                         T.C. Memo. 2010-8



                      UNITED STATES TAX COURT



          SALVADOR AND ELOISA GONZALEZ, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21852-07L.            Filed January 11, 2010.



     Brenda G. Bates, for petitioners.

     James H. Brunson, III, for respondent.



                        MEMORANDUM OPINION


     WELLS, Judge:   Respondent sent a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330

(notice of determination) to petitioners with respect to a levy

to collect unpaid Federal income tax liabilities for their 1993,

1994, 1995, 1997, 1998, 1999, and 2000 tax years.   In response,

petitioners timely filed a petition, pursuant to section 6330(d),
                               - 2 -

seeking review of respondent’s determination.1   We must decide

whether respondent’s Appeals officer abused her discretion by

sustaining the levy collection action against petitioners’ real

property for tax years 1993, 1994, 1995, 1997, 1998, 1999, and

2000 by not properly balancing the Government’s need for the

efficient collection of taxes with petitioners’ need for any

collection to be no more intrusive then necessary as required

pursuant to section 6330(c)(3)(C).

                            Background

     Some of the facts and certain exhibits have been stipulated

by the parties.   The parties’ stipulations of fact are

incorporated in this opinion by reference and are so found.

     At the time they filed the petition, petitioners resided in

Georgia.

     Petitioner Salvador Gonzalez is the pastor of a small church

and engages in a small construction business.    Petitioner Eloisa

Gonzalez is unemployed.

     For tax years 1993, 1994, and 1995 petitioners timely filed

joint Federal income tax returns.    On October 13, 1997,

respondent asserted against petitioners additional income tax for

taxable years 1993 and 1994 on the basis of examination of

petitioners’ returns.   On October 20, 1997, respondent asserted



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended.
                               - 3 -

against petitioners additional Federal income tax for taxable

year 1995 on the basis of examination of petitioners’ return.

The additional tax resulted from petitioner Salvador Gonzalez’

construction business.

     For tax years 1997, 1998, 1999, and 2000 petitioners timely

filed joint Federal income tax returns.   Respondent asserted

against petitioners additional tax on the basis of insufficient

withholding and estimated tax payments.

     A levy source was identified, and respondent sent

petitioners Letter 1058A, Final Notice--Notice of Intent to Levy

and Notice of Your Right to a Hearing, dated February 6, 2007,

regarding petitioners’ liabilities for tax years 1993, 1994,

1995, 1997, 1998, 1999, and 2000.

     On February 28, 2007, petitioners submitted Form 12153,

Request for a Collection Due Process or Equivalent Hearing.     In

their request petitioners claimed that the proposed levy action

would create an undue hardship on their family because of

insufficient funds with which to enter into an installment

agreement.   A hearing was held with respect to petitioners’ levy

notice.

     Respondent requested that petitioners prepare their Federal

income tax return for tax year 2006 and Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, for submission at the Appeals Office hearing.
                                 - 4 -

     On July 12, 2007, petitioners submitted a signed copy of

their return for tax year 2006 (2006 return).    The 2006 return

failed to include approximately $100,000 of income on Schedule C,

Profit or Loss From Business, that related to petitioner Salvador

Gonzalez’ construction business.

     On July 17, 2007, petitioners’ attorney appeared at a face-

to-face hearing with respondent’s Appeals Officer Duvall (Ms.

Duvall).   Petitioners submitted their Form 433-A at the hearing.

On Form 433-A petitioners listed two properties--a home having a

value of $280,000 and a mortgage balance of $54,700, and an

unimproved lot having a value of $32,000 (the real properties).2

Form 433-A also showed that petitioners’ monthly expenses

exceeded their monthly income.     The sole issue raised at the

Appeals Office hearing was a collection alternative.     At the

hearing, Ms. Duvall informed petitioners’ attorney that if

petitioners filed an amended return that included the

approximately $100,000 of missing construction income,

petitioners’ collection alternative would be considered on the

basis of hardship.

     On August 13, 2007, Ms. Duvall examined petitioners’

financial statement and determined that petitioners had

sufficient equity in their real properties to fully pay the


     2
      Petitioners have placed a “for sale by owner” sign in front
of each property asking $330,000 for the home and $85,000 for the
unimproved lot.
                               - 5 -

outstanding tax liabilities.   In a letter dated August 24, 2007,

Ms. Duvall sustained the proposed levy action, citing the equity

available in petitioners’ real properties.

     After the Appeals Office hearing petitioners filed an

amended return for taxable year 2006 (2006 amended return) which

included approximately $100,000 in gross income from petitioner

Salvador Gonzalez’ construction business.     The 2006 amended

return resulted in a small refund to petitioners.

     Petitioners are currently in full compliance with the filing

of their individual Federal income tax returns.

                            Discussion

     Section 6330 requires, before any levy on any person’s

(taxpayer’s) property or right to property, that the Commissioner

give the taxpayer 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).    At the hearing

a taxpayer may raise appropriate spousal defenses, challenge the

appropriateness of collection actions, and offer collection

alternatives.   Sec. 6330(c)(2)(A).    Additionally, the taxpayer

may challenge the existence or amount of the underlying tax

liability only if the taxpayer did not receive a notice of

deficiency or did not otherwise have an opportunity to challenge

the underlying liability.   Sec. 6330(c)(2)(B).    At the hearing,

generally, the Appeals officer must consider the above-stated
                                - 6 -

issues raised by the taxpayer, verify that the requirements of

applicable law and administrative procedure 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 * * * [taxpayer] that any collection action be no

more intrusive than necessary.”    Sec. 6330(c)(3).3

     Where the validity of the underlying tax liability is

properly in issue, the Court will review the matter de novo.

Where the validity of the underlying tax is not properly in

issue, however, the Court will review the Commissioner’s

determination for abuse of discretion.    Sego v. Commissioner, 114

T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182

(2000).    An abuse of discretion is any action that is arbitrary,

capricious, or without sound basis in law or fact.       Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).

     In the instant case, the underlying liabilities are not in

issue.    Accordingly, we review the Appeals officer’s




     3
      Petitioners made no argument regarding whether the
assessment in the instant case was proper. We have held that the
requirement pursuant to sec. 6330(c)(1) to verify that all
applicable laws have been met generally is satisfied if the
Appeals officer relied on a Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, or a
transcript containing similar information. There is no
requirement that the document be given to the taxpayer during the
hearing. Nestor v. Commissioner, 118 T.C. 162 (2002). The
record in the instant case contains a Form 4340 for each of the
years in issue.
                               - 7 -

determination under the abuse of discretion standard.   See Sego

v. Commissioner, supra; Goza v. Commissioner, supra.

     Petitioners contend that respondent did not consider their

amended return for tax year 2006 and that respondent was

adequately protected by the liens in place on petitioners’ real

property.   Petitioners contend that respondent, by failing to

consider those matters, did not balance the Government’s need for

efficient collection of taxes with the concern of petitioners

that any collection action be no more intrusive than necessary.

See sec. 6330(c)(3)(C).   Petitioners contend that respondent’s

failure to engage in such balancing was an abuse of discretion.

Respondent contends that Ms. Duvall’s determination under section

6330(c)(3)(C) was not an abuse of discretion and petitioners have

sufficient equity in their real properties to fully pay their tax

liabilities.

     We first consider the issue of respondent’s failure to

consider petitioners’ 2006 amended return.   Petitioners contend

that it was an abuse of discretion to make a levy determination

without considering the amended return.   Respondent contends that

nothing on the amended return, whether or not considered by Ms.

Duvall in making her determination to proceed with the levy,

would entitle petitioners to a reversal of the levy

determination.
                               - 8 -

     As required under section 6330(c)(3)(C), an Appeals officer

should consider, among other things, a taxpayer’s actions,

compliance history, and financial circumstances when balancing

the Government’s needs with those of the taxpayer.   Internal

Revenue Manual pt. 8.7.2.3.13(6) (Jan. 1, 2006).   In the instant

case, the sole issue raised at the Appeals Office hearing was a

collection alternative.   Ms. Duvall did not consider petitioners’

financial condition when she informed petitioners that, if they

amended their Form 1040, U.S. Individual Income Tax Return, for

taxable year 2006, she would consider whether collection of their

liabilities would cause them economic hardship.4   Petitioners

submitted Form 433-A, which included information on petitioners’


     4
      Sec. 7122(a) provides that “The Secretary may compromise
any civil * * * case arising under the internal revenue laws”.
Whether to accept an offer-in-compromise is left to the
Secretary’s discretion. Fargo v. Commissioner, 447 F.3d 706, 712
(9th Cir. 2006), affg. T.C. Memo. 2004-13. The regulations
pursuant to sec. 7122(a) set forth three grounds for the
compromise of a tax liability: (1) Doubt as to liability; (2)
doubt as to collectability; or (3) promotion of effective tax
administration. Sec. 301.7122-1(b), Proced. & Admin. Regs. The
Commissioner may compromise on doubt as to collectability where
the taxpayer’s assets and income are less than the full amount of
the assessed liability. Id. Generally, the Commissioner will
accept an offer-in-compromise only if it reflects the taxpayer’s
reasonable collection potential. Rev. Proc. 2003-71, sec.
4.02(2), 2003-2 C.B. 517, 517. However, the Commissioner may
also compromise on the grounds of effective tax administration
when: (1) Collection of the full liability would create economic
hardship; or (2) 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 (3) compromise of the liability would not
undermine compliance by taxpayers with the tax laws. Sec.
301.7122-1(b)(3), Proced. & Admin. Regs.
                                 - 9 -

financial condition, at the Appeals Office hearing.     It was only

after the hearing that Ms. Duvall was able to consider the

section 6330(c)(3)(C) balancing because only at that point could

she consider all the relevant factors.     Only following that

review was Ms. Duvall able to determine that petitioners had

sufficient equity to fully pay their liabilities and identify a

levy source.    We also note that petitioners’ 2006 return omitted

nearly $100,000 of income.     The “change” in petitioners status

was not a result of a failure to consider the 2006 amended

return, but rather of Ms. Duvall’s full consideration of all the

relevant facts.    Accordingly, we conclude that Ms. Duvall did not

abuse her discretion by not considering the 2006 amended return.

     We next turn to the issue of respondent’s liens on

petitioners’ real properties.     Once an assessment has been made

against a taxpayer, section 6303 directs the Commissioner to give

the taxpayer notice of the assessment, and demand payment, within

60 days.   If a taxpayer fails to pay, then the Federal tax lien

arises and attaches to all of the taxpayer’s property and rights

to property.    Sec. 6321.

     The Commissioner generally has 10 years from the date of a

properly assessed tax to collect the amount due.     Sec. 6502.   The

period of limitations on collections is suspended while a

taxpayer’s case is pending in the Tax Court and for 60 days

thereafter.    Sec. 6503(a).   If the 10-year period of limitations
                              - 10 -

on collections is allowed to expire, a properly assessed tax may

become uncollectible.

     Petitioners contend that respondent is fully protected by

the Federal tax lien.   While petitioners offered to sell their

real properties to satisfy the lien, petitioners did not offer to

extend the period of limitations, and respondent was not given

any assurances that a sale would occur in a reasonable time.

Rather, petitioners merely insist that the Federal tax lien in

place is sufficient security for the Government’s interests while

petitioners seek a buyer for the real properties.

     Respondent issued a notice of intent to levy on February 6,

2007, approximately 8 months before the period of limitations on

collections would have expired for 3 of the years in issue.5    Had

respondent failed to proceed with collection of petitioners’

liabilities for an additional 8 months, the liabilities for tax

years 1993, 1994, and 1995 might have become uncollectible on

account of the expiration of the period of limitations.6   We do


     5
      Taxes and penalties for the 1993 and 1994 tax years were
assessed on Oct. 13, 1997. For 1993 and 1994, the period of
limitations on collections, if not extended, would have expired
on Oct. 12, 2007. Assessment for the 1995 taxable year was made
on Oct. 20, 1997. For 1995, the period of limitations on
collections, if not extended, would have expired on Oct. 19,
2007. The notice of intent to levy was sent on Feb. 6, 2007,
approximately 8 months short of the dates on which the 10-year
periods of limitations on collections might otherwise have
expired.
     6
      As of Feb. 6, 2007, the date of the notice of intent to
                                                   (continued...)
                                - 11 -

not find respondent’s decision to proceed to be an abuse of

discretion.

     Petitioners also contend that they could sell the real

properties for more than respondent could in a foreclosure

proceeding.   However, it is not an abuse of discretion to require

that taxpayers with sufficient assets to satisfy their

liabilities pay them off more rapidly than would be accomplished

through other methods.     Castillo v. Commissioner, T.C. Memo.

2004-238; Clawson v. Commissioner, T.C. Memo. 2004-106.       We note

that petitioners’ real properties have sufficient value for

petitioners to pay off the tax liabilities in full and that

petitioners’ real properties are a home in which they are not

living and a vacant lot.    Petitioners offered little evidence to

prove that they are actively proceeding to sell their real

properties.   Petitioners did not offer proof that the real

properties were listed with a broker.     Petitioners merely have

placed a “for sale by owner” sign in front of each of the real

properties.   Moreover, the only payments petitioners have made on

their tax liabilities over the preceding 10 years have been by

respondent’s application of refunds.     It is evident that

petitioners have made little effort to satisfy their tax


     6
      (...continued)
levy, petitioners had outstanding liabilities of $22,619,
$124,266, and $9,882 for tax years 1993, 1994, and 1995,
respectively. The total liability for the years in issue was
$179,722.
                              - 12 -

liabilities.   Given that the periods of limitations on

collections were close to expiration for several tax years, we

conclude that it was not an abuse of discretion for respondent to

sustain the levy action against petitioners without relying

solely on the liens that were in place.

     On the basis of the foregoing, we hold that Ms. Duvall did

not abuse her discretion on the issue of the balancing of the

Government’s need for the efficient collection of taxes with

petitioners’ need for collection not to be any more intrusive

than necessary.   Accordingly, we uphold respondent’s

determination to proceed with the collection of petitioners’ tax

liabilities in issue.

     The Court has considered all other arguments made by the

parties and, to the extent we have not addressed them herein, we

consider them moot, irrelevant, or without merit.

     To reflect the foregoing,


                                            Decision will be entered

                                       for respondent.
