection action be no more intrusive than necessary." 26 U.S.C. section 6330(c)(3)(C).

Under these facts, the Court concludes that Officer Stanton considered all the factors necessary for an appropriate determination as provided for by 26 U.S.C. §6630(c) and therefore did not abuse her discretion in sustaining the determination to levy properties against taxpayers.

III. CONCLUSION

For the foregoing reasons, the Court finds that taxpayers have failed to show that they were not provided a "fair hearing" and that Officer Stanton abused her discretion in issuing Notices of Determination to Levy; therefore, the IRS's motion for summary judgment is granted and taxpayers' cross-motion for summary judgment is denied.

1 To the extent that taxpayers argue for an injunction of the IRS from sustaining the levy action against taxpayers without "due consideration on the merits of plaintiffs' offers-in-compromise," the issue is moot. 26 U.S.C. §6330(e)(1) provides that upon the filing of an action for judicial review, the collection activity is suspended.

2 An offer-in-compromise is not processable if all tax returns for which the taxpayer is required to file have not been filed in a timely manner. 2 Administration, Internal Revenue Manual (CCH), sec. 5.8.3.2.1(1)(a), at 16,281 (November 30, 2001). The Internal Revenue Manual specifies: "In-business taxpayers must have timely filed and timely deposited all employment taxes for two quarters proceeding the offer submission. They must have also timely paid all federal tax deposits due in the quarter in which the offer is submitted." Id. The Tax Court has also ruled that the Commissioner's decision not to process an offer-in-compromise from taxpayers who have not filed all required tax returns is not an abuse of discretion. TTK Mgmt. v. United States, 87 AFTR 2d 2001-350, 2001-1 USTC par. 50, 185 (C.D. Cal. 2000).

3 All taxpayers are corporations and were represented by counsel throughout the proceedings. All conversations between the IRS and counsel are imputed to the taxpayers.

4 Taxpayers cite to Montijo v. U.S. [ 2002-1 USTC ¶50,321], 2002 U.S. Dist. LEXIS 9602 (D. Nev. Feb. 22, 2002) (Hunt, J.) for support that "a telephonic and unscheduled conversation [does not] constitute[] a legal hearing under the statute." Plaintiffs' Cross-Motion for Summary Judgment at 13. Montijo is not on point. In Montijo, the court did not decide whether a CDP hearing was in fact provided to the plaintiff but rather decided that the admittedly erroneous Notice of Determination was not valid and denied the government's request to remand for continued administrative hearing because the government failed to provide points and authorities in support of its motion as required under the local rules.

In addition, taxpayers cite to Field Service Advisory, I.R.S. FSA 200009007, 2000 WL 1183364 (I.R.S. FSA, Mar 03, 2000). Pursuant to Section 6110(j)(3) of the IRC, the field service advisory memorandum may not be used or cited as precedent and therefore the Court will not address its discussions.
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Bradley M. and Monica Pixley v. Commissioner
Dkt. No. 7093-02L , 123 TC --, No. 15, September 15, 2004.
[Appealable, barring stipulation to the contrary, to CA-5.

Although tithes that are required to be paid as a condition of employment are allowable expenses in determining a taxpayer's ability to pay outstanding tax liabilities, disallowance of the expenses was not an abuse of an IRS Appeals officer's discretion. At the Appeals hearing, married taxpayers were given the opportunity to substantiate that the husband was a minister, but they failed to do so, and the court was not persuaded that tithing was a condition of employment. Furthermore, the disallowance of the tithing expenses did not violate the husband's First Amendment right to freedom of religion as it did not burden his religious beliefs any more than the imposition of tax does on other taxpayers.
Tommy E. Swate, for petitioners; Daniel N. Price, for respondent.

H is an ordained Baptist minister. In this proceeding to collect Ps' unpaid 1992 and 1993 tax liabilities by levy, Ps submitted to R's Appeals Office an offer in compromise, claiming a "tithe to church" as part of their necessary living expenses. In evaluating Ps' ability to pay their outstanding tax liabilities, the Appeals officer declined to take these alleged tithing expenses into account.
Held: Under relevant provisions of the Internal Revenue Manual, tithes that a minister is required to pay as a condition of employment are allowable in determining ability to pay outstanding tax liabilities. Held, further, because Ps failed to substantiate that H was employed as a Baptist minister after R initiated the collection proceedings, the Appeals officer did not abuse his discretion by declining to take into account Ps' alleged tithing expenses. Held, further, the disallowance of Ps' alleged tithing expenses for this purpose did not violate H's First Amendment rights to free exercise of religion.

OPINION
THORNTON, Judge: Pursuant to section 6330(d), petitioners filed a petition for review of an Appeals Office determination sustaining a proposed levy.1 The primary issue for decision is whether, in evaluating petitioners' offer in compromise, the Appeals officer should have considered petitioners' alleged tithing expenses in determining whether they had the ability to pay their outstanding tax liabilities.2 We must also decide whether respondent's disallowance of tithing expenses for this purpose violates Mr. Pixley's First Amendment right to free exercise of religion.

Background
The parties submitted this case fully stipulated pursuant to Rule 122. We incorporate herein the stipulated facts. When petitioners filed their petition, they resided in Newhall, California.
Mr. Pixley is a licensed and ordained Baptist minister. From September 1995 through June 2001, he served as pastor of Grace Community Bible Church, in Tomball, Texas.3 Thereafter, petitioners moved to California, and Mr. Pixley was employed as an echocardiographer at Children's Hospital in Los Angeles.
Respondent mailed to petitioners a Letter 1058, Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing (notice of intent to levy), dated October 5, 2000, proposing a levy with respect to petitioners' unpaid tax liabilities totaling $19,366.69 for 1992 and $39,851.27 for 1993. In response to this notice, petitioners submitted a timely Form 12153, Request for a Collection Due Process Hearing, dated October 18, 2000, raising an offer in compromise as an alternative to levy.
Shortly after requesting their Appeals hearing, petitioners submitted to respondent a Form 656, Offer in Compromise (offer in compromise), signed October 22, 2000. Petitioners also submitted a Form 433-A, Collection Information Statement for Individuals, listing a $520 "tithe to church" as a monthly necessary living expense.
In the Appeals hearing, the Appeals officer requested, on numerous occasions, that petitioners submit evidence that the claimed tithe was a condition of Mr. Pixley's employment. Petitioners failed to respond to these requests. The Appeals Office issued to petitioners a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330", dated March 14, 2002. In the notice of determination, the Appeals Office rejected petitioners' offer in compromise and concluded that petitioners had the ability to fully pay their 1992 and 1993 tax liabilities. The notice of determination stated that petitioners failed to establish that tithes were a condition of Mr. Pixley's employment and that, for purposes of evaluating petitioners' offer in compromise, tithing expenses were disallowed in determining petitioners' ability to pay.
After the notice of determination was issued, the Appeals officer reconsidered petitioners' offer in compromise and gave them additional opportunities to submit evidence that the claimed tithe was a condition of Mr. Pixley's employment. Petitioners failed to submit this information, and the Appeals officer ultimately sustained his rejection of petitioners' offer.
Discussion
In this case, we are called upon to address for the first time, in the context of an offer in compromise, the treatment of a minister's tithing expenses for purposes of determining ability to pay outstanding tax liabilities.

I. Petitioners' Contentions
Petitioners claim that tithing expenses are incurred as a condition of Mr. Pixley's employment as a Baptist minister and should be taken into account in determining petitioners' ability to pay their taxes. Petitioners argue that the Appeals officer's disallowance of the tithing expenses for this purpose violates Mr. Pixley's First Amendment right to free exercise of religion.

II. Standard of Review
Because petitioners' underlying tax liability was not properly at issue in the Appeals Office hearing, we review the Appeals Office determination for abuse of discretion. See Keene v. Commissioner [Dec. 55,213], 121 T.C. 8, 17-18 (2003); Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 185 (2001).

III. Offers in Compromise
A. In General
Section 7122(a) authorizes the Commissioner to compromise a taxpayer's outstanding tax liabilities. Dutton v. Commissioner [Dec. 55,542], 122 T.C. 133, 137 (2004). Section 7122(c)(1) provides that "The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer in compromise is adequate and should be accepted to resolve a dispute."
The regulations state three different grounds for compromising tax liabilities: (1) Doubt as to liability; (2) doubt as to collectibility; and (3) promotion of effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).4 The parties' arguments focus exclusively on the ground of doubt as to collectibility. Doubt as to collectibility arises if the taxpayer's assets and income are less than the full amount of the assessed liability. Id. In determining whether there is doubt as to collectibility, the Commissioner must determine the taxpayer's "ability to pay" the outstanding tax liabilities that are to be compromised. Sec. 301.7122-1T(b)(3)(ii), Temporary Proced. & Admin. Regs., supra.
B. Determining a Taxpayer's Ability To Pay
In determining a taxpayer's ability to pay outstanding tax liabilities, the Commissioner takes into account the funds the taxpayer needs to pay basic living expenses. Id. The taxpayer's basic living expenses are determined by evaluating the taxpayer's facts and circumstances. Id.

In evaluating a taxpayer's ability to pay, the Commissioner considers two types of allowable expenses: (1) necessary expenses, and (2) conditional expenses. Internal Revenue Manual (IRM), secs. 5.15.1.3 and 5.15.1.3.1(1) (Mar. 31, 2000).5 For this purpose, a necessary expense is one that is used for a taxpayer's (and his family's) health and welfare or production of income. IRM sec. 5.15.1.3.2(1) (Mar. 31, 2000). The expense must be reasonable taking into account family size, geographic location, and any unique individual circumstances. IRM sec. 5.15.1.2.3(1) and (2) (Mar. 31, 2000). Expenses that do not qualify as necessary may nevertheless be allowable in certain limited circumstances as so-called conditional expenses. IRM sec. 5.8.5.4.2 (Nov. 30, 2001).
For purposes of determining a taxpayer's ability to pay, charitable contributions are necessary expenses if they provide for a taxpayer's (or his family's) health and welfare or are a condition of the taxpayer's employment. IRM sec. 5.15.1.3.2.3(3) and exh. 5.15.1-2 (Mar. 31, 2000). The IRM specifically addresses tithes to religious organizations, as follows:
1. Question. If, as a condition of employment, a minister is to tithe, a business executive is required to contribute to a charity * * *, will these expenses be allowed?
Answer. Yes. The only thing to consider is whether the amount being contributed equals the amount actually required and does not include a voluntary portion. [IRM, Exhibit 5.15.1-3 (Mar. 31, 2000).]
On brief, respondent contends that petitioners' alleged tithing expenses should be disallowed pursuant to IRM section 5.8.5.4.2(9) (Nov. 30, 2001), which states that "Charitable contributions are not allowed." This IRM subsection, however, relates expressly to conditional expenses, not necessary expenses, and does not purport to override the provisions of IRM Exhibit 5.15.1-3 (Mar. 31, 2000) as set out above.
IV. Whether the Appeals Officer Abused His Discretion
In the Appeals hearing, petitioners were given the opportunity to substantiate that Mr. Pixley was employed as a Baptist minister. They failed to do so. In fact, there is no evidence that Mr. Pixley was employed as a minister when the notice of determination was issued to petitioners in March 2002 or that he has been employed as a minister at any time since.6 Consequently, even if we were to assume arguendo, as petitioners assert, that "The Southern Baptist Convention has a doctrine that its members should tithe ten percent of their income to the church", we are unpersuaded that tithing was a requirement of Mr. Pixley's employment.
We hold that the Appeals officer did not abuse his discretion in disallowing petitioners' claimed tithing expenses.

V. Petitioners' First Amendment Challenge
The First Amendment of the United States Constitution provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof".
Petitioners contend that respondent's disallowance of Mr. Pixley's tithing expenses for purposes of evaluating their offer in compromise violates the Free Exercise Clause of the First Amendment. The gist of petitioners' argument, as we understand it, is that by declining to make allowance for tithing expenses in evaluating petitioners' ability to pay their taxes, respondent is effectively reducing the funds that petitioners have available to support their religion and diverting those funds to the U.S. Treasury.
It may well be true that paying their taxes will leave petitioners less funds to support their religion. But this is a burden, common to all taxpayers, on their pocketbooks, rather than a recognizable burden on the free exercise of their religious beliefs. Constitutional protection of fundamental freedoms "does not confer an entitlement to such funds as may be necessary to realize all the advantages of that freedom." Harris v. McRae, 448 U.S. 297, 318 (1980); see Regan v. Taxation With Representation of Wash. [83-1 USTC ¶9365], 461 U.S. 540, 550 (1983).
In any event, even if petitioners could demonstrate a recognizable burden on the free exercise of their religious beliefs, the burden would be justified by the Government's compelling interest in collecting taxes and administering a uniform, mandatory, and sound tax system. See, e.g., Hernandez v. Commissioner [89-1 USTC ¶9347], 490 U.S. 680, 699-700 (1989) (quoting United States v. Lee [82-1 USTC ¶9205], 455 U.S. 252, 260 (1982), stating that the Government has a "`broad public interest in maintaining a sound tax system,' free of `myriad exceptions flowing from a wide variety of religious beliefs' "); United States v. Lee, supra at 260 ("Because the broad public interest in maintaining a sound tax system is of such a high order, religious belief in conflict with the payment of taxes affords no basis for resisting the tax."); Miller v. Commissioner [Dec. 53,915], 114 T.C. 511, 517 (2000); Adams v. Commissioner [Dec. 52,602], 110 T.C. 137, 139 (1998), affd. [99-1 USTC ¶50,307] 170 F.3d 173 (3d Cir. 1999). This compelling Government interest underpins the Commissioner's authority to compromise tax liabilities under section 7122 and to prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer in compromise is adequate and should be accepted to resolve a tax dispute, see sec. 7122(c)(1).7
We hold that the Appeals officer's disallowance of tithing expenses in evaluating petitioners' ability to pay their taxes did not violate Mr. Pixley's First Amendment rights to free exercise of religion.

VI. Conclusion
We sustain respondent's determination in the notice of determination that, for purposes of petitioners' offer in compromise, Mr. Pixley's tithing expenses are not allowable in determining petitioners' ability to pay their outstanding tax liabilities. Petitioners raise no additional arguments against respondent's proposed collection action. Consequently, we sustain respondent's determination to proceed with collection of petitioners' tax liabilities by levy.
Decision will be entered for respondent.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and Rule references are to the Tax Court Rules of Practice and Procedure.

2 A "tithe" is "a tenth part of something paid as a voluntary contribution or as a tax especially for the support of a religious establishment". Merriam Webster's Collegiate Dictionary 1238 (10th ed. 1997).

3 Until early 2001, Mr. Pixley was also employed by Cardiology Associates of Houston, Texas.

4 Final regulations under sec. 7122 were promulgated effective for offers in compromise pending on or submitted on or after July 18, 2002. Sec. 301.7122-1(k), Proced. & Admin. Regs.

5 On May 5, 2004, we ordered the parties to file additional supplemental stipulations of fact, including stipulations as to the portions of the Internal Revenue Manual (IRM), as in effect for the relevant time periods, that the parties discussed on brief. The parties made appropriate stipulations and included as exhibits copies of the relevant portions of the IRM. All references to the IRM are to these stipulated exhibits.

6 On brief, petitioners allege that after Mr. Pixley left Grace Community Church in June 2001, petitioners moved to California so that Mr. Pixley could prepare to attend a seminary, that he continued his ministry in an unpaid position as a Baptist minister, and that he continued to tithe to keep this position. There is no evidence in the record, however, to substantiate these allegations, and there is no indication that petitioners presented any such evidence to the Appeals officer. Even if we were to assume arguendo that these allegations are true, they do not establish that tithes were paid as a condition of employment.

7 The Commissioner states that the objectives of the offer in compromise program are to: (1) Effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the Government; (2) achieve a resolution that is in the best interest of both the individual taxpayer and the Government; (3) provide the taxpayer a fresh start toward future voluntary compliance with all filing and payment requirements; and (4) secure collection of revenue that may not be collected through any other means. IRM sec. 5.8.1.1.4(1) (Feb. 4, 2000). These objectives are in furtherance of the Government's greater interest in collecting taxes and maintaining a uniform, mandatory, and sound tax system.
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Alan I. Begner, Cory Begner, Plaintiffs v. USA, Defendant,
U.S. District Court, No. Dist. Ga., Atlanta Div.; 1:02-cv-1702-GET, April 16, 2004.

The terms of taxpayers' Form 2261, Future Income Collateral Agreement, executed as a condition of IRS acceptance of their Form 656, Offer in Compromise, did not permit the deduction of collateral agreement payments when calculating the amount due under the compromise agreement. The agreement required the taxpayers to pay specified percentages of excess income if their income exceeded a stated level of annual income. The taxpayers attempted to deduct from annual income collateral payments relating to prior year tax obligations. However, the clear unambiguous language of the agreement limited deductions to payments for the year in which the annual income was computed. Although the IRS provided an incorrect cross reference to Form 656, the agreement as a whole indicated that the deduction of collateral agreement payments was not contemplated and the misreference was no more than a superfluous error. Finally, the taxpayers' argument that they would be taxed at over 100 percent if the collateral payment deduction was not allowed was rejected because income tax for a given tax year is different than prior tax obligations.

ORDER

TIDWELL, District Judge: The above-styled matter is presently before the court on:

1) plaintiffs' motion for summary judgment [docket no. 21];

2) defendant's motion for summary judgment [docket no. 24-2];

3) defendant's motion to dismiss [docket no. 24-1].

Pursuant to 28 U.S.C. §§1340 and 1346, plaintiffs filed the instant action on June 20, 2002 for recovery of $31,884.84 plus interest for taxes allegedly erroneously assessed and collected. On April 8, 2003, plaintiffs filed a motion for summary judgment. On April 9, 2003, defendant filed a motion to dismiss or alternatively a motion for summary judgment. On June 17, 2003, this court denied plaintiffs' motion to compel discovery.

Request for Oral Argument

In plaintiffs' response to defendant's motion to dismiss or alternatively motion for summary judgment, plaintiffs requested oral argument on the pending motions. Upon review of the parties' submissions, the court can rule on the pending motions based on the written record. Accordingly, plaintiffs' request for a hearing is DENIED.

Motion to Dismiss

Defendant argues that because the instant action involves a contract dispute with the federal government, this court does not have subject matter jurisdiction, and thus, the case should be dismissed. "United States District Courts have no jurisdiction over suits against the United States founded on contracts with the United States." Mark Dunning Indus., Inc. v. Cheney, 934 F.2d 266, 269 (11th Cir. 1991); see 28 U.S.C. §1346(a)(2). However, "the district courts shall have original jurisdiction ... of [a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected...." 28 U.S.C. §1346(a)(1); Mutual Assurance Inc. v. United States [ 95-2 USTC ¶50,361], 56 F.3d 1353, 1355 (11th Cir. 1995). "Tax cases heard in the district courts often involve offers in compromise...." Roberts v. United States [ 2001-1 USTC ¶50,306], 242 F.3d 1065, 1069 (Fed. Cir. 2001).

Here, plaintiffs entered into "Offers-in-Compromise" with the IRS in 1996 for past due tax liabilities. The IRS accepted the offers and required that plaintiffs sign collateral agreements as additional consideration for the offers. The IRS determined that plaintiffs calculated their 1998 collateral payment incorrectly and threatened default collection actions unless plaintiffs paid an additional $31,884.84. The plaintiffs paid this amount, and subsequently filed an administrative claim for a refund. The IRS denied the refund claim, and this suit ensued.

As such, plaintiffs have paid taxes that they allege were illegally or erroneously collected. Plaintiffs also have satisfied the additional jurisdictional requirements for a tax refund suit: (1) they have paid the taxes allegedly owed; (2) they have properly filed administrative claims for a refund, and (3) their refund claim has been denied. See Roberts [ 2001-1 USTC ¶50,306], 242 F.3d at 1067. Therefore, this court has jurisdiction over the case pursuant to 28 U.S.C. §1346(a)(1). See Roberts [ 2001-1 USTC ¶50,306], 242 F.3d at 1068-69. Accordingly, defendant's motion to dismiss [docket no 24-1] is DENIED.

Motions for Summary Judgment

Plaintiffs and defendant have filed motions for summary judgment.

Standard

Courts should grant summary judgment when "there is no genuine issue as to any material fact ... and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party must "always bear the initial responsibility of informing the district court of the basis of its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). That burden is "discharged by `showing' --that is, pointing out to the district court --that there is an absence of evidence to support the nonmoving party's case." Id. at 325; see also U.S. v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991).

Once the movant has met this burden, the opposing party must then present evidence establishing that there is a genuine issue of material fact. Celotex, 477 U.S. at 325. The nonmoving party must go beyond the pleadings and submit evidence such as affidavits, depositions and admissions that are sufficient to demonstrate that if allowed to proceed to trial, a jury might return a verdict in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986). If he does so, there is a genuine issue of fact that requires a trial. In making a determination of whether there is a material issue of fact, the evidence of the non-movant is to be believed and all justifiable inferences are to be drawn in his favor. Id. at 255; Rollins v. TechSouth, Inc., 833 F.2d 1525, 1529 (11th Cir. 1987). However, an issue is not genuine if it is unsupported by evidence or if it is created by evidence that is "merely colorable" or is "not significantly probative." Anderson, 477 U.S. at 249-50. Similarly, a fact is not material unless it is identified by the controlling substantive law as an essential element of the nonmoving party's case. Id. at 248. Thus, to create a genuine issue of material fact for trial, the party opposing the summary judgment must come forward with specific evidence of every element essential to his case with respect to which (1) he has the burden of proof, and (2) the summary judgment movant has made a plausible showing of the absence of evidence of the necessary element. Celotex, 477 U.S. at 323.

Facts

In light of the foregoing standard, the court finds the following facts for the purpose of resolving the parties' motions for summary judgment only.

In 1996, plaintiffs owed several different types of back taxes to the IRS: 1) employment taxes from 1984-1990, 2) unemployment taxes from 1983-1991, 3) and income taxes from 1984-1987. On May 13, 1996, each plaintiff submitted an "Offer in Compromise" (form 656) to secure release from their liability. Plaintiff Alan Berger [ sic] offered to pay $100,000.00, and plaintiff Cory Begner offered to pay $30,000.00.

As a condition to the offers being accepted, the IRS required plaintiffs to submit "Collateral Agreements" (form 2261). The collateral agreement states that its purpose is "to provide additional consideration for the acceptance of the offer in compromise." The additional consideration consisted of a promise by plaintiffs that, if their annual income for the years 1997-2001 exceeded a stated level, they would pay the IRS specified percentages of the excess income. Specifically, plaintiffs promised to pay:
(a) Nothing on the first $144,000.00 of annual income. (b) 30% of annual income more than $144,000.00 and not more than $154,000.00. (c) 50% of annual income more than $154,001.00 and not more than $164,000.00. (d) 70% of annual income more than $164,001.00.

The term "annual income" is defined in the collateral agreement as:
adjusted gross income ... minus (a) the Federal income tax paid for the year for which annual income is being computed, and (b) any payment made under the terms of the offer in compromise (Form 656), as shown in item 2, for the year in which such payment is made.

On December 17, 1996, the IRS accepted plaintiffs' offer in compromise "subject to the terms and conditions on the ... Form 656, Offer in Compromise and Form 2261, Future Income Collateral Agreement." Plaintiffs' first collateral agreement payment was due on April 15, 1998, encompassing tax year 1997. For tax years 1998 through 2001, annual income computations and payments were due by April 15 in the following year.

In tax year 1997, plaintiffs reported on their income tax return an adjusted gross income (AGI) of $225,764.00, and paid income tax of $56,628.00. Under the collateral agreement, plaintiffs reported their "annual income" as $169,136.00 (adjusted gross income minus income tax paid). This calculation resulted in a collateral agreement payment of $11,595.00.

For tax year 1998, plaintiffs reported on their income tax return an AGI of $278,622.00, and paid income tax of $70,534.00. Under the collateral agreement, plaintiffs reported their "annual income" as $196,493.00. Plaintiff reached this amount by deducting from their AGI income tax paid ($70,534.00) and the collateral agreement payment made the previous year ($11,595.00). This calculation led to a collateral agreement payment of $30,745.00.

For tax year 1999, plaintiffs computed their "annual income" in a similar fashion. On their income tax return, plaintiffs reported an AGI of $272,629.00, and paid tax of $63,158.00. Plaintiff calculated their "annual income" of $178,726.00 by subtracting from their AGI both the amount of income tax paid ($63,158.00) and the collateral agreement payment from the previous year ($30,745.00), resulting in a collateral agreement payment of $18,309.00.

Subsequently, the IRS notified plaintiffs that a collateral agreement payment made in a particular year could not be deducted from AGI in calculating "annual income." The IRS computed the amount due without deducting the collateral agreement pavements, and requested that plaintiffs pay $31,884.84, which included interest. Plaintiffs complied with the IRS's demand, and then filed an administrative action for refund, which was denied.
Discussion

The parties disagree whether the terms of the "Offer-in-Compromise" signed by plaintiffs permit the deduction of collateral agreement payment when calculating "annual income." "It has long been settled that an agreement compromising unpaid taxes is a contract and, consequently, that it is governed by the rules applicable to contracts generally." U.S. v. Lane [ 62-1 USTC ¶9467], 303 F.2d 1, 4 (5th Cir. 1962). The contract in this situation consists of both the "Offer in Compromise" (form 656) and the "Collateral Agreement" (form 2261). See Finen v. C.I.R. [ CCH Dec. 26,616], 41 T.C. 557, 560 (1964).

Under Georgia law, "[t]he cardinal rule of contract construction is to ascertain the intent of the parties and to interpret a contract so that the parties' intentions are given effect." Info. Sys. and Network Corp. v. City of Atlanta, 281 F.3d 1220, 1226 (11th Cir. 2002).
There are three steps in the process of contract construction. The trial court must first decide whether the contract language is ambiguous; if it is ambiguous, the trial court must then apply the applicable rules of construction; if after doing so, the trial court determines that an ambiguity still remains, the jury must then resolve the ambiguity.

Copy Sys. of Savannah, Inc. v. Page, 197 Ga. App. 435, 436 (1990). "Whether a contract is ambiguous is a question of law for the courts to decide." Georgia-Pacific Corp. v. Lieberam, 959 F.2d 901, 904 (11th Cir. 1992). Here, the "Collateral Agreement" (form 2261) specifically states that the term "annual income" means:
adjusted gross income ... minus (a) the Federal income tax paid for the year for which annual income is being computed, and (b) any payment made under the terms of the offer in compromise (Form 656), as shown in item 2, for the year in which such payment is made.

Plaintiffs argue that the phrase "any payment made under the terms of the offer in compromise" means that they should be allowed to deduct their collateral payments when calculating their "annual income." However, plaintiffs fail to consider the entire phrase, which states "any payment under the terms of the offer in compromise (Form 656), line 2, for the year in which such payment is made." Thus, the clear, unambiguous language of the contract indicates that the appropriate deduction is limited to the amount specified in line 2 of form 656.

Plaintiffs next argue that an ambiguity exists because line 2 on plaintiffs' form 656 consists solely of plaintiffs' social security numbers, not a dollar amount; therefore, a taxpayer would never be able to deduct an amount under the contract's terms. The IRS revised form 656 in September 1993. Plaintiffs used a revised form 656, which listed the lump sum amount being offered the IRS in line 5. The IRS also revised form 2261 to reflect that the amount paid with form 656 was now listed at line 5. However, the IRS provided plaintiffs an outdated form 2261 that contained an incorrect cross-reference to line 2 on form 656.

Yet, even with the incorrect cross-reference of line numbers, the agreement as a whole indicates that only payments listed on form 656 may be excluded from annual income. Collateral agreement payments being deductible from AGI is never contemplated. Even if the form 2261 is read literally, it would not support plaintiffs' contention that they are entitled to deduct collateral agreement payments from annual income.

Moreover, assuming an ambiguity were to exist, "a scrivener's error should not be permitted to defeat the clear intention of the parties." Benedict v. Sand, 271 Ga. 585, 586 (1999). Considering the contract as a whole, it is apparent that the mis-reference of line 2 constitutes no more than a superfluous error on the part of the IRS using an outdated form. The only dollar figure listed on either the revised or outdated form 656 is the lump sum amount-in-compromise offered by the taxpayer. This amount is all that can be deducted from AGI "in the year in which such payment is made." Finally, plaintiffs argue that collateral payments must be deductible; otherwise, the IRS would be taxing plaintiffs over 100%. Plaintiffs contend that their tax adviser, who represented plaintiffs during the offer-in-compromise process, concurs with this analysis. However, plaintiffs argument is misguided because they fail to recognize that their federal income tax for a given year is different than the collateral agreement payments, which satisfies a prior, delinquent tax obligation.

Consequently, plaintiffs incorrectly deducted their past collateral agreement payments from their AGI when computing their "annual income" under the terms of their compromise with the IRS. Plaintiffs' motion for summary judgment [docket no. 21] is DENIED. Defendant's motion for summary judgment [docket no. 24-2] is GRANTED.

Summary

1) Plaintiffs' motion for summary judgment [docket no. 21] is DENIED.

2) Defendant's motion for summary judgment [docket no. 24-2] is GRANTED.

3) Defendant's motion to dismiss [docket no. 24-1] is DENIED.

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T.C. Summary Opinion 2004-73, EDIE D. GLASS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Docket No. 10499-03S. Filed May 25, 2004.

Edie D. Glass, pro se.

Irene Scott Carroll and Ron S. Chun, for respondent.

PANUTHOS, Chief Special Trial Judge : This case was heard pursuant to the provisions of sections 6330(d) and 7463.1 The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

Respondent issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 for unpaid Federal income tax and related liabilities for 1992, 1993, 1995, and 1996.2

The issue for decision is whether respondent abused his discretion by rejecting petitioner's Form 656, Offer in Compromise.

Background

Some of the facts have been stipulated, and they are so found. Petitioner resided in Pasadena, California, at the time the petition was filed.

Petitioner filed Federal income tax returns for 1992, 1993, 1995, and 1996. For the unpaid tax liability of $7,022 reported on her 1992 return, petitioner entered into an installment payment plan with respondent. She made payments of approximately $100 per month to respondent during 2001, but she stopped making payments under the plan before paying off the remaining account balance of $6,146.41, which includes accrued interest and penalties as of July 1, 2002, for the 1992 taxable year.

On February 1, 2002, respondent issued petitioner a notice of intent to levy for the 1992, 1993, 1995, and 1996 taxable years. On March 4, 2002, respondent received petitioner's Form 12153, Request for a Collection Due Process Hearing, in which petitioner indicated:
My account should not include 1992 taxes. The balance for 1992 was paid off nearly 3 years ago.
I have made monthly payments on the account for years and the balance never decreases. The exorbitant fees and assessments make it virtually impossible to pay off the balance in monthly payments.
By letter dated August 15, 2002, Appeals Officer Allan H. Marble notified petitioner that he had scheduled a hearing. Petitioner submitted a Form 656 and other requested documents for respondent's Appeals officer to consider. Appeals Officer Marble rejected petitioner's offer in compromise, noting that petitioner's offered amount of $2,496 was substantially less than what would comprise a "minimum acceptable offer" of $15,780. Petitioner's offered amount was based upon total "gross" monthly income of $2,600 and "Other expenses" of $300 per month for a watchdog. In determining the minimum acceptable offer, Appeals Officer Marble disallowed the expense for a watchdog, noted that petitioner appeared "to have used `net' (rather than `gross') income" on her offer in compromise, and calculated petitioner's total gross monthly income to be $4,195.

Appeals Officer Marble also addressed petitioner's concern regarding payment of her liability for the 1992 taxable year as follows:
An analysis of IRS transcript information indicated that the taxpayer had entered into a $100 per month Installment Agreement on or about January 1, 2000. The taxpayer made these monthly payments on a reasonably regular basis until February 27, 2002.
Given the aggregate amount of the taxpayer's liability at the time the installment agreement was initiated, her contention that the balance due was `never decreasing' is essentially correct ($1,200 paid per year would do little more than pay the interest of the aggregate liability). However, this would indicate that the installment agreement itself was `faulty' in that the creator of the agreement should have set a much greater monthly payment in order to liquidate the aggregate liability within a reasonable time span. This retrospective observation, however, in no way addresses whether or not levy action is appropriate, as the taxpayer has not expressed any interest in modifying the terms of an installment agreement in order to fully pay the remaining outstanding liabilities.
On May 29, 2003, the Appeals Office issued the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, notifying petitioner of the determination to proceed with collection of the outstanding liabilities for the 1992, 1993, 1995, and 1996 taxable years.

Discussion

This Court has jurisdiction to review the Commissioner's administrative determination under section 6330. Sec. 6330(d). Where, as here, the validity of the underlying tax liability is not at issue,3 we review the determination for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 183 (2000). In so doing, we do not conduct an independent review of what would be an acceptable offer in compromise. Van Vlaenderen v. Commissioner, T.C. Memo. 2003-346. We review only whether the Appeals officer's refusal to accept the offer in compromise made by petitioner was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

Under section 6330, a taxpayer is entitled to one hearing in which he or she may raise any relevant issue relating to the unpaid tax or the proposed levy, including offers of collection alternatives such as an offer in compromise. Sec. 6330(b) and (c)(2). In the present case, petitioner contends that respondent should not have rejected her offer in compromise. The Appeals officer's determination was based on an analysis of the information that petitioner submitted. On the basis of the information considered by the Appeals officer, we cannot conclude that rejection of petitioner's offer in compromise was an abuse of discretion. See Van Vlaenderen v. Commissioner, supra; Crisan v. Commissioner, T.C. Memo. 2003-318; Willis v. Commissioner, T.C. Memo. 2003-302; O'Brien v. Commissioner, T.C. Memo. 2003-290; Schulman v. Commissioner, T.C. Memo. 2002-129. Petitioner's offer in compromise of $2,496 was based upon total "gross" monthly income of $2,600 and "Other expenses" of $300 per month for a watchdog. In determining the minimum acceptable offer of $15,780, Appeals Officer Marble disallowed the expense for a watchdog, noted that petitioner appeared "to have used `net' (rather than `gross') income" on her offer in compromise, and calculated petitioner's total gross monthly income to be $4,195. Indeed, when the Court asked petitioner to explain why she disagreed with respondent's analysis of her offer in compromise, petitioner failed to provide an adequate explanation. Petitioner also contends that she should not have any tax liabilities for the 1992 taxable year because of her monthly payments. Respondent determined that payments of approximately $100 per month from January 2001 to February 2002 were insufficient to extinguish her reported tax liability of $7,022, exclusive of interest and penalties, for the 1992 taxable year. We are satisfied that respondent did not abuse his discretion in making his determination.4

Reviewed and adopted as the report of the Small Tax Case Division.

To give effect to the foregoing,
Decision will be entered for respondent.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended.

2 As of Feb. 1, 2002, the total amount due for the four taxable years was $20,939.17.

3 Indeed, it appears from respondent's records that petitioner signed a waiver of assessment with respect to the 1993 and 1995 taxable years.

4 During the hearing of this case, petitioner advised the Court that she would submit an amended or new offer in compromise based upon her discussions with respondent. The Court encouraged petitioner to follow through with respondent. At the time of writing this opinion, the Court has not received any information concerning the submission of an amended or new offer in compromise.
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T.C. Summary Opinion 2004-47, GEORGE IRA NICOL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Docket No. 10308-02S. Filed April 12, 2004.

George Ira Nicol, pro se.

Catherine S. Tyson, for respondent.

DEAN, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time that the petition was filed. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.

The petition in this case was filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. Pursuant to section 6330(d),1 petitioner seeks review of the determination to proceed with collection of petitioner's tax liability of $7,210 for 1993. At trial, petitioner also challenged the amount of interest that has accrued on his tax liability. The issues for decision are: (1) Whether the Appeals officer abused his discretion by not offering petitioner collection alternatives, under section 6330(d)(2); and, (2) whether the Appeals officer should have abated interest assessed with respect to petitioner's deficiency for the 1993 tax year.

The stipulated facts and exhibits received into evidence are incorporated herein by reference. At the time the petition in this case was filed, petitioner resided in San Benito, Texas.

Background

A. Petitioner's Individual Income Tax Returns for 1993 and 1997

On April 15, 1994, petitioner filed a Form 4868, Extension of Time To File U.S. Individual Income Tax Return regarding his 1993 Federal Individual Income Tax Return. Petitioner also submitted a payment of $3,000. On August 18, 1994, petitioner submitted a Form 2688, Application for Additional Extension of Time To File U.S. Individual Income Tax Return.

Subsequently, petitioner failed to file timely his income tax return for tax year 1993. On July 16, 1997, respondent filed a substitute for return for petitioner. On October 17, 1997, respondent sent to petitioner a notice of deficiency pertaining to that year determining a tax deficiency of $6,845. On July 29, 1998, after receiving the notice of deficiency, petitioner submitted a Form 1040, U.S. Individual Income Tax Return, for tax year 1993 reporting a tax liability of $6,269 and claiming as a payment credit the $3,000 he had paid with his Form 4868.

Petitioner did not file a petition with this Court with respect to the notice of deficiency for the 1993 tax year. When respondent assessed the deficiency on May 10, 1999, respondent lowered the amount of petitioner's liability from the amount stated in the notice of deficiency to an amount based upon the Form 1040 submitted by petitioner.

Petitioner married Juanita Nicol in 1996. On August 28, 1999, petitioner and Mrs. Nicol (separately, petitioner and Mrs. Nicol; together, the Nicols) submitted their joint 1997 Form 1040 to respondent showing tax due in the amount of $1,157. The Nicols did not pay the tax due as shown on the return at the time of filing. Respondent assessed the Nicols' tax liability for tax year 1997 based on the return. Prior to trial, the tax pertaining to the 1997 return was paid in full. The Court dismissed the 1997 tax year from the petition. Mrs. Nicol was dismissed from the case because she had no involvement in the 1993 tax year which pertained solely to petitioner's individual income tax liability.

B. Notice of Intent To Levy and Notice of Federal Lien

The Nicols previously had an installment agreement in place covering 1993 and 1997. They stopped making the $50 monthly payments under that agreement and respondent found them to be in default. Respondent sent petitioner a Notice of Intent to Levy dated July 24, 2000.

On October 19, 2000, respondent sent petitioner a Final Notice, Notice of Intent to Levy, and Notice of Your Right to a Hearing for unpaid taxes in the amount of $9,443.31 for 1993. Subsequently, respondent filed a Notice of Federal Tax Lien on May 24, 2001.

C. Appeals Office Hearing

On June 8, 2001, Mrs. Nicol filed a Form 12153, Request for a Collection Due Process Hearing (CDP Hearing), and attached a Form 8379, Injured Spouse Claim and Allocation, for tax year 1997. On that same date, petitioner also filed a Form 12153 for tax year 1993.

On July 5, 2001, petitioner filed another Form 12153 regarding tax year 1993 to which he attached a letter in which he offered to make 10 monthly payments of $100 to settle the 1993 liability. The Nicols did not submit a Form 656, Offer in Compromise.

Mrs. Nicol, and to a lesser extent, petitioner, conducted the CDP Hearing with the Appeals officer via telephone and faxes. The vast majority of the communications between Mrs. Nicol and the Appeals officer pertained to her request for injured spouse relief and the reallocation of the Nicols' 1998 and 2000 tax refunds from petitioner's 1993 individual tax liability to the Nicols' 1997 joint tax liability.

Although the Nicols were not married until 1996 and the 1993 tax liability is petitioner's sole responsibility, their refunds, $1,116 for tax year 1998, $2,317 for tax year 2000, and $600 for the midyear 2000 refund were originally applied to petitioner's liability from tax year 1993. During the CDP Hearing, the Appeals officer reviewed Mrs. Nicol's injured spouse claim and determined that applying the full amount of the refunds to petitioner's 1993 tax liability was incorrect. The correct amount of the refund to be applied to the 1993 year was 100 percent of petitioner's refund and 50 percent of Mrs. Nicol's refund. Based upon Mrs. Nicol's injured spouse claim, one quarter of the original refund amounts for tax years 1998 and 2000 were reversed and then reallocated to the 1997 joint tax liability. Subsequently, the Nicols informed the Appeals officer that they could not pay their outstanding tax liabilities for 1993 and 1997.

During the CDP hearing, Mrs. Nicol also inquired about the interest for 1997. The Appeals officer sent Mrs. Nicol INTST2 printouts of her joint tax account with petitioner on February 22, 2002, and again on March 6, 2002. There is no evidence in the record that either petitioner or Mrs. Nicol ever asked for an abatement of interest for 1997 or that they ever inquired about or requested an abatement of the interest for 1993.

D. Notices of Determination

In Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, dated May 16, 2002, respondent determined that the legal, administrative, and procedural requirements for proceeding with collection by lien of petitioner's income tax had been met.

On June 17, 2002, petitioner timely filed a petition in this Court challenging the 1993 deficiency and alleging that respondent failed to offer or discuss collection alternatives. At trial, petitioner contested the interest that had accrued on the 1993 deficiency.
Discussion

Section 7491, which shifts the burden of proof to the Secretary in certain circumstances, is inapplicable to this case because examination of petitioner's 1993 tax return commenced prior to July 22, 1998, the effective date of section 7491. See Warbelow's Air Ventures, Inc. v. Commissioner, 118 T.C. 579, 582 n.8 (2002), affd. 80 Fed. Appx. 16 (9th Cir. 2003).

1. Respondent's Determination To Proceed With Collection

Section 6330 provides for a hearing before a levy is imposed. Section 6330(c) sets forth, in pertinent part, the issues that may be considered at the hearing, as follows:

6330(c). Matters Considered at Hearing. --In the case of any hearing conducted under this section
* * * * * * *
(2) Issues at hearing. --
(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or proposed levy, including --
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.
(B) Underlying liability. --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 otherwise have an opportunity to dispute such tax liability.

In his petition, petitioner challenges his underlying 1993 tax liability. Because petitioner received a notice of deficiency for the 1993 tax year and failed to file a petition in this Court, he is not entitled to challenge the existence or amount of his underlying 1993 tax liability in this collection proceeding. See secs. 6320(c), 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180-181 (2000). Where the validity of the tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 182.

Petitioner contends that the Appeals officer abused his discretion by failing to offer or discuss an offer in compromise or an installment agreement. Section 6330 contemplates, however, that it is the taxpayer who will raise at the hearing relevant issues, including offers of collection alternatives. Sec. 6330(c)(2)(A)(iii). The statute requires the Appeals officer only to consider the "offers of collection alternatives" raised and information presented by the taxpayer. Chandler v. Commissioner, T.C. Memo. 2004-7; see also, e.g., Crisan v. Commissioner, T.C. Memo. 2003-318; Willis v. Commissioner, T.C. Memo. 2003-302; O'Brien v. Commissioner, T.C. Memo. 2003-290; Schulman v. Commissioner, T.C. Memo. 2002-129.
a. Offer in Compromise

Section 7122(a) authorizes the Commissioner to compromise a taxpayer's outstanding liabilities. The regulations and procedures under section 7122 provide the exclusive method of effectuating a nonjudicial compromise.3 Laurins v. Commissioner, 889 F.2d 910, 912 (9th Cir. 1989), affg. Norman v. Commissioner, T.C. Memo. 1987-265; Shumaker v. Commissioner, 648 F.2d 1198, 1199-1200 (9th Cir. 1981) (citing Botany Worsted Mills v. United States, 278 U.S. 282, 288-289 (1929)), affg. in part, revg. and remanding in part per curiam on other grounds T.C. Memo. 1979-71.

An offer in compromise must be submitted on special forms prescribed by the Secretary. Laurins v. Commissioner, supra at 912; Riederich v. Commissioner, 985 F.2d 574 (9th Cir. 1993), affg. without published opinion T.C. Memo. 1991-164. Section 601.203(b), Statement of Procedural Rules, identifies Form 656 as the form required for an offer in compromise. Petitioner admittedly did not submit a Form 656 or otherwise describe his income, assets, and other financial information required by Form 656 to respondent.

b. Installment Agreement

The Court assumes, arguendo that petitioner intended that his offer to make monthly payments would be treated by respondent as an installment agreement. An installment agreement contemplates payment in full of an amount acknowledged as owed and is based on the taxpayer's current financial condition. See sec. 6159; sec. 301.6159-1, Proced. & Admin. Regs.; 2 Administration, Internal Revenue Manual (CCH), sec. 5.19.1.5.4.1 at 18,299-65; Form 433-D, Installment Agreement; see also Crisan v. Commissioner, supra; Martin v. Commissioner, T.C. Memo. 2003-288.

Respondent's determination was based on information provided by petitioner and Mrs. Nicol to the Appeals officer which reflected petitioner's and Mrs. Nicol's current financial condition. See Crisan v. Commissioner, supra; Schulman v. Commissioner, supra. Petitioner informed respondent's Appeals officer that he could not pay off the liability.

The Court notes that respondent also considered the fact that petitioner had defaulted on a prior installment agreement as an additional reason to proceed with collection. Mrs. Nicol testified that they did not default on the installment agreement and that they indicated that their refunds for tax years 1998 and 2000 would be applied to satisfy the liabilities. However, the Nicols admitted in their petition that they were unable to make consistent payments under the installment agreement. See Wells v. Commissioner, T.C. Memo. 2003-234 (taxpayer's default on installment agreement was an additional reason to proceed with collection). At trial, petitioner did not present evidence or make any arguments that would persuade the Court that an installment agreement was an appropriate alternative to enforced collection.

Petitioner has failed to demonstrate that the proposed levy action is inappropriate, another collection alternative is more appropriate, or some other relevant issue adversely affects respondent's proposed collection activity. The Court therefore concludes that respondent's determination to proceed by levy with the collection of petitioner's income tax liability was not an abuse of discretion.

2. Abatement of Interest

At trial, petitioner contested the interest that had accrued on the 1993 deficiency. This issue arguably goes beyond the scope of the issues defined in the petition. See Rule 331(b)(4). However, respondent did not object. Accordingly, the Court regards this issue as having been tried by consent, and it shall be treated as if it had been raised in the petition. See Rule 41(b).

If, as part of a CDP Hearing, a taxpayer makes a request for abatement of interest, the Court has jurisdiction over the request for abatement of interest that is the subject of the Commissioner's collection activities. Katz v. Commissioner, 115 T.C. 329, 340-341 (2000). Generally, the Court considers only arguments, issues, and other matters that were raised by the taxpayer at the CDP Hearing or otherwise brought to the attention of the Appeals Office. Magana v. Commissioner, 118 T.C. 488, 493 (2002); Miller v. Commissioner, 115 T.C. 582, 589 n.2 (2000), affd. per curiam 21 Fed. Appx. 160 (4th Cir. 2001); Sego v. Commissioner, 114 T.C. at 612.

The record does not demonstrate that petitioner raised at the CDP Hearing any issue concerning the accrued interest on the 1993 deficiency. While Mrs. Nicol inquired about the interest on the 1997 deficiency, she never inquired about interest on the 1993 deficiency, nor did she ask for an abatement of either.

Assuming arguendo (1) that the record before the Court had established that petitioner raised such an issue at his CDP Hearing, (2) that the Court considered petitioner's request to be a request for abatement of interest under section 6404, and (3) that the Court has jurisdiction under section 6404(i) to consider that request, see Washington v. Commissioner, 120 T.C. 114, 123 n.12 (2003); Katz v. Commissioner, supra at 342-343, the Court concludes that petitioner has failed to prove that respondent abused his discretion in failing to abate interest. Petitioner failed to establish any error or delay attributable to the Appeals officer's being erroneous or dilatory in performing a ministerial act requiring the abatement of interest with respect to the taxable year 1993. See sec. 6404(e).

Reviewed and adopted as the report of the Small Tax Case Division.
Decision will be entered for respondent.

1 Sec. 6330 was enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3401, 112 Stat. 746. Sec. 6330 is effective with respect to collection actions initiated more than 180 days after July 22, 1998; i.e., after Jan. 18, 1999. See RRA 1998 sec. 3401(d), 112 Stat. 750.

2 An INTST is an internal IRS interest and penalty computation program. It shows the amount of taxes, tax penalties, and interest due from or owing to the taxpayer with respect to a tax account as of a specific date, based upon both posted and pending transactions. Kay v. IRS, 82 AFTR 2d 6138, 98-2 USTC par. 50,707 (C.D. Cal. 1998), affd. without published opinion 225 F.3d 663 (9th Cir. 2000).

3 Sec. 301.7122-1, Proced. & Admin. Regs., contains an effective date provision stating that the section applies to offers in compromise pending on or submitted on or after July 18, 2002. Sec. 301.7122-1(k), Proced. & Admin. Regs. Previous temporary regulations by their terms apply to offers in compromise submitted on or after July 21, 1999, through July 19, 2002. Sec. 301.7122-1T(j), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39027 (July 21, 1999). Because the final and temporary regulations do not differ materially in substance in any way relevant here, the Court need not resolve which section would apply in petitioner's circumstances. The Court further notes that temporary regulations are entitled to the same weight and binding effect as final regulations. Peterson Marital Trust v. Commissioner, 102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d Cir. 1996). For simplicity and convenience, citations are to the final regulations.
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Segudino and Delfa Razo v. Commissioner, Dkt. No. 16969-02L , TC Memo. 2004-101, April 9, 2004.

David P. Leeper, for petitioners. Michael W. Bentley and Gordon P. Sanz, for respondents.

MEMORANDUM OPINION
GOEKE, Judge: This proceeding was commenced in response to a "NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320 AND/OR 6330" (notice of determination). The notice of determination sustained the Federal tax lien, but suspended petitioners' account as "temporarily not collectible". The issue for decision is whether it was an abuse of discretion for respondent's Appeals officer to sustain the lien and reject petitioners' offer to compromise their 1995, 1996, and 1997 liabilities of $7,832.90 for $100. Because of the value of petitioners' assets, we hold that it was not an abuse of discretion.

BackgroundThe parties submitted this case fully stipulated under Rule 1221 . The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners, Mr. Razo and Mrs. Razo, resided in El Paso, Texas, at the time they filed their petition. This Court, in an Order dated November 19, 2003, denied a motion by respondent to dismiss for lack of jurisdiction, as supplemented.
Petitioners filed joint Federal income tax returns for 1995, 1996, and 1997. Each of these returns showed tax due, but petitioners did not submit payment with the returns. On March 1, 2002, respondent issued petitioners a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under I.R.C. Section 6320, listing their total 1995, 1996, and 1997 liabilities as $7,832.90. On March 4, 2002, respondent filed a notice of Federal tax lien in El Paso County, Texas.
On March 26, 2002, petitioners' counsel, acting under a power of attorney from petitioners, submitted on behalf of petitioners a Form 12153, Request for a Collection Due Process Hearing, requesting a hearing under section 6320 with respondent's Appeals Office. Also submitted with the Form 12153 was a Form 656, Offer in Compromise, setting forth petitioners' offer to pay $100 to settle their 1995, 1996, and 1997 tax liabilities. Petitioners' offer in compromise was based on "effective tax administration" (ETA).
A section 6320 hearing was held on August 14, 2002. On October 3, 2002, respondent's Appeals officer issued the notice of determination rejecting petitioners' offer in compromise and sustaining the Federal tax lien, but recommending that petitioners' accounts be suspended as "temporarily not collectible". The Appeals officer based his determination to sustain the lien on the value of certain assets owned by petitioners, which include a house, two vehicles, and personal effects. The Appeals officer measured the quick sale value of petitioners' assets, less encumbrances against them, and found that the net amount of petitioners' equity in the assets greatly exceeded petitioners' tax liabilities for the years 1995-97. For example, one of petitioners' automobiles alone had a quick sale value in excess of the tax liabilities. However, the Appeals officer then noted that petitioners faced various hardships that would impede their ability to earn greater income in the future, or pay off their existing debts in an installment agreement. Mr. Razo is 62 years old and is employed as a manual laborer. Mrs. Razo is unemployed due to health problems. In addition, the Appeals officer noted that petitioners are currently in arrears on their mortgage and car payments, and they owe significant amounts of real estate taxes. The Appeals officer recommended that petitioners' account be suspended as "temporarily not collectible". By suspending their account as "temporarily not collectible", the Appeals officer halted collection activity until petitioners' financial situation changes and either payment is forthcoming or another collection alternative is feasible. The determination would allow the Government to recover a portion of any proceeds from a future sale or foreclosure on any of petitioners' assets. The Appeals officer concluded that although it was unlikely that petitioners would be able to pay their liabilities other than from the value of their assets, the lien would enable the Government to preserve its priority rights in any foreclosure or bankruptcy proceedings. Petitioners timely filed a petition with this Court for review of the Appeals officer's determination.

Discussion
Sections 6320 (pertaining to liens) and 6330 (pertaining to levies) were enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401, 112 Stat. 746, in order to afford taxpayers new procedural protections with regard to collection matters. Section 6320 generally provides that the Secretary cannot proceed with collection of taxes by way of a lien on a taxpayer's property until the taxpayer has been notified in writing and provided with an opportunity for an administrative review in the form of a hearing before an impartial officer of the Internal Revenue Service Office of Appeals. Sec. 6320(b). Generally, hearings under section 6320 are conducted in accordance with the procedural requirements set forth in section 6330(c). Sec. 6320(c). At the hearing, the Appeals officer shall obtain verification that the requirements of any applicable laws and administrative procedures have been met. Sec. 6330(c)(1). Taxpayers may raise appropriate spousal defenses, challenges to the appropriateness of the collection action, and offers of collection alternatives, which may include offers in compromise. Sec. 6330(c)(2)(A)(iii). In certain circumstances, taxpayers may also challenge their underlying tax liability at the hearing. Sec. 6330(c)(2)(B).
In this case, petitioners do not dispute that the Appeals officer obtained verification that the requirements of any applicable laws and administrative procedures had been met. In addition, petitioners do not dispute the existence or amount of their underlying tax liability. The only collection alternative offered by petitioners at their hearing was their offer in compromise for $100. No other issues were raised.
We review the Appeals officer's determination for an abuse of discretion. Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 182 (2000). We must decide whether respondent exercised his discretion arbitrarily, capriciously, or without sound basis in fact or law. Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999); Fargo v. Commissioner [Dec. 55,514(M)], T.C. Memo. 2004-13. The issue raised with the Appeals officer is the proper point of reference in determining whether the Appeals officer abused his discretion. Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493-494 (2002).
Petitioners contend that the Appeals officer abused his discretion in rejecting their offer to compromise the $7,832.90 total liability for $100. Specifically, petitioners argue that their offer in compromise should have been accepted because they will not be able to meet basic living expenses if their assets are lost to foreclosure and respondent's lien is left in place. They point to their poor health, age, and education as evidence that they will experience economic hardship if the value of their equity is not available to them. They also argue that the examples contained in section 301.7122-1(c)(3)(iii), Proced. & Admin. Regs., compel respondent to accept their ETA offer.
We note at the outset that based on the record petitioners are not destitute. The record reflects that petitioners own two automobiles, one with a quick sale value of $10,120, subject to an encumbrance of $921, and the other with a quick sale value of $8,988, subject to an encumbrance of $5,700. Petitioners do not dispute that these figures are correct. The Appeals officer sustained the lien and suspended their account as "temporarily not collectible". There is no evidence that the Government is currently taking any efforts to collect on petitioners' account.
Section 301.7122-1(c)(3), Proced. & Admin. Regs., authorizes the Internal Revenue Service, in compromising liabilities, to take into account circumstances where payment in full would create economic hardship. In this case, the Appeals officer determined that petitioners did not have sufficient income to enter an installment agreement. However, the regulations do not require the Commissioner to relieve a liability completely because the taxpayers are unable to pay the liability from current income. Petitioners have not shown that they are unable to pay at least a part of their liability from their remaining assets. Their $100 de minimis offer effectively asks respondent to forgive their entire liability, despite the value of their assets. On the basis of the undisputed facts presented to the Appeals officer, if petitioners were to sell one of their two automobiles, they could pay the entire amount of the liability at issue. Under these circumstances, we cannot find an abuse of discretion in the Appeals officer's determination to reject petitioners' de minimis offer in compromise. The Government is entitled to preserve its priority regarding petitioners' assets, given their value and the uncertainty regarding their disposition. In the face of petitioners' de minimis offer, respondent's willingness to forgo collection until petitioners' financial situation changes was reasonable and certainly was not an abuse of discretion.
To reflect the foregoing,
Decision will be entered for respondent.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at the time the petition was filed, and all Rule references are to the Tax Court Rules of Practice and Procedure.
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George Dalton Brooks, Corwin Henry Meyer, Richard Welsh and Monroe Ashworth III, et al., Plaintiffs v. John Snow, Secretary of the Treasury, and Mark W. Everson, Commissioner of Internal Revenue Service, Defendants. 1 U.S. District Court, So. Dist. Texas, Houston Div.; Civ. H-03-0259, February 13, 2004.

Investors in abusive tax shelter partnerships were denied damages under the Taxpayer Bill of Rights for the IRS's purportedly unauthorized collection actions. They did not exhaust their administrative remedies before seeking damages in accordance with Code Sec. 7433; thus, their claim was dismissed for lack of jurisdiction.
MEMORANDUM AND ORDER

WERLEIN, JR., District Judge: Pending are the United States's Motion to Dismiss First Amended Complaint (Document No. 10) and Defendants George Dalton Brooks, et al.'s Motion for Partial Summary Judgment (Document No. 20) and Motion for Stay of Collections and for Expedited Consideration (Document No. 47). After carefully considering the motions, responses, replies, and the applicable law, the Court concludes that the United States's motion should be granted and the case dismissed for lack of jurisdiction.

I. Background

This action arises out of a dispute over interest that accrued on taxes during an alleged delay by the Internal Revenue Service ("IRS") in assessing the taxes owed.

In the mid-1980s, Plaintiffs invested in various AMCOR partnerships as limited partners. During the late-1980s, the IRS launched criminal investigations of various AMCOR officers and civil examinations of the AMCOR Partnerships. The investigations lasted into the 1990s. Finding AMCOR to be an abusive tax shelter, the IRS disallowed certain deductions taken by the AMCOR partnerships, which created deficiencies that passed through to the partners. 2 Following the conclusion of Tax Court proceedings at the partnership level, Plaintiffs received notices of assessments in 2002 for increased tax and interest relating to tax years 1984, 1985, and 1986. According to Plaintiffs, the accrued interest amounted to more than five times the tax due.

In April, 2003, Plaintiffs filed this lawsuit against Defendants Kenneth Dam, then Deputy Secretary of the Treasury, and Robert Wenzel, then Acting Commissioner of the Internal Revenue Service. (The names of the current Secretary of the Treasury and Commissioner of Internal Revenue Service have been substituted in this Memorandum and Order.) Plaintiffs seek from the Court a declaration that Treasury Regulation 26 C.F.R. 301.7122-1 "is inconsistent with Congressional intent" by its failure to include authority to compromise penalties and interest that accumulate as a result of the Government's delay in determining a taxpayer's tax liability, and further seek a court order requiring Defendants to "(a) apply rules consistent with Congressional mandate to offers in compromise submitted by AMCOR partners; (b) abate not less than the interest accrued from the commencement of the criminal investigation until the promulgation of the final regulations; and (c) impose interest at a rate not greater than the standard rate of interest under Internal Revenue Code §6221." Document No. 9, ¶221; Document No. 35, ¶492. Those of Plaintiffs who have paid the taxes, penalties, and interest, seek a refund of the interest that they paid "in excess of the amount appropriately determined if the final regulation had included the standards mandated by Congress," or alternatively, a refund of all interest paid that accrued during periods of delay caused by errors of the IRS. Document No. 9, ¶222; Document No. 35, ¶493. In effect, Plaintiffs are asking the Court to mandate the Secretary of the Treasury to write a regulation that Plaintiffs believe the Secretary should have written in order to comply with what Plaintiffs deem to have been "Congressional intent," and to relieve Plaintiffs from all liabilities for interest on their past due taxes that has accrued as a result of such regulation not having been written by the Secretary.

Without moving for leave, Plaintiffs filed a Second Amended Complaint 3 reiterating the foregoing claims and (1) adding the names of another 376 taxpayers as Plaintiffs, (2) substituting John Snow as Secretary of the Treasury and Mark W. Everson as Commissioner of the IRS, and (3) adding a claim for damages under 26 U.S.C. §7433, which allows a civil action for damages caused by the intentional, reckless, or negligent disregard of a statute or regulation by an IRS employee in connection with the collection of a federal tax. See Document No. 35, §494.

The United States, as the real party in interest, moves for dismissal for lack of subject matter jurisdiction based on sovereign immunity, the Anti-Injunction Act, the Declaratory Judgment Act, and Plaintiffs' failures to exhaust administrative remedies.

II. Standard of Review

Under Rule 12(b)(1), a party can seek dismissal of an action for lack of subject matter jurisdiction. FED R. CIV P. 12(b)(1). The burden of establishing subject matter jurisdiction is on the party seeking to invoke it. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). In evaluating a motion to dismiss pursuant to Rule 12(b)(1), a court may consider (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Id. (citing Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996)). The question of subject matter jurisdiction is for the court to decide even if the question hinges on legal or factual determinations. See id. (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981) (holding the existence of disputed material facts does not preclude a court from evaluating the merits of a jurisdictional challenge)). Rule 12(b)(1) challenges to subject matter jurisdiction come in two forms: "facial" attacks and "factual" attacks. See Lawrence v. Dunbar, 919 F.2d 1525, 1528-29 (11th Cir. 1990); Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981). A facial attack, which consists of a Rule 12(b)(1) motion unaccompanied by supporting evidence, challenges the court's jurisdiction based solely on the pleadings. See Lawrence, 644 F.2d at 523; Paterson, 644 F.2d at 523. When presented with a facial challenge to subject matter jurisdiction, the court examines whether the allegations in the complaint are sufficient to invoke the court's subject matter jurisdiction, assuming the allegations to be true. Lawrence, 644 F.2d at 523; Paterson, 644 F.2d at 523.

When accompanied by supporting evidence, a Rule 12(b)(1) motion challenging the court's jurisdiction is a factual attack. Paterson, 644 F.2d at 523. A plaintiff responding to a factual attack on the court's jurisdiction generally bears the burden of proving by a preponderance of the evidence that the court has subject matter jurisdiction. Id. If, however, the facts necessary to sustain jurisdiction implicate the merits of the plaintiff's cause of action, then the court must proceed as it would under Fed. R. Civ. P. 12(b)(6) or, in a proper case, Rule 56. See Xerox Corp. v. Genmoora Corp., 888 F.2d 345, 350-51 (5th Cir. 1989); see also Hishon v. King & Spalding, 104 S.Ct. 2229, 2232 & n.2 (1984) (accepting allegations as true on appeal because district court's reasoning made clear that it had dismissed complaint on ground that allegations did not state Title VII claim, even though district court invoked Rule 12(b)(1) rather than Rule 12(b)(6)). The United States's Rule 12(b)(1) motion is not accompanied by supporting evidence, and the attack is therefore facial.

III. Discussion

The Secretary of the Treasury ("Secretary") is authorized by statute to compromise any civil or criminal case arising under the Internal Revenue Laws prior to its reference to the Department of Justice for prosecution or defense. See 26 U.S.C. §7122(a). The statute conferring this authority requires the Secretary to prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute. Id. at §7122(c)(1). Pursuant to this statute, the Secretary promulgated 26 C.F.R. §301.7122-1, entitled "Compromises," which lists three grounds for compromise by the Secretary: "Doubt as to liability," "Doubt as to collectibility," and "Promote effective tax administration." 26 C.F.R. §301.7122-1(b). According to Plaintiffs, in promulgating §301.7122-1, the Treasury Regulation at issue, the Secretary violated the Constitution's separation of powers --by failing to list as a possible ground for compromise delays caused by the IRS in the determination of taxpayer liability. In so doing, Plaintiffs argue, the Secretary "implemented [ §301.7122-1] in a manner inconsistent with the language and legislative history of a statutory provision it was designed to implement." Document No. 35, ¶485.

Plaintiffs' claims, identified as an alleged violation of the Constitution's separation of powers, concern actions taken by officers of the United States in an official capacity. Moreover, Plaintiffs seek not only declaratory and injunctive relief, but an abatement or refund of interest. This is the very kind of case that directly implicates the United States itself, which is why it is the real party in interest as Defendant. Bank One, Texas, N.A. v. Taylor, 970 F.2d 16, 33 (5th Cir. 1992) is directly in point:
[Although] the United States was not named as a party in the original action, "`if the judgment sought would expend itself upon the public treasury or domain, or interfere with public administration,' or if the effect of the judgment would be `to restrain the Government from acting, or to compel it to act,"' the suit will be construed as one against the United States requiring a waiver of sovereign immunity.

(quoting Dugan v. Rank, 83 S.Ct. 999, 1006 (1963)). Plaintiffs must therefore identify a waiver of sovereign immunity that allows Plaintiffs to pursue these claims against the United States.

Plaintiffs contend that the Administrative Procedure Act ("APA") permits the Court to adjudicate their separation of powers claim. The APA permits one who is adversely affected or aggrieved by agency action to obtain judicial review of that action so long as the action is final agency action for which there is no other adequate remedy. See Heckler v. Chaney, 105 S.Ct. 1649, 1654 (1985). Hence, in a case properly brought under the APA, there is a limited waiver of sovereign immunity. See Stockman v. Fed. Election Comm'n, 138 F.3d 144, 152 n.13 (5th Cir. 1998) (noting waiver of sovereign immunity).

Plaintiffs' claim, however, is not brought by parties who have been adversely affected by final agency action. Indeed, they never applied under the regulation to obtain the ultimate relief they seek, namely, relief from liability for huge sums of interest accrued over the years on tax liability that Plaintiffs allege were not timely assessed due to delays by the IRS. Specifically, Plaintiffs never made offers-in-compromise under the "Promote effective tax administration" ground set out in Regulation §301.7122-1(b)(3). The language implementing §301.7122-1 states that "cases in which a taxpayer believes [] liability was caused in whole or in part, by delay on the part of the IRS or by the actions of third parties may be appropriate for compromise under the public policy and equity standard. " 67 Fed. Reg. 48025, 48027 (July 23, 2002) (emphasis added). The "public policy and equity standard" falls within the "Promote effective tax administration" grounds for compromise. See 26 C.F.R. §301.7122-1(b)(3)(ii). Plaintiffs, however, do not allege they ever submitted any offers-in-compromise and, therefore, they have not shown themselves to be aggrieved by any final agency action either in the implementation of the regulation or in having any offers-in-compromise denied.

Instead, Plaintiffs complain that the Secretary did not cover the subject matter of Regulation §301.7122-1(b)(3) in language that they believe would have more accurately fulfilled "Congressional intent," i.e., specifically referring to liabilities incurred by delay of the IRS, much as was set forth in the Secretary's explanation for Regulation 301.7122-1(b)(3)(ii), quoted above from the Federal Register. Plaintiffs' claim of injury, based on the Secretary not having written the regulation in the way that they believe it should have been written, is therefore so highly speculative and uncertain as even to lack Article III standing. "Federal courts consistently deny standing when claimed anticipated injury has not been shown to be more than uncertain potentiality." Prestage Farms, Inc. v. Bd. of Supervisors, 205 F.3d 265, 268 (5th Cir. 2000). Thus, Plaintiffs have no standing not only under the APA but also they have no standing under Article III to challenge as an unconstitutional violation of separation of powers the Secretary's formulation of Regulation §301.7122-1. Under these circumstances, Plaintiffs have shown no waiver of sovereign immunity by the United States to permit the prosecution of this case.

Even presuming Article III and APA standing, and therefore a waiver of sovereign immunity under the APA, the Anti-Injunction and Declaratory Judgment Acts still would preclude Plaintiffs' requested relief regarding §301.7122-1. The Anti-Injunction Act bars a suit "for the purpose of restraining the assessment or collection of any tax...." 26 U.S.C. §7421. The Declaratory Judgment Act specifically excludes from its scope actions "with respect to Federal taxes." 28 U.S.C. §2201(a). "There is no dispute ... that the federal tax exception to the Declaratory Judgment Act is at least as broad as the Anti-Injunction Act." Bob Jones University v. Simon [ 74-1 USTC ¶9438], 94 S.Ct. 2038, 2044 (1974). Plaintiffs argue that these statutory bars do not apply because Plaintiffs' claims concern interest rather than taxes. Title 26 U.S.C. §6601(e), however, states that "[a]ny reference in this title ... to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax." See Beall v. United States [ 2003-2 USTC ¶50,551], 336 F.3d 419, 422 n.3 (5th Cir. 2003) (noting that references in the Internal Revenue Code to taxes imposed by the Code are deemed also to refer to interest). Furthermore, the prohibition of the Anti-Injunction Act is broad, "applicable not only to the assessment or collection itself, but [] equally applicable to activities which are intended to or may culminate in the assessment or collection of taxes." Smith v. Rich [ 82-1 USTC ¶9206], 667 F.2d 1228, 1230 (5th Cir. 1982). All of Plaintiffs who have not paid the accrued interest clearly intend by this action to interfere with IRS activities culminating in collection of the interest said to be owed by Plaintiffs. 4 Such action is proscribed by the Anti-Injunction Act which protects "the Government's need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement judicial interference, `and to require that the legal right to the disputed sums be determined in a suit for refund."' Bob Jones [ 74-1 USTC ¶9438], 94 S.Ct. at 2046 (quoting Enochs v. Williams Packing & Navigation Co. [ 62-2 USTC ¶9545], 82 S.Ct. 1125, 1129 (1962)).

Those of the Plaintiffs who have paid the assessed interest, taxes, and penalties purport to assert actions under 28 U.S.C. §1346 and 26 U.S.C. §7422. See Document No. 35, ¶442. 5 Title 28 U.S.C. §1346 "`operates in conjunction with 26 U.S.C. §7422 to provide a waiver of sovereign immunity in tax refund suits ... when the taxpayer has fully paid the tax and filed an administrative claim for a refund."' Beall [ 2003-2 USTC ¶50,551], 336 F.3d at 422 (quoting Shanbaum v. United States [ 94-2 USTC ¶50,512], 32 F.3d 180, 182 (5th Cir. 1994)). The waiver extends to claims for wrongfully collected, unabated interest. See Beall [ 2003-2 USTC ¶50,551], 336 F.3d at 424. The suit, however, "must be preceded" by a claim for a refund "filed in accordance with regulations issued by the Secretary of the Treasury." Your Ins. Needs Agency, Inc. v. United States [ 2002-1 USTC ¶50,104], 274 F.3d 1001, 1003 (5th Cir. 2001) (citing United States v. Williams [ 95-1 USTC ¶50,218], 115 S.Ct. 1611, 1616 (1995) (noting that because the administrative claim is a condition to the waiver of sovereign immunity, "a party may not bring a refund action without first exhausting administrative remedies.")

The Plaintiffs who claim to have paid the taxes and interest assessed do not allege that they timely filed administrative claims for refunds as required by §7422(a). Because an administrative claim for a refund is a "jurisdictional prerequisite" to a refund suit, and none was made, the Court lacks subject matter jurisdiction over these claims. See Shanbaum v. United States [ 94-2 USTC ¶50,512], 32 F.3d 180, 182 (5th Cir.); Young v. United States [ 2003-1 USTC ¶50,456], 332 F.3d 893, 894-95 (6th Cir. 2003) ("This waiver of sovereign immunity ... is limited by the requirement that a taxpayer pursue administrative remedies before bringing suit against the government.").

Finally, Plaintiffs claim that the sending of certain letters by the IRS, which Plaintiffs call "Selesky letters" because an IRS employee by the name of Selesky is mentioned in the letters, constitutes reckless or intentional violations of various Internal Revenue Code provisions for which Plaintiffs are entitled to recover damages under the "Taxpayer Bill of Rights," 26 U.S.C. §7433. This statute provides a limited waiver of sovereign immunity for suit against the United States for injuries caused by IRS employees' intentional or reckless disregard of tax laws in connection with the collection of taxes. See 26 U.S.C. §7433(a); Shaw v. United States [ 94-1 USTC ¶50,254], 20 F.3d 182, 184 (5th Cir. 1994). Recovery of damages under §7433, however, requires Plaintiffs first to exhaust their administrative remedies. See 26 U.S.C. §7433(d)(1); 26 C.F.R. §7433-1(a); Shaw v. United States [ 94-1 USTC ¶50,254], 20 F.3d 182, 183 (5th Cir. 1994). The Court's discretion to disregard a failure to exhaust statutorily mandated administrative remedies is severely limited. See Information Resources, Inc. v. United States [ 92-1 USTC ¶50,053], 950 F.2d 1122, 1126 (5th Cir. 1992) (emphasizing the limit on discretion regarding exhaustion of statutorily mandated administrative remedies); Taylor v. United States Treasury Dep't [ 97-2 USTC ¶50,914], 127 F.3d 470 (5th Cir. 1997) (comparing jurisdictional, statutorily required exhaustion with judicially created exhaustion requirements). Only when the administrative remedies are inadequate may a court disregard the failure to exhaust such remedies. See Information Resources [ 92-1 USTC ¶50,053], 950 F.2d at 1126. Such is not the case here, where fully adequate administrative remedies are provided in Regulation 301.7433-1.

Plaintiffs argue, however, that submitting a claim for abatement or refund of interest would be useless given the "preemptive" denial of claims in the "Selesky letters." The one "Selesky letter" exhibited by Plaintiffs, dated May 2, 2003, and addressed to Thomas B. Adams, denies certain claims but obviously does not deny any claim arising from the sending of the "Selesky letter" itself if, as Plaintiffs allege, that event is an intentional or reckless act by an IRS employee intended wrongfully to injure Plaintiff(s). If the sending of the "Selesky letter" itself were such an act of misconduct resulting in injury to Plaintiffs, then that is quite a separate claim as to which they must exhaust their administrative remedies as a prerequisite to a §7433 recovery of damages. Plaintiffs have not pled or shown any administrative exhaustion of their claim for damages under §7433 based on Plaintiffs' alleged injuries from issuance of the "Selesky letters," and the Court therefore lacks subject matter jurisdiction over these claims.

IV. Order

Based on the foregoing, and because the Court lacks subject matter jurisdiction as to all of Plaintiffs' claims, it is

ORDERED that the United States's Motion to Dismiss (Document No. 10) is GRANTED, and all of Plaintiffs' claims are DISMISSED for lack of subject matter jurisdiction. It is further

ORDERED that Plaintiffs' Motion for Partial Summary Judgment (Document No. 20), Motion for Stay of Collections (Document No. 47-1), and Motion for Expedited Consideration (Document No. 47-2) are DENIED as MOOT.

The Clerk will enter this Order and send a copy to all parties of record.

1 Pursuant to Fed. R. Civ. P. 25(d)(1), John Snow and Mark W. Everson are substituted as Defendants in this case.

2 See In Re Grand Jury Proceedings, 62 F.3d 1175, 1777 (9th Cir. 1995).

3 As Defendants have responded to the material added in Plaintiffs' Second Amended Complaint and not moved to strike, it is deemed admitted, and the United States's Motion to Dismiss is deemed to apply to it as well, together with the Government's supplemental arguments made in its Response at Document No. 36.

4 The claims of those Plaintiffs who have paid all taxes and interest assessed and who are seeking a refund of interest are governed by 28 U.S.C. §§1346(a) and 26 U.S.C. §7422, which are dealt with below. See Beall [ 2003-2 USTC ¶50,551], 336 F.3d at 424-25, 427 n.9 (noting that suits for a refund and challenges to the IRS's refusal to abate interest can be brought under §§1346 and 7422, and that the APA is not an appropriate vehicle for such actions).

5 Plaintiffs also invoke 28 U.S.C. §1340. Although §1340 grants jurisdiction over civil actions arising under "any Act of Congress providing for internal revenue," it does not constitute a waiver of sovereign immunity. See Geurkink Farms, Inc. v. United States [ 71-2 USTC ¶9692], 452 F.2d 643 (7th Cir. 1971).

…………………………………………………………………………………………..

United States of America, Plaintiff-Appellant v. Patrick M. Donovan, Defendant-Appellee. U.S. Court of Appeals, 6th Circuit; 02-3260, October 31, 2003.

Reversing and remanding a DC Ohio decision, 2002-1 USTC ¶50,193.

A federal district court erred in concluding that an individual who was assessed the trust fund recovery penalty withdrew his offer in compromise on the date when he sent a letter to the IRS, and not on the subsequent date when the IRS issued a response to that letter. Because the date of the IRS's acknowledgment of the withdrawal was controlling, the government's suit to reduce the assessment against the individual to judgment was not barred by the statute of limitations. The unambiguous language of Form 656, Offer in Compromise, established that the offer remained pending until the withdrawal was acknowledged by an authorized IRS official.

Robert J. Branman, David English Carmack, Department of Justice, for plaintiff-appellant. Irving Bell, for defendant-appellee.
Before: Boggs, Chief Circuit Judge, and Gilman, Circuit Judge, and Marbley, * District Judge.

OPINION

BOGGS, Chief Circuit Judge. The United States appeals the order of summary judgment entered by the district court, dismissing its complaint against Patrick Donovan, in which it sought to reduce to judgment certain tax assessments. For the following reasons, we reverse and remand to the district court so that it may enter summary judgment in favor of the government.

I

Donovan was a responsible officer at J.A. Clark Mechanical, Inc. ("Clark") during 1985 and 1986. Clark failed to pay certain employment tax liabilities that were withheld from employees' wages. The IRS determined that Donovan was a person responsible for Clark's failure to pay the withheld taxes, and that he willfully allowed other creditors to be paid ahead of the government. The IRS made an assessment against Donovan "for unpaid tax liabilities for trust fund related penalties," pursuant to I.R.C. §6672. The assessment was made on March 16, 1989 in the amount of $154,570.13.

The government had ten years after assessment to bring suit to collect the tax liability, unless an exception to the ten-year statute of limitations existed. I.R.C. §6502(a)(1). The statute of limitations could be extended by an agreement in writing by the IRS and Donovan before the expiration of the ten-year limit. I.R.C. §6502(a)(2). Several months prior to March 16, 1999, the date the statute of limitations would expire, Donovan made the IRS an offer in compromise on IRS Form 656. Form 656 contains an explicit agreement by which the statute of limitations is extended.

On April 18, 2000, Donovan sent the IRS a withdrawal of his offer in compromise. The IRS sent a return letter, dated April 28, 2000, acknowledging the withdrawal of the offer, stating that "[y]our offer is considered withdrawn as of 04/18/00."

On June 13, 2001, the government filed this suit. The total amount due as of May 18, 2001 was $466,936.21 Donovan filed a motion for summary judgment, arguing that the suit was barred by the statute of limitations. The district court entered summary judgment in favor of Donovan.

The dispute centers on when the statute of limitations began to run again: (1) on April 18, 2000, the date Donovan faxed his letter withdrawing the offer, and the date the return letter indicated that his offer was considered withdrawn; or (2) April 28, 2000, the date the IRS acknowledged the withdrawal in writing. Donovan argues that the period the offer was pending ended on April 18, which would cause the statute of limitations to expire on June 4, 2001. The government argues that the period the offer was pending expired on April 28, 2000, and that the statute of limitations ended on June 14, 2001.

The district court stated in its opinion that Form 656 was a contract, and thus had to be interpreted under contract law. It found that the terms were clear and unambiguous, and that there were no issues of fact to be determined. The court went on to state that the contract's interpretation required the court to discern the parties' intent. It concluded that the intent of the parties was to interpret the agreement terms to comport with the IRS's standard practice, as the agreement was on an IRS standard form. The court concluded that IRS's standard practice was to consider the withdrawal of a settlement offer effective as of the date the taxpayer wrote his letter of withdrawal. Therefore the suit was untimely and summary judgment in favor of Donovan was proper. The government timely appealed.

II

Summary judgment is appropriate when the evidence submitted shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The district court correctly concluded that no genuine issues of material fact remained, but that the sole question at issue was a question of law: when the statute of limitations began to run. This court reviews the grant of summary judgment de novo, using the same standard as the district court. Cornist v. B.J.T. Auto Sales, Inc., 272 F.3d 322, 326 (6th Cir. 2001).

The offer in compromise was memorialized on IRS Form 656. Form 656 contains several provisions relevant to this appeal. Item 8 outlines the conditions to which Donovan agreed by submitting the offer. Paragraph (e) of that item reads: "I/we waive and agree to the suspension of any statutory periods of limitation (time limits provided for by law) for IRS assessment and collection of the tax liability for the tax periods identified in item (5)." Paragraph (m) reads: "The offer is pending starting with the date an authorized IRS official signs this form and accepts my/our waiver of the statutory periods of limitation. The offer remains pending until an authorized IRS official accepts, rejects or acknowledges withdrawal of the offer in writing." The immediately following paragraph, paragraph (n), reads: "The waiver and suspension of any statutory periods of limitation for assessment and collection of the amount of the tax liability described in item (5), continues to apply: while the offer is pending ( see (m) above) ... and for one additional year beyond each of the time periods identified in this paragraph."

The government argues that the offer in compromise was "pending" until the withdrawal was acknowledged, and the exact language of the acknowledgment letter does not affect the form waiving the statute of limitations. It cites the language of paragraph (m), which reads: "The offer remains pending until an authorized IRS official ... acknowledges withdrawal of the offer in writing." It argues that some affirmative action by the government, accepting the offer, rejecting the offer, or acknowledging its withdrawal, is required in order to set the statue of limitations running again. The government argues that the form letter sent to Donovan contains the effective withdrawal date merely to indicate that the government can no longer accept the offer in compromise, and that this has nothing to do with when the statute of limitations begins to run again.

The question of whether the language of an agreement is ambiguous is a question of law. Parret v. Am. Ship Bldg. Co., 990 F.2d 854, 858 (6th Cir. 1993). Once the language of a contract has been held to be ambiguous, the interpretation of such language is a question of fact that turns on the intent of the parties. Ibid. A court, however, may not use extrinsic evidence to create an ambiguity; the ambiguity must be "apparent on the face of the contract." Schachner v. Blue Cross and Blue Shield of Ohio, 77 F.3d 889, 893 (6th Cir. 1996).

The district court first found that the terms of the contract were clear and unambiguous. Having done so, it was error for it to go on and attempt to discern the intent of the parties. The intent of the parties is best determined by the plain language of the contract. United States v. Hodgekins [ 94-2 USTC ¶50,317], 28 F.3d 610, 614 (7th Cir. 1994) (holding that extension of the statute of limitations on IRS Form 2750 is given effect in accordance with its plain meaning).

While we recognize that Form 656 could have been more clearly drafted, and perhaps should be, the key language of Form 656 --that the "offer remains pending until an authorized IRS official ... acknowledges the withdrawal of the offer in writing" --is unambiguous on its face. The IRS acknowledgment letter itself does not contradict the plain terms of Form 656. We find persuasive the government's argument that the date of the effective withdrawal of the offer is a different matter from that of the date when the offer is no longer "pending" pursuant to paragraph (m). It may indeed be true, as the district court states, that "the withdrawal of an offer in compromise is effective as of the date the taxpayer writes his letter of withdrawal." That judgment, however, would be true as a matter of substantive contract law. See Restatement (Second) of Contracts §42 (1981). However, the statute of limitations question turns on when the offer ceases to be "pending" under paragraph (m) of Form 656. The latter controls when the statute of limitations begins to run again.

An objection could be made that the government could control and manipulate the statute of limitations simply by failing to acknowledge the withdrawal of an offer. That argument, which we do not address here, could arise in a future case if there appeared to be a factual basis for it. Here, however, the government cannot possibly be charged with unreasonable delay in sending an acknowledgment of the withdrawal seven business days after receiving a letter withdrawing the offer in compromise.

The district court erred in granting summary judgment to Donovan. The statute of limitations began to run again on April 28, 2000, the date of the acknowledgment in writing of the withdrawal of the offer in compromise. The suit is not untimely.

III

For all of the reasons set forth above, we REVERSE and REMAND to the district court with instructions to enter summary judgment in favor of the government.

* The Honorable Algenon L. Marbley, United States District Judge for the Southern District of Ohio, sitting by designation.
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Joseph Dutton v. Commissioner, Docket No. 17802-02 . 122 TC 133, No. 7. Filed February 11, 2004. [Appealable, barring stipulation to the contrary, to CA-9. --CCH.]

P submitted a request for relief from joint and several liability. P subsequently submitted an offer in compromise, which R accepted. Before the offer was accepted, R sent P a letter explaining that it was proposed that P be granted relief under sec. 6015(c), I.R.C., and that P would be entitled to a refund. After accepting the offer, R sent P a notice of determination denying relief from joint and several liability under former sec. 6013(e), I.R.C., and sec. 6015(b), (c), and (f), I.R.C. P petitioned the Court under sec. 6015(e)(1), I.R.C. P argues that the statement that P would be entitled to a refund resulted in a mutual mistake of material fact or misrepresentation sufficient for the offer in compromise to be set aside. For the first time in his answering brief, P argues that the doctrine of equitable estoppel applies.

Held: There was no mutual mistake or misrepresentation sufficient to cause the offer in compromise to be set aside. P's equitable estoppel argument is not considered because it was not timely raised.
John R. McCabe, for the petitioner. Patrick W. Lucas, for the respondent.
OPINION
GOEKE, Judge: This matter is before the Court on the issue of whether petitioner is barred from seeking relief from joint and several liability under former section 6013(e)1 and section 6015 for the years 1986 and 1987 because he entered into an offer in compromise with respondent for those years. We hold that the offer in compromise is valid and petitioner is barred from seeking relief from joint and several liability.
Background
The parties submitted the issue fully stipulated. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioner's mailing address was in Yorba Linda, California, at the time he filed his petition.
On September 3, 1999, petitioner submitted a Form 8857, Request for Innocent Spouse Relief, requesting relief from joint and several liability for the taxable years 1984, 1985, and 1986.
On April 24, 2001, petitioner submitted an amended Form 656, Offer in Compromise, wherein he offered to compromise all income tax liabilities, including any interest, penalties, additions to tax, and additional amounts required by law, for the years 1986, 1987, and 1993 through 1999.2 Petitioner's offer was to pay $6,000 at a rate of $250 per month. Petitioner's offer in compromise was based on doubt as to collectibility, not on doubt as to liability or the promotion of effective tax administration. The Form 656 states that "Once the IRS accepts the offer in writing, I/we have no right to contest, in court or otherwise, the amount of the tax liability." The form provides that the offer in compromise may be withdrawn at any time before the Commissioner accepts the offer. Petitioner was represented by Carlton V. Phillips, Jr. (Mr. Phillips), during the offer in compromise proceedings.
By letter dated May 7, 2001, D. Zukle (Mr. Zukle), an Internal Revenue Service (IRS) manager, informed petitioner that for 1986 and 1987 it was being proposed that he be granted partial relief from joint and several liability under section 6015(c), but that relief under other provisions would be denied in full. In the letter, Mr. Zukle stated that he believed that no additional payments would be due and, that to the best of his knowledge, after the recommended relief was granted, petitioner would be entitled to refunds for 1986 and 1987.
On June 20, 2001, a Form 2848, Power of Attorney and Declaration of Representative, was signed by petitioner and his current counsel, John R. McCabe (Mr. McCabe). Mr. McCabe was retained to assist petitioner in his claim for relief from joint and several liability. On July 9, 2001, Mr. McCabe sent a letter to Mr. Zukle regarding petitioner's entitlement to relief from joint and several liability. The letter stated that an IRS employee reviewing petitioner's claim had referenced section 6015(c) and checked a form stating that there would be no refund of the disputed debt. In another letter to Mr. Zukle, dated July 23, 2001, Mr. McCabe stated that he had recently discussed petitioner's claim for relief with an "Innocent Spouse Coordinator" and had been told that there is no refund provision when a claim is approved under section 6015(c).
By letter to petitioner dated July 25, 2001, respondent accepted the offer in compromise of $6,000, subject to the conditions and provisions stated on the Form 656. The letter listed petitioner's total account balance, as of April 30, 2001, for the years 1986, 1987, and 1993 through 1999 as $185,962. Balances of $37,162 and $84,124 were shown for 1986 and 1987, respectively. The letter was signed on respondent's behalf by Mark Jaramillo (Mr. Jaramillo), Steve Turner, and K. Vega. Mr. Jaramillo also sent a copy of the acceptance letter to Mr. Phillips on July 25, 2001. Petitioner has completed the payment plan for his offer in compromise, and copies of TXMODA transcripts3 for the year 1986 and 1987 show a balance due of zero.
By notice of determination dated August 12, 2002, respondent determined that petitioner was not entitled to relief from joint and several liability under section 6013(e) and section 6015(b), (c), and (f) for the years 1986 and 1987.4 The notice listed Al Petroff as a contact person and was signed by Jon S. Leo, Appeals Team Manager. Petitioner filed a petition under section 6015(e)(1) seeking a review of respondent's determination for the years 1986 and 1987.
Discussion

Petitioner argues that the offer in compromise should be set aside and he should be allowed to seek relief from joint and several liability under section 6013(e) and section 6015(b), (c), and (f) for the years 1986 and 1987. Respondent argues that the offer in compromise should not be set aside and, as a matter of law, petitioner is not entitled to relief. The issue we must decide is whether petitioner is barred from seeking relief from joint and several liability because the offer in compromise was accepted or whether the offer can be rescinded on the basis of a mutual mistake or a misrepresentation.

I. Petitioner's Claim for Relief Under Section 6013(e)
As an initial matter, we address petitioner's argument as it pertains to section 6013(e). The petition in this case was filed pursuant to section 6015(e)(1). Section 6015(e)(1) provides jurisdiction to decide the appropriate relief available to the taxpayer under section 6015. There is no provision in the Internal Revenue Code that allows us to grant relief under section 6013(e) to a taxpayer who files a petition under section 6015(e). Brown v. Commissioner [Dec. 54,826(M)], T.C. Memo. 2002-187. Thus, we do not consider petitioner's claim for relief under section 6013(e).

II. Whether the Offer in Compromise Bars Petitioner From Seeking Relief From Joint and Several Liability Under Section 6015
Section 6015 was enacted on July 22, 1998, as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201(a), 112 Stat. 734. It was given retroactive effect with respect to any liability for tax remaining unpaid as of July 22, 1998. Id. sec. 3201(g)(1), 112 Stat. 740.
Section 6015 provides three avenues of relief from joint and several liability. Section 6015(b) provides relief similar to that available under former section 6013(e), and also allows a spouse to be relieved from a portion of an understatement of tax. Section 6015(c) generally provides for an allocation of liability for deficiencies as if the spouses had filed separate returns. Section 6015(f) allows for equitable relief in situations where relief is unavailable under section 6015(b) or (c).
Section 6015(g) governs the allowance of credits and refunds in cases where the taxpayer is granted relief under section 6015. Except as provided otherwise in section 6015(g) and in sections 6511, 6512(b), 7121, and 7122, credit or refund is allowed or made to the extent attributable to the application of section 6015. Sec. 6015(g)(1). No refund or credit is allowed under section 6015(c). Sec. 6015(g)(3).
Petitioner's claim for relief is under section 6015(b), (c), and (f) and includes tax liabilities that were covered by the offer in compromise. Petitioner has completed the payment plan under the accepted offer. Respondent argues that the accepted offer precludes petitioner from asserting a claim for relief under section 6015.
Section 7122 governs offers in compromise. Section 7122(a) authorizes the Commissioner to compromise a taxpayer's outstanding liabilities. Taxpayers generally submit an offer in compromise according to procedures, and in the form and manner, prescribed by the Commissioner. Sec. 301.7122-1T(c)(1), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39025 (July 21, 1999).5 An offer in compromise may be withdrawn by the taxpayer or his representative at any time before acceptance of the offer. Sec. 301.7122-1T(c)(3), Temporary Proced. & Admin. Regs., supra. The offer is considered withdrawn when the Commissioner receives written notification of the withdrawal of the offer by personal delivery or certified mail, or when the Commissioner issues a letter confirming the taxpayer's intent to withdraw the offer. Id. Generally, an acceptance of an offer in compromise will conclusively settle the liability of the taxpayer specified in the offer, absent fraud or mutual mistake. Estate of Jones v. Commissioner, [86-2 USTC ¶13,675], 795 F.2d 566, 573 (6th Cir. 1986), affg. [Dec. 40,973(M)] T.C. Memo. 1984-53; Timms v. United States [82-2 USTC ¶9426], 678 F.2d 831, 833 (9th Cir. 1982); sec. 301.7122-1T(d)(5), Temporary Proced. & Admin. Regs, supra. In order to reopen the case, the mistake must be mutual and "of material fact sufficient to cause the offer agreement to be reformed or set aside". Sec. 301.7122-1T(d)(5), Temporary Proced. & Admin. Regs., supra.6
An accepted offer in compromise is properly analyzed as a contract between the parties. United States v. Donovan, 348 F.3d 509, 512-513 (6th Cir. 2003); Roberts v. United States, 242 F.3d 1065 (Fed. Cir. 2001); Timms v. United States, supra at 833-836; United States v. Lane [62-1 USTC ¶9467], 303 F.2d 1, 4 (5th Cir. 1962); Robbins Tire & Rubber Co., Inc. v. Commissioner [Dec. 29,612], 52 T.C. 420, 436 (1969). Consequently, an offer in compromise, like certain other agreements between the Commissioner and taxpayers, is governed by general principles of contract law. Cf. Duncan v. Commissioner [Dec. 55,356], 121 T.C. --, --(2003) (slip. op. at 6) (contract law applied to stipulated arbitration agreement); Bankamerica Corp. v. Commissioner [Dec. 52,150], 109 T.C. 1, 12 (1997) (contract law applied to stipulations of fact); Dorchester Indus., Inc. v. Commissioner [Dec. 52,011], 108 T.C. 320, 330 (1997) (contract law applied to settlement agreement), affd. without published opinion [2000-1 USTC ¶50,265] 208 F.3d 205 (3d Cir. 2000); Woods v. Commissioner [Dec. 45,602], 92 T.C. 776, 780 (1989) (contract law applied to agreement to extend the period for making assessments).
Mistake is defined in 1 Restatement, Contracts 2d, sec. 152 (1981), as follows:
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in sec. 154.

(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise. [Emphasis supplied.]
A mutual mistake exists where there has been a meeting of the minds of the parties and an agreement actually entered into but the agreement in its written form does not express the actual intention of the parties. Woods v. Commissioner, supra at 782. A material fact is one "that is significant or essential to the issue or matter at hand". Black's Law Dictionary 611 (7th ed. 1999).
In Hopkins v. Commissioner [Dec. 55,203], 120 T.C. 451, 462-463 (2003), we held that a taxpayer was entitled to raise a claim for relief under section 6015 where a closing agreement under section 7121 was signed before the effective date of section 6015, and the tax liabilities assessed pursuant to the agreement remained unpaid as of the effective date. The instant case is distinguishable because it involves an offer in compromise under section 7122 that was submitted and accepted after the effective date of section 6015.
Petitioner argues that the offer in compromise should be set aside because Mr. Zukle mistakenly stated that refunds would be allowed for any relief granted under section 6015(c). Petitioner claims that the projected refund allowance would have eliminated his 1986 and 1987 liabilities, fully paid his outstanding balance for 1993 through 1999, and given him a refund of approximately $81,000. Petitioner contends that he would not have agreed to an offer in compromise if he had known he was waiving his right to any refunds.
Petitioner's argument is illogical. Petitioner claims reliance upon the mistaken suggestion in the May 7, 2001, letter that he might receive a refund. That date was approximately 2 weeks after he had submitted the form offering to compromise his liabilities and waive any refunds. Because the Form 656 states that petitioner would no longer be able to contest the amount of his tax liability, there is no indication that at the time the offer was submitted petitioner was under the impression that if the offer was approved, then respondent would issue a refund based on relief granted under section 6015(b), (c), or (f). On the basis of petitioner's own argument, such an offer would have been unnecessary had petitioner believed that he would receive the mistakenly suggested refund. The incorrect statement by Mr. Zukle and the clarification of the mistake through Mr. McCabe's diligence occurred between the time the offer was made and its acceptance. There is no evidence or reason to believe that petitioner's offer was originally based on his erroneous assumption of the possible refund windfall in the first instance, but if he later wished to withdraw the offer, he had time to do so. There was no mistake at the time the offer was submitted by petitioner or when it was accepted.
As previously noted, a valid offer in compromise conclusively settles a taxpayer's liability. The reference in section 6015(g)(1) to section 7122 indicates that under the offer in compromise petitioner would not be entitled to a refund or credit even if relief was ultimately granted under section 6015(b) or (f).7 As previously stated, regardless of the offer in compromise, no refund is permitted under section 6015(c). Sec. 6015(g)(3).
Petitioner is correct that Mr. Zukle made a mistake when he told petitioner that he would be entitled to refunds if partial relief was granted under section 6015(c). However, petitioner is incorrect in disputing that the offer in compromise waived his right to any refund based on partial relief under section 6015(c) because, regardless of whether an offer in compromise is involved, refunds and credits are not allowed under section 6015(c).
Petitioner's arguments are also inconsistent with the reason he stated for submitting the offer in compromise and the terms provided on the Form 656. While the claim for relief from joint and several liability was pending, petitioner made the decision to submit the offer to settle his outstanding tax liabilities on the basis of doubt as to collectibility. Petitioner could have chosen to submit the offer in compromise on the basis of doubt as to liability, which would have been consistent with his prior claim for relief from joint and several liability. The Form 656 specifically provided that if respondent accepted the offer, then petitioner would have no right to contest the amount of the tax liability.
Petitioner claims that at the time the offer was approved he still believed that a refund would be allowed. As previously noted, this claim is inconsistent with the terms of the Form 656, section 6015(g), and the statements in the July 2001 letters from Mr. McCabe to Mr. Zukle. In addition, the offer and the request for relief from joint and several liability were two separate courses of action taken by petitioner using two different attorneys to handle the matters. There is no indication in the record that Mr. Zukle knew of the pending offer in compromise, that the IRS personnel handling the offer in compromise matter represented to petitioner that an accepted offer would not bar him from obtaining refunds if relief was granted under section 6015, or that petitioner ever inquired as to the effect that acceptance of the offer would have on his claim for relief from joint and several liability. In any event, if petitioner had actually believed that he was going to receive a refund based on a grant of partial relief under section 6015(c), then he could have withdrawn the offer before respondent accepted it. As previously noted, petitioner failed to do so.
On the basis of the facts of this case, we find that there was not a mutual mistake sufficient to set aside the offer in compromise. We note that petitioner has completed payment on the accepted offer, and his account balances for the years covered by the offer are zero. Petitioner's tax liabilities of approximately $186,000 for these years were compromised for only $6,000.

III. Additional Arguments
Petitioner cites Staten Island Hygeia Ice & Cold Storage Co. v. United States [36-2 USTC ¶9425], 85 F.2d 68 (2d Cir. 1936), and argues that the offer in compromise should be set aside because Mr. Zukle misrepresented that petitioner would be entitled to refunds under section 6015(c). In that case, the issue was whether an offer in compromise could be set aside where the taxpayer entered into the agreement after being told by an agent of the Government that the tax liabilities covered in the agreement were not barred by the statute of limitations. The Court of Appeals for the Second Circuit found that the misrepresentation by the agent induced the offer in compromise, and therefore the agreement was voidable for misrepresentation. Id. at 71-72. The circumstances of this case are distinguishable. As shown by our previous findings, any misrepresentation by Mr. Zukle did not induce the offer in compromise. If anything, Mr. Zukle's statement that petitioner would be entitled to refunds under section 6015(c) should have induced petitioner to withdraw the pending offer, at least during the period before the mistake was corrected through Mr. McCabe's diligence. Accordingly, the offer in compromise is not voidable for misrepresentation.
In his answering brief, petitioner argues for the first time that the doctrine of equitable estoppel applies. Our practice is not to consider new issues raised for the first time in an answering brief. Krause v. Commissioner [Dec. 48,383], 99 T.C. 132, 177 (1992), affd. sub nom. Hildebrand v. Commissioner [94-2 USTC ¶50,305], 28 F.3d 1024 (10th Cir. 1994); Weiss v. Commissioner [Dec. 53,221(M)], T.C. Memo. 1999-17 n.5. The parties submitted the issue fully stipulated, and there is no indication in the record that the equitable estoppel argument was previously raised. The doctrine of equitable estoppel is not raised in the petition. Additionally, in his response to a motion for summary judgment by respondent on the same issue involved in this case, petitioner did not argue that the doctrine applied. Respondent has not had the opportunity to respond to the argument and address the elements of the doctrine in relation to the facts of this case. Therefore, we will not consider petitioner's equitable estoppel argument. In any event, for the reasons stated above, this argument is not supported by the chronology and facts and circumstances of this case.
Decision will be entered for respondent.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code as amended. Dollar amounts are rounded.

2 Petitioner was married during 1986 and 1987, but was single for the years 1993 through 1999.

3 A TXMODA transcript contains current account information obtained from the Commissioner's master file. "TXMODA" is the command code that is entered in the Commissioner's integrated data retrieval system (IDRS) to obtain the transcript. IDRS is essentially the interface between the Commissioner's employees and various computer systems. Tornichio v. Commissioner [Dec. 54,944(M)], T.C. Memo. 2002-291 n.5.

4 The evidence in the record does not explain why the notice of determination addressed the years 1986 and 1987 when petitioner's request for relief was for the years 1984, 1985, and 1986. In his petition, petitioner does not seek relief for the year 1984 or 1985.

5 Final regulations under sec. 7122 were promulgated effective for offers in compromise pending on or submitted on or after July 18, 2002. Sec. 301.7122-1(k), Proced. & Admin. Regs.

6 The final regulations under sec. 7122 contain the same exception for a mutual mistake of material fact. See sec. 301.7122-1(e)(5)(iii), Proced. & Admin. Regs.

7 Although not applicable to the instant case because petitioner's request for relief was filed before its effective date, sec. 1.6015-1(c)(1), Income Tax Regs., supports this position because it provides that a requesting spouse is not entitled to relief from joint and several liability under sec. 6015(b), (c), or (f) for any tax year for which the requesting spouse entered into an offer in compromise with the Commissioner that disposed of the same liability that is the subject of the claim for relief. Cf. Hopkins v. Commissioner [Dec. 55,203], 120 T.C. 451, 462 n.16 (2003).
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Ashurst v. Commissioner, TCM 2004-14, Docket Nos. 161-03S, 162-03S. Filed February 9, 2004.

Gerry Ashurst and Kean H. Ashurst, pro sese.

Paul J. Krazeise, Jr., for respondent.

KROUPA, Judge: These cases were heard pursuant to the provisions of section 7463.1 The decisions to be entered are not reviewable by any court, and this opinion should not be cited as authority. These cases arise from petitions2 filed under section 6330(d) in response to Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330(Determination Notices) by petitioners Gerry Ashurst (Mrs. Ashurst) and Kean H. Ashurst (Mr. Ashurst), wife and husband. The sole issue for decision is whether the Settlement officer abused his discretion in rejecting petitioners' Offer In Compromise (OIC). We hold he did not.

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners resided in LaGrange, Kentucky, at the time they filed the petitions.

Petitioners filed their Federal income tax returns for 1991, 1992, 1993, 1994, 1995, and 1996, reflecting unpaid balances due. The balances were assessed and, with penalties and accrued interest, exceed $27,000.

On July 22, 2000, respondent issued a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing (Final Notice) with regard to petitioners' unpaid Federal income tax liabilities for 1991, 1992, 1993, 1994, 1995, and 1996, totaling $27,140.

In response to the Final Notice, petitioners requested a hearing pursuant to section 6330(b) (hearing) on August 7, 2000. On June 8, 2001, Appeals Officer William Smith of the Salt Lake City, Utah Appeals Office (Appeals Officer Smith) sent a letter to petitioners scheduling a hearing for July 12, 2001. The hearing was subsequently postponed because petitioners indicated that they would file an OIC with respect to their outstanding tax liabilities.

On July 3, 2001, petitioners submitted an OIC for their unpaid income tax liabilities for 1991, 1992, 1993, 1994, 1995, 1996, as well as 2000. On a Form 656, Offer in Compromise, petitioners indicated that Mr. Ashurst had been unemployed since July of 2000, that he had coronary surgery in August of 1998, that prevented him from engaging in physical activity, and that they had exhausted all their resources in seeking employment and maintaining the household. Petitioners offered to compromise their tax liabilities of approximately $27,000 for the years 1991 through 1996 and 2000 with a one-time payment of $3,500.

On July 9, 2001, Appeals Officer Smith informed petitioners that their offer was received and that an Offer examiner would contact them to evaluate their request. On January 16, 2002, Bonnie Griggs, a Revenue officer from the Ogden, Utah, Office of the Internal Revenue Service (Revenue Officer Griggs) sent petitioners a letter stating that the OIC had been reviewed and that additional information was needed. After receiving and reviewing petitioners' financial information, Revenue Officer Griggs, in a letter dated March 18, 2002, informed petitioners that she was unable to recommend that their offer be accepted because the information petitioners provided indicated that they could pay their entire income tax liabilities.3 The letter also stated that if petitioners did not agree with the statements, they could call her to discuss the offer or discuss other collection alternatives.

Petitioners and Revenue Officer Griggs further corresponded during March and May of 2002, in which petitioners submitted additional financial information to her. On May 29, 2002, the Revenue officer sent petitioners a letter stating that on the basis of the new information provided, she had recalculated petitioners' financial situation. Because petitioners' projected income and net assets, as recalculated, still enabled them to pay their tax liabilities in full, she would not recommend their offer for acceptance.4 In the letter, she also suggested that petitioners enter into a regular installment agreement for $836 per month.

On June 3, 2002, petitioners faxed Revenue Officer Griggs a letter stating:
I am unwilling and unable to accept this evaluation by your office. I currently have no earnings other than my wife's income and due to my heart condition current prospects for employment are very slim. * * * I have explained my circumstances to you in writing and verbally and consider you (sic) lack of understanding as nothing more than harassment in this case. Therefore I am requesting that this case be forwarded back to Appeals (Bill Smith).

An Appeals hearing was held with Mr. Ashurst on behalf of petitioners on July 22, 2002. The hearing focused on petitioners' OIC as well as other collection alternatives. It was agreed that Mr. Ashurst would inform Appeals Officer Smith about his future work prospects. No such information was provided, however. Further, subsequent attempts to contact petitioners failed because no working phone numbers were available.

On December 2, 2002, Appeals Officer Smith sent petitioners the Determination Notices rejecting their OIC and concluding that collection could proceed. The Determination Notices stated that the OIC was rejected because petitioners could pay their tax liabilities in full.

On January 3, 2003, petitioners filed petitions with this Court in response to the Determination Notices. A trial hearing was held on September 8, 2003, in Louisville, Kentucky, at which petitioners contested respondent's rejection of their OIC, stated that their circumstances have changed dramatically, and asked the Court to remand their case to Appeals for a reconsideration of their offer.

By order dated November 13, 2003, this Court remanded petitioners' 1991, 1992, 1993, 1994, 1995, 1996, and 2000, income tax years to the Commissioner for the purpose of considering petitioners' OIC, taking into consideration petitioners' change in circumstances. The order also allowed petitioners, if they wished to do so, to offer another collection alternative pursuant to section 6330(c)(2)(A)(iii). The parties were to inform the Court of the outcome of these proceedings by January 15, 2004.

Pursuant to the order, petitioners submitted additional information to respondent, including an updated itemization of income and expenses as well as other financial documents.

On December 30, 2003, after a reconsideration of petitioners' financial information, Settlement Officer John N. Brandon, Jr., of the Louisville, Kentucky, Appeals Office (Settlement Officer Brandon) sent petitioners a letter rejecting their OIC. In the letter, Settlement Officer Brandon stated that, based on the data petitioners submitted, it appeared that petitioners could make monthly payments in the amount of $439 and could therefore pay their liability in full within the limitation period. Settlement Officer Brandon also offered petitioners an installment agreement as a collection alternative (Installment Agreement). The Installment Agreement provided for the payment of $439 per month for 13 months and $604 per month thereafter,5 until the liability was paid in full.

On January 3, 2004, petitioners sent, via facsimile, a letter to respondent that we interpreted as petitioners' rejection of the Installment Agreement proposed by Settlement Officer Brandon. The issue now before us, therefore, is whether Settlement Officer Brandon abused his discretion in rejecting petitioners' OIC and allowing collection by levy action to proceed.

Discussion

Before a levy may be made on any property or right to property, a taxpayer is entitled to a fair hearing before an impartial officer of the Appeals Office. Secs. 6330(a) and (b), and 6331(d). If the taxpayer requests a hearing, he may raise at that hearing any relevant issue relating to the unpaid tax or the proposed levy. Sec. 6330(c)(2). Such issues include any appropriate spousal defense, challenges to the appropriateness of collection, and offers of collection alternatives such as an installment agreement or an offer-in-compromise. Sec. 6330(c)(2)(A). After the hearing, a determination is made that addresses those issues raised by the taxpayer, verifies that all requirements of applicable law and administrative procedures have been met, and balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary. Sec. 6330(c)(3)(C).

The sole issue raised by petitioners both at the hearing and at trial is respondent's consideration of their OIC. We must decide, therefore, whether the Settlement officer's rejection of petitioner's OIC was proper.

A. Standard of review

Because the validity of petitioners' underlying tax liabilities is not in issue, we review the administrative determination for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-183 (2000). In doing so, we do not conduct an independent review of what would be an acceptable offer in compromise. Rather, we review only whether the Settlement officer's refusal to accept petitioners' OIC was arbitrary, capricious, or without sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

B. Petitioners' Offer

Section 7122(a) authorizes a compromise of a taxpayer's Federal tax liability. An OIC may be accepted where there is doubt as to liability or collectibility, or where it would promote effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999). One of the factors considered in determining whether to accept or reject an OIC is whether the collection of the full liability would result in economic hardship to the taxpayer. Sec. 302.7122-1T(b)(4)(i), Temporary Proced. & Admin. Regs., supra. Economic hardship is defined as the inability of the taxpayer to pay his or her reasonable living expenses. Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.

Throughout the consideration of their OIC, petitioners maintained that they do not have sufficient income to pay their liabilities in full. After reviewing petitioners' financial situation, however, the Settlement officer determined that their financial situation enabled them to pay the entire tax liability within a reasonable time. This determination was based on the information petitioners provided to the Settlement officer as to their income and expenses. Petitioners' financial information indicated that both petitioners had gainful employment and that their monthly income exceeded their necessary living expenses, thereby allowing the full payment of their liabilities.

In reviewing petitioners' OIC, we note that the Settlement officer used information that was favorable to petitioners. For example, the Settlement officer allowed petitioners monthly living expenses that exceeded the amount they claimed on their Form 433-A, Collection Information Statement For Individuals. Moreover, in determining petitioners' income, the Settlement officer used income figures that were less than those actually reported by petitioners. Notwithstanding his use of these favorable estimates, the Settlement officer still concluded that petitioners could pay their entire tax liabilities in full.

We have reviewed the entire record, including the financial information presented to the Settlement officer, and cannot find that the Settlement officer's determination rejecting petitioners' OIC was an abuse of discretion. See Van Vlaenderen v. Commissioner, T.C. Memo. 2003-346; Crisan v. Commissioner, T.C. Memo. 2003-318; Willis v. Commissioner, T.C. Memo. 2003-302. Accordingly, collection by levy of petitioners' unpaid tax liabilities reflected in the Determination Notices may proceed.

To reflect the foregoing,
Decisions will be entered for respondent.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended.

2 These cases have been consolidated for purposes of trial, briefing, and opinion.

3 Revenue Officer Griggs determined that, after allowing for necessary living expenses, petitioners' monthly income and realizable assets enabled them to make a maximum payment of $1,168 per month. The Revenue officer stated that because she was unable to reach petitioners she used their Dec. 31, 2000, income to compute their monthly income. The officer determined that petitioners had a total monthly income of $6,486 and expenses of $5,318 leaving an ability to pay $1,168 per month over a period of 4 years.

4 After considering the additional information provided by petitioners, Revenue Officer Griggs determined that petitioners would be able to pay $836 per month based upon petitioners' monthly income of $5,257 and monthly expenses of $4,421.

5 Petitioners are expected to have satisfied certain medical expenses after 13 months.
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Scott Roman v. Commissioner, Docket No. 8931-03L . T.C. Memo. 2004-20. Filed January 28, 2004.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate.
Held: Because there was no abuse of discretion by R in rejecting P's offer in compromise, R's determination to proceed with collection action is sustained.

Kirk T. Karaszkiewicz, for the petitioner. Jack T. Anagnostis, for the respondent.

MEMORANDUM OPINION
WHERRY, Judge: This case is before the Court on respondent's motion for summary judgment pursuant to Rule 121.1 The instant proceeding arises from a petition for judicial review filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The issue for decision is whether respondent may proceed with collection of tax liabilities for the years 1994 and 1996 as so determined.
Background
Petitioner filed Federal income tax returns for 1994 and 1996 showing balances due and did not fully pay the reported liabilities. Respondent subsequently assessed the unpaid amounts and on March 20, 2002, issued to petitioner a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing with regard to the 1994 and 1996 taxable years. The notice reflected a total amount due of $50,725.97, including taxes, penalties, and interest. In response to the notice, petitioner's representative, Kirk T. Karaszkiewicz (Mr. Karaszkiewicz), timely submitted to respondent a Form 12153, Request for a Collection Due Process Hearing. The Form 12153 contained the following explanation of petitioner's disagreement with the notice of levy: "I filed an Offer in Compromise for the tax liabilities in question on March 15, 2002."
By a letter dated August 30, 2002, Settlement Officer Ronald J. Kroll (Mr. Kroll) advised petitioner that he had received petitioner's case for Appeals consideration and would write or call to schedule a conference. Mr. Karaszkiewicz responded by a letter dated September 24, 2002, requesting that Mr. Kroll contact him to arrange a mutually convenient conference.
Mr. Kroll investigated concerning the reference to an offer in compromise made in petitioner's Form 12153. He found that while an earlier offer in compromise, apparently submitted in about December of 2000, had been returned to petitioner in December of 2001, Internal Revenue Service records did not reflect a March 15, 2002, offer. When Mr. Kroll advised Mr. Karaszkiewicz by telephone on October 2, 2002, of what he had learned, Mr. Karaszkiewicz said that the earlier offer had been returned because additional documentation requested had not been timely submitted. Mr. Karaszkiewicz also indicated that he would send a copy of the subsequent March 15, 2002, Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals.On November 22, 2002, having not received the promised copies of Forms 656 and 433-A, Mr. Kroll sent to Mr. Karaszkiewicz a letter referencing the copies and stating, in pertinent part:
I have not received these documents. The offer was the only collection alternative proposed in your appeal.
Please be advised that I am offering one final opportunity for you to provide the information for consideration as an alternative means of collection. You have 15 days from the date of this letter to file an offer in compromise or send me a written proposal on how you plan to resolve these liabilities. Enclosed are Forms 656 and 433-A.
If the documents are not received within 15 days, I will issue a determination letter based on current information. No further extensions or exceptions will be considered.
On November 26, 2002, Mr. Karaszkiewicz sent to Mr. Kroll copies of the requested documents.
The offer in compromise proposed to pay a total of $15,000 by remitting $5,000 within 90 days of acceptance and the balance in 10 monthly installments of $1,000. In conjunction with his review of the offer, Mr. Kroll both contacted Mr. Karaszkiewicz by telephone with questions regarding the materials provided and subsequently sent a letter dated January 21, 2003,2 requesting additional information necessary for consideration of the offer. The letter also advised: "Please see that I receive the requested information no later than February 18, 2003. Failure to submit the information may result in the recommendation that your client's offer be rejected without further consideration." On February 18, 2003, Mr. Karaszkiewicz hand-delivered documents to Mr. Kroll in response to the January 21, 2003, letter.
In his examination of the hand-delivered documents, Mr. Kroll found that several of the requested items had not been provided. He further became privy to new facts indicating that additional collection information statements would be required in order to complete consideration of the offer. Specifically, the documents revealed that petitioner owned yet another corporation and had recently married, necessitating collection information with respect to the company and to petitioner's spouse. Mr. Kroll advised Mr. Karaszkiewicz of these developments by telephone on March 10, 2003, and Mr. Karaszkiewicz said he would try to provide the requested materials by March 25, 2003.

On March 26, 2003, Mr. Karaszkiewicz sent to Mr. Kroll a brief fax stating as follows: "Mr. Kroll, please excuse the delay in providing the additional documentation which we discussed. This delay has been caused exclusively by my trial commitments. I have not been able to review the documents with Mr. Roman. I assure you that we will quickly provide them." When, 6 weeks later, the requested information had not been submitted, Mr. Kroll determined that the proposed collection alternative could not be accepted and that collection by levy should proceed. The corresponding Notice of Determination Concerning Collection Actions(s) Under Section 6320 and/or 6330was issued to petitioner on May 14, 2003.
The notice summarized respondent's determination: "You proposed an offer in compromise in the amount of $15,000 as your collection alternative. We must reject your offer because you failed to submit the additional information requested which was needed to make a determination regarding the acceptance of your offer. Levy action is, therefore, appropriate." An attachment to the notice provided further details and indicated that, beyond the proposed collection alternative, "No other issues were raised" by the taxpayer.
Petitioner's petition challenging this notice of determination was filed with the Tax Court on June 11, 2003, and reflected an address in Marlton, New Jersey. Petitioner contends in the petition that he did not receive a fair hearing as required by section 6330, and that respondent erred in rejecting petitioner's offer in compromise, due to respondent's decision that "`Six weeks of silence' amounts to a `failure to submit the requested documents' ". Respondent prepared and filed an answer to the petition and subsequently filed the subject motion for summary judgment. Petitioner filed a response to respondent's motion.
Discussion

I. General Rules

Summary Judgment

Rule 121(a) allows a party to move "for a summary adjudication in the moving party's favor upon all or any part of the legal issues in controversy." Rule 121(b) directs that a decision on such a motion shall be rendered "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law."
The moving party bears the burden of demonstrating that no genuine issue of material fact exists and that he or she is entitled to judgment as a matter of law. Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶50,092] 17 F.3d 965 (7th Cir. 1994). Facts are viewed in the light most favorable to the nonmoving party. Id. However, where a motion for summary judgment has been properly made and supported by the moving party, the opposing party may not rest upon mere allegations or denials contained in that party's pleadings but must by affidavits or otherwise set forth specific facts showing that there is a genuine issue for trial. Rule 121(d). The Court has considered the pleadings and other materials in the record and concludes that there is no genuine justiciable issue of material fact in this case.

B. Collection Actions
Section 6331(a) authorizes the Commissioner to levy upon all property and rights to property (except property exempt under section 6334) of a taxpayer where there exists a failure to pay any tax liability within 10 days after notice and demand for payment. Sections 6331(d) and 6330 then set forth procedures generally applicable to afford protections for taxpayers in such levy situations. Section 6331(d) establishes the requirement that a person be provided with at least 30 days' prior written notice of the Commissioner's intent to levy before collection may proceed. Section 6331(d) also indicates that this notification should include a statement of available administrative appeals. Section 6330(a) expands in several respects upon the premise of section 6331(d), forbidding collection by levy until the taxpayer has received notice of the opportunity for administrative review of the matter in the form of a hearing before the Internal Revenue Service Office of Appeals. Section 6330(b) grants a taxpayer who so requests the right to a fair hearing before an impartial Appeals officer.
Section 6330(c) addresses the matters to be considered at the hearing:
6330(c). Matters Considered at Hearing. --In the case of any hearing conducted under this section --
(1) Requirement of investigation. --The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.
(2) Issues at hearing. --
(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including --
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.
(B) Underlying liability. --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 otherwise have an opportunity to dispute such tax liability.
Once the Appeals officer has issued a determination regarding the disputed collection action, section 6330(d) allows the taxpayer to seek judicial review in the Tax Court or a District Court. In considering whether taxpayers are entitled to any relief from the Commissioner's determination, this Court has established the following standard of review:
where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. However, where the validity of the underlying tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion. [Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).]

C. Offers in Compromise
Section 7122(a), as pertinent here, authorizes the Secretary of the Treasury to compromise any civil case arising under the internal revenue laws. Regulations promulgated under section 7122 set forth three grounds for compromise of a liability: (1) Doubt as to liability, (2) doubt as to collectibility, or (3) promotion of effective tax administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.3 With respect to the third-listed ground, a compromise may be entered to promote effective tax administration where: (1)(a) Collection of the full liability would cause economic hardship; or (b) exceptional circumstances exist such that collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner; and (2) compromise will not undermine compliance by taxpayers with the tax laws. Sec. 301.7122-1(b)(3), Proced. & Admin. Regs.

II. Analysis
Nothing in the record indicates that petitioner has at any time throughout the administrative or judicial proceedings attempted to challenge his underlying tax liability. Accordingly, we review respondent's determination to proceed with collection for abuse of discretion. Action constitutes an abuse of discretion under this standard where arbitrary, capricious, or without sound basis in fact or law. Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999).
In arguing that rejection of his offer was an abuse of discretion and deprived him of a fair hearing, petitioner focuses on the "deadline" allegedly set by Mr. Kroll. In his response to respondent's motion, petitioner makes what he characterizes as an "equitable argument" and contends as follows:
Settlement Officer Kroll should not have unilaterally decided on a "deadline" for submission of documents, and then not communicated the "deadline" to Petitioner's counsel. The administrative record reveals that the Settlement Officer made repeated requests for additional information, all of which except the last were responded to. Additionally, Petitioner, through his counsel, responded to each request, and also responded when there was a delay in providing the documents responsive to the last request. * * *
Petitioner further alleges that the effect of the "deadline" was a failure by Mr. Kroll to take into consideration both the issues raised by the taxpayer and the balancing of efficient collection and taxpayer intrusion.
The difficulty with this argument is that, while petitioner may have preferred more time to provide the materials requested, respondent's conduct in these circumstances can hardly be characterized as arbitrary, capricious, or without sound basis in fact or law. The record reflects that throughout the administrative process petitioner was given multiple and repeated opportunities to submit sufficient information to support his offer in compromise. Petitioner's counsel should also have been well aware of the consequences of failure to provide requested materials. An earlier offer had been returned for this reason, and Mr. Kroll's November 22, 2002, and January 21, 2003, letters clearly advised Mr. Karaszkiewicz that a failure to supply the additional information requested would lead to rejection of petitioner's subsequent offer and issuance of a determination letter without further consideration.
Concerning particularly the final "deadline" of which petitioner complains, respondent issued the notice of determination on May 14, 2003. This date is more than 2 months after Mr. Kroll's final request for information on March 10, 2003. It is also 6 weeks after the March 25, 2003, date by which Mr. Karaszkiewicz initially stated he would try to supply the materials and the March 26, 2003, date on which Mr. Karaszkiewicz said the information would be "quickly" provided. Moreover, we note that it is more than 2 years after petitioner's initial submission of an offer in compromise. In these circumstances, and especially in light of the absence of any further communication from petitioner to alter the implications of the "quickly" language, waiting for 6 weeks falls within the bounds of reasonableness.
Section 6330 entitles taxpayers to "a hearing". No statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record. Nor are petitioner's contentions regarding lack of warning well taken where the record in this case is replete with explicit deadlines that respondent generously extended for petitioner's benefit. The statute only requires that a taxpayer be given a reasonable chance to be heard prior to the issuance of a notice of determination. The consideration of petitioner's case thus did not fail to comply with the terms for a fair hearing set forth in section 6330.
Consequently, we conclude that there was no abuse of discretion in respondent's decision to reject petitioner's offer in compromise. In absence of the requested information, respondent was unable reasonably to determine that petitioner's circumstances satisfied the conditions necessary for compromise of a tax liability. Evaluation of potentially pertinent grounds for compromise, such as doubt as to collectibility or a showing of economic hardship, would require complete financial data. The record is equally bereft of any indication of exceptional circumstances suggesting that collection here could undermine public confidence in tax administration. Hence, the Court holds that respondent's determination to proceed with collection of petitioner's tax liabilities was not an abuse of discretion. See e.g., Van Vlaenderen v. Commissioner [Dec. 55,382(M)], T.C. Memo. 2003-346; Neugebauer v. Commissioner [Dec. 55,303(M)], T.C. Memo. 2003-276. We shall grant respondent's motion.
To reflect the foregoing,
An appropriate order granting respondent's motion for summary judgment and decision for respondent will be entered.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2 We note that Mr. Kroll's case activity record in one instance, specifically the entry for March 10, 2003, apparently refers to this letter erroneously as the "1/31/03 letter".

3 Sec. 301.7122-1, Proced. & Admin. Regs., contains an effective date provision stating that the section applies to offers in compromise pending on or submitted on or after July 18, 2002. Sec. 301.7122-1(k), Proced. & Admin. Regs. Previous temporary regulations by their terms apply to offers in compromise submitted on or after July 21, 1999, through July 19, 2002. Sec. 301.7122-1T(j), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39027 (July 21, 1999). Because the final and temporary regulations do not differ materially in substance in any way relevant here, we need not resolve which section would apply in petitioner's circumstances. We further note that temporary regulations are entitled to the same weight and binding effect as final regulations. Peterson Marital Trust v. Commissioner [Dec. 49,935], 102 T.C. 790, 797 (1994), affd. [96-1 USTC ¶60,225] 78 F.3d 795 (2d Cir. 1996). For simplicity and convenience, citations will be to the final regulations.

Bradley M. and Monica Pixley v. Commissioner, Dkt. No. 7093-02L , 123 TC 269, No. 15, September 15, 2004.
Tommy E. Swate, for petitioners; Daniel N. Price, for respondent.
H is an ordained Baptist minister. In this proceeding to collect Ps' unpaid 1992 and 1993 tax liabilities by levy, Ps submitted to R's Appeals Office an offer in compromise, claiming a "tithe to church" as part of their necessary living expenses. In evaluating Ps' ability to pay their outstanding tax liabilities, the Appeals officer declined to take these alleged tithing expenses into account.
Held: Under relevant provisions of the Internal Revenue Manual, tithes that a minister is required to pay as a condition of employment are allowable in determining ability to pay outstanding tax liabilities. Held, further, because Ps failed to substantiate that H was employed as a Baptist minister after R initiated the collection proceedings, the Appeals officer did not abuse his discretion by declining to take into account Ps' alleged tithing expenses. Held, further, the disallowance of Ps' alleged tithing expenses for this purpose did not violate H's First Amendment rights to free exercise of religion.

OPINION

THORNTON, Judge: Pursuant to section 6330(d), petitioners filed a petition for review of an Appeals Office determination sustaining a proposed levy.1 The primary issue for decision is whether, in evaluating petitioners' offer in compromise, the Appeals officer should have considered petitioners' alleged tithing expenses in determining whether they had the ability to pay their outstanding tax liabilities.2 We must also decide whether respondent's disallowance of tithing expenses for this purpose violates Mr. Pixley's First Amendment right to free exercise of religion.

Background

The parties submitted this case fully stipulated pursuant to Rule 122. We incorporate herein the stipulated facts. When petitioners filed their petition, they resided in Newhall, California.

Mr. Pixley is a licensed and ordained Baptist minister. From September 1995 through June 2001, he served as pastor of Grace Community Bible Church, in Tomball, Texas.3 Thereafter, petitioners moved to California, and Mr. Pixley was employed as an echocardiographer at Children's Hospital in Los Angeles.

Respondent mailed to petitioners a Letter 1058, Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing (notice of intent to levy), dated October 5, 2000, proposing a levy with respect to petitioners' unpaid tax liabilities totaling $19,366.69 for 1992 and $39,851.27 for 1993. In response to this notice, petitioners submitted a timely Form 12153, Request for a Collection Due Process Hearing, dated October 18, 2000, raising an offer in compromise as an alternative to levy.

Shortly after requesting their Appeals hearing, petitioners submitted to respondent a Form 656, Offer in Compromise (offer in compromise), signed October 22, 2000. Petitioners also submitted a Form 433-A, Collection Information Statement for Individuals, listing a $520 "tithe to church" as a monthly necessary living expense.

In the Appeals hearing, the Appeals officer requested, on numerous occasions, that petitioners submit evidence that the claimed tithe was a condition of Mr. Pixley's employment. Petitioners failed to respond to these requests. The Appeals Office issued to petitioners a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330", dated March 14, 2002. In the notice of determination, the Appeals Office rejected petitioners' offer in compromise and concluded that petitioners had the ability to fully pay their 1992 and 1993 tax liabilities. The notice of determination stated that petitioners failed to establish that tithes were a condition of Mr. Pixley's employment and that, for purposes of evaluating petitioners' offer in compromise, tithing expenses were disallowed in determining petitioners' ability to pay.

After the notice of determination was issued, the Appeals officer reconsidered petitioners' offer in compromise and gave them additional opportunities to submit evidence that the claimed tithe was a condition of Mr. Pixley's employment. Petitioners failed to submit this information, and the Appeals officer ultimately sustained his rejection of petitioners' offer.

Discussion

In this case, we are called upon to address for the first time, in the context of an offer in compromise, the treatment of a minister's tithing expenses for purposes of determining ability to pay outstanding tax liabilities.

I. Petitioners' Contentions
Petitioners claim that tithing expenses are incurred as a condition of Mr. Pixley's employment as a Baptist minister and should be taken into account in determining petitioners' ability to pay their taxes. Petitioners argue that the Appeals officer's disallowance of the tithing expenses for this purpose violates Mr. Pixley's First Amendment right to free exercise of religion.

II. Standard of Review
Because petitioners' underlying tax liability was not properly at issue in the Appeals Office hearing, we review the Appeals Office determination for abuse of discretion. See Keene v. Commissioner [Dec. 55,213], 121 T.C. 8, 17-18 (2003); Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 185 (2001).

III. Offers in Compromise
A.      In General
B.      Section 7122(a) authorizes the Commissioner to compromise a taxpayer's outstanding tax liabilities. Dutton v. Commissioner [Dec. 55,542], 122 T.C. 133, 137 (2004). Section 7122(c)(1) provides that "The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer in compromise is adequate and should be accepted to resolve a dispute."
The regulations state three different grounds for compromising tax liabilities: (1) Doubt as to liability; (2) doubt as to collectibility; and (3) promotion of effective tax administration. Sec. 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999).4 The parties' arguments focus exclusively on the ground of doubt as to collectibility. Doubt as to collectibility arises if the taxpayer's assets and income are less than the full amount of the assessed liability. Id. In determining whether there is doubt as to collectibility, the Commissioner must determine the taxpayer's "ability to pay" the outstanding tax liabilities that are to be compromised. Sec. 301.7122-1T(b)(3)(ii), Temporary Proced. & Admin. Regs., supra.

B. Determining a Taxpayer's Ability To Pay

In determining a taxpayer's ability to pay outstanding tax liabilities, the Commissioner takes into account the funds the taxpayer needs to pay basic living expenses. Id. The taxpayer's basic living expenses are determined by evaluating the taxpayer's facts and circumstances. Id.

In evaluating a taxpayer's ability to pay, the Commissioner considers two types of allowable expenses: (1) necessary expenses, and (2) conditional expenses. Internal Revenue Manual (IRM), secs. 5.15.1.3 and 5.15.1.3.1(1) (Mar. 31, 2000).5 For this purpose, a necessary expense is one that is used for a taxpayer's (and his family's) health and welfare or production of income. IRM sec. 5.15.1.3.2(1) (Mar. 31, 2000). The expense must be reasonable taking into account family size, geographic location, and any unique individual circumstances. IRM sec. 5.15.1.2.3(1) and (2) (Mar. 31, 2000). Expenses that do not qualify as necessary may nevertheless be allowable in certain limited circumstances as so-called conditional expenses. IRM sec. 5.8.5.4.2 (Nov. 30, 2001).

For purposes of determining a taxpayer's ability to pay, charitable contributions are necessary expenses if they provide for a taxpayer's (or his family's) health and welfare or are a condition of the taxpayer's employment. IRM sec. 5.15.1.3.2.3(3) and exh. 5.15.1-2 (Mar. 31, 2000). The IRM specifically addresses tithes to religious organizations, as follows:

1. Question. If, as a condition of employment, a minister is to tithe, a business executive is required to contribute to a charity * * *, will these expenses be allowed?

Answer. Yes. The only thing to consider is whether the amount being contributed equals the amount actually required and does not include a voluntary portion. [IRM, Exhibit 5.15.1-3 (Mar. 31, 2000).]

On brief, respondent contends that petitioners' alleged tithing expenses should be disallowed pursuant to IRM section 5.8.5.4.2(9) (Nov. 30, 2001), which states that "Charitable contributions are not allowed." This IRM subsection, however, relates expressly to conditional expenses, not necessary expenses, and does not purport to override the provisions of IRM Exhibit 5.15.1-3 (Mar. 31, 2000) as set out above.

IV. Whether the Appeals Officer Abused His Discretion
In the Appeals hearing, petitioners were given the opportunity to substantiate that Mr. Pixley was employed as a Baptist minister. They failed to do so. In fact, there is no evidence that Mr. Pixley was employed as a minister when the notice of determination was issued to petitioners in March 2002 or that he has been employed as a minister at any time since.6 Consequently, even if we were to assume arguendo, as petitioners assert, that "The Southern Baptist Convention has a doctrine that its members should tithe ten percent of their income to the church", we are unpersuaded that tithing was a requirement of Mr. Pixley's employment.

We hold that the Appeals officer did not abuse his discretion in disallowing petitioners' claimed tithing expenses.

V. Petitioners' First Amendment Challenge
The First Amendment of the United States Constitution provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof".
Petitioners contend that respondent's disallowance of Mr. Pixley's tithing expenses for purposes of evaluating their offer in compromise violates the Free Exercise Clause of the First Amendment. The gist of petitioners' argument, as we understand it, is that by declining to make allowance for tithing expenses in evaluating petitioners' ability to pay their taxes, respondent is effectively reducing the funds that petitioners have available to support their religion and diverting those funds to the U.S. Treasury.
It may well be true that paying their taxes will leave petitioners less funds to support their religion. But this is a burden, common to all taxpayers, on their pocketbooks, rather than a recognizable burden on the free exercise of their religious beliefs. Constitutional protection of fundamental freedoms "does not confer an entitlement to such funds as may be necessary to realize all the advantages of that freedom." Harris v. McRae, 448 U.S. 297, 318 (1980); see Regan v. Taxation With Representation of Wash. [83-1 USTC ¶9365], 461 U.S. 540, 550 (1983).
In any event, even if petitioners could demonstrate a recognizable burden on the free exercise of their religious beliefs, the burden would be justified by the Government's compelling interest in collecting taxes and administering a uniform, mandatory, and sound tax system. See, e.g., Hernandez v. Commissioner [89-1 USTC ¶9347], 490 U.S. 680, 699-700 (1989) (quoting United States v. Lee [82-1 USTC ¶9205], 455 U.S. 252, 260 (1982), stating that the Government has a "`broad public interest in maintaining a sound tax system,' free of `myriad exceptions flowing from a wide variety of religious beliefs' "); United States v. Lee, supra at 260 ("Because the broad public interest in maintaining a sound tax system is of such a high order, religious belief in conflict with the payment of taxes affords no basis for resisting the tax."); Miller v. Commissioner [Dec. 53,915], 114 T.C. 511, 517 (2000); Adams v. Commissioner [Dec. 52,602], 110 T.C. 137, 139 (1998), affd. [99-1 USTC ¶50,307] 170 F.3d 173 (3d Cir. 1999). This compelling Government interest underpins the Commissioner's authority to compromise tax liabilities under section 7122 and to prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer in compromise is adequate and should be accepted to resolve a tax dispute, see sec. 7122(c)(1).7

We hold that the Appeals officer's disallowance of tithing expenses in evaluating petitioners' ability to pay their taxes did not violate Mr. Pixley's First Amendment rights to free exercise of religion.

VI. Conclusion
We sustain respondent's determination in the notice of determination that, for purposes of petitioners' offer in compromise, Mr. Pixley's tithing expenses are not allowable in determining petitioners' ability to pay their outstanding tax liabilities. Petitioners raise no additional arguments against respondent's proposed collection action. Consequently, we sustain respondent's determination to proceed with collection of petitioners' tax liabilities by levy.
Decision will be entered for respondent.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and Rule references are to the Tax Court Rules of Practice and Procedure.

2 A "tithe" is "a tenth part of something paid as a voluntary contribution or as a tax especially for the support of a religious establishment". Merriam Webster's Collegiate Dictionary 1238 (10th ed. 1997).

3 Until early 2001, Mr. Pixley was also employed by Cardiology Associates of Houston, Texas.

4 Final regulations under sec. 7122 were promulgated effective for offers in compromise pending on or submitted on or after July 18, 2002. Sec. 301.7122-1(k), Proced. & Admin. Regs.

5 On May 5, 2004, we ordered the parties to file additional supplemental stipulations of fact, including stipulations as to the portions of the Internal Revenue Manual (IRM), as in effect for the relevant time periods, that the parties discussed on brief. The parties made appropriate stipulations and included as exhibits copies of the relevant portions of the IRM. All references to the IRM are to these stipulated exhibits.

6 On brief, petitioners allege that after Mr. Pixley left Grace Community Church in June 2001, petitioners moved to California so that Mr. Pixley could prepare to attend a seminary, that he continued his ministry in an unpaid position as a Baptist minister, and that he continued to tithe to keep this position. There is no evidence in the record, however, to substantiate these allegations, and there is no indication that petitioners presented any such evidence to the Appeals officer. Even if we were to assume arguendo that these allegations are true, they do not establish that tithes were paid as a condition of employment.

7 The Commissioner states that the objectives of the offer in compromise program are to: (1) Effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the Government; (2) achieve a resolution that is in the best interest of both the individual taxpayer and the Government; (3) provide the taxpayer a fresh start toward future voluntary compliance with all filing and payment requirements; and (4) secure collection of revenue that may not be collected through any other means. IRM sec. 5.8.1.1.4(1) (Feb. 4, 2000). These objectives are in furtherance of the Government's greater interest in collecting taxes and maintaining a uniform, mandatory, and sound tax system.