                        T.C. Memo. 2008-259



                      UNITED STATES TAX COURT



                   LEROY WRIGHT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1429-06L.               Filed November 18, 2008.



     Frederick J. O’Laughlin, for petitioner.

     G. Chad Barton, for respondent.



                        MEMORANDUM OPINION


     MARVEL, Judge:   Pursuant to section 6330(d),1 petitioner

seeks review of respondent’s determination to proceed with the




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

collection of petitioner’s 1993, 1994, 1995, 1996, 1999, and 2000

Federal income tax liabilities.

                             Background

       The parties submitted this case fully stipulated under Rule

122.    We incorporate the stipulated facts into our findings by

this reference.    Petitioner resided in Oklahoma when he filed his

petition.

       Petitioner failed to file timely Federal income tax returns

for 1993, 1994, and 1995.    After respondent prepared substitutes

for returns under section 6020(b) for the above years, petitioner

filed Federal income tax returns for those years but failed to

pay all of the tax reported on the returns.    Respondent assessed

the income tax reported on the returns as well as additions to

tax and interest.

       Petitioner filed Federal income tax returns for 1996, 1999,

and 2000 but failed to pay all of the tax reported on the

returns.    Respondent assessed the income tax reported on the

returns as well as additions to tax and interest.

       On June 22, 2005, respondent issued petitioner a Final

Notice of Intent to Levy and Notice of Your Right to a Hearing

for 1993, 1994, 1995, 1996, 1999, and 2000.    Petitioner timely

submitted a Form 12153, Request for a Collection Due Process

Hearing.    In a note attached to his Form 12153, petitioner stated
                                 - 3 -

that he disagreed with the proposed levy because it would cause

him great hardship and he could not pay.

     On September 13, 2005, Settlement Officer Debra Alcorte (Ms.

Alcorte) mailed petitioner a letter scheduling a telephone

hearing for October 13, 2005.    Ms. Alcorte requested that

petitioner provide the following items:       (1) A completed Form

433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals, or Form 433-B, Collection Information

Statement for Businesses; (2) copies of bank statements for the

past 3 months; (3) copies of wage statements for the last three

pay periods; (4) copies of a mortgage statement or rental

agreement; and (5) copies of life and health insurance policies,

if applicable.    On October 20, 2005, petitioner submitted Form

433-A on which he indicated that he was a single, self-employed

individual operating “Wright Way Const”       and that he had income

and living expenses as follows:

              Income                          Living expenses
                        Gross                                   Actual
     Source            monthly           Expense items          monthly

Net income                       Food, clothing, misc.           $300
  from business        $1,405    Housing and utilities            600
    Total               1,405    Transportation                   200
                                 Health care                      500
                                 Taxes (income and FICA)          155
                                 Court ordered payments           200
                                   Total                        1,955
                                - 4 -

     Petitioner attached to the Form 433-A copies of 10 checks

drawn on the account of TLJ Wrightway, L.L.C.,2 payable to

petitioner:
                         Date           Amount
                                        1
                         7/1/05          $1,500
                        7/15/05           1,080
                        7/29/05           1,387
                         8/5/05           1,958
                        8/12/05             850
                        8/19/05           1,033
                        8/23/05             500
                        8/26/05             500
                         9/2/05             958
                         9/9/05             400
                          Total          10,166

          1
           Amounts are rounded to the nearest dollar.

Petitioner also provided copies of statements of accounts held at

Tinker Federal Credit Union (TFCU) for July and September 20053

showing deposits totaling $800 and $2,326.52,4 respectively, and

statements for a checking account held at Republic Bank & Trust

for August and September 2005 showing no activity.      Petitioner

indicated on Form 433-A that he owned two automobiles valued at




     2
      The record indicates that TLJ Wrightway, L.L.C., is the
business petitioner operates and to which he referred as “Wright
Way Const” on Form 433-A.
     3
      The TFCU statements show that the owner of the account is
Carla J. Gathright. Petitioner provided a voided check drawn on
the same account and bearing his name, and he listed the account
as his account on Form 433-A.
     4
      The September 2005 amount includes two deposits of $150
made by transfer from Carla Gathright.
                               - 5 -

$1,0005 and $500, real estate valued at $40,000 subject to a loan

balance of $27,000, furniture/personal effects valued at $750,

horses valued at $1,250, and tools used in business valued at

$1,500 subject to a loan balance of $1,000.

     On October 20, 2005, Ms. Alcorte held a telephone hearing

during which petitioner’s representative, Frederick J. O’Laughlin

(Mr. O’Laughlin), indicated that petitioner was seeking an offer-

in-compromise of $2,000.6   Ms. Alcorte advised Mr. O’Laughlin

that she had not seen the Form 433-A before the hearing and would

need to conduct research to evaluate the offer.    After reviewing

petitioner’s Form 433-A, Ms. Alcorte made four adjustments to the

income and expenses reported on the form.   She increased

petitioner’s net monthly income from business to $3,700.      Ms.

Alcorte calculated the net monthly income from business by

totaling the amounts on copies of 10 checks attached to the Form

433-A and dividing the total by 2.75.7   She also increased


     5
      Petitioner indicated on the Form 433-A that the automobile
valued at $1,000 was subject to a loan, but he did not indicate
the loan balance.
     6
      At Mr. O’Laughlin’s request, the telephone hearing
originally scheduled for Oct. 13, 2005, was rescheduled for
Oct. 20, 2005.
     7
      In a June 28, 2006, letter Ms. Alcorte explained that she
recalculated petitioner’s income as $3,700 on the basis of bank
statements. However, handwritten notes next to the copies of the
checks suggest she relied on the checks rather than the bank
statements. It also appears Ms. Alcorte used 2.75 because the
checks are dated between July 1 and Sept. 9, 2005, and this time
                                                   (continued...)
                                    - 6 -

petitioner’s monthly housing and utilities expenses to $649, the

maximum allowed under the national standards, and she increased

petitioner’s transportation expense to $300 in accordance with

the applicable standards.        Finally, Ms. Alcorte decreased

petitioner’s health care expense to $200.8       Ms. Alcorte

subtracted the adjusted monthly living expenses from the adjusted

monthly gross income and determined that petitioner had excess

monthly income of $1,596.9       On October 28, 2005, Ms. Alcorte also

conducted an online search to determine petitioner’s assets and

found 13 addresses listed for petitioner and several vehicles

registered in the State of Mississippi under the name “Lee Henry

Wright”.



     7
      (...continued)
period is not a full 3 months.
     8
      In the letter dated June 28, 2006, Ms. Alcorte explained
that she decreased petitioner’s health care expense to $200 to
allow the average. The record does not show how Ms. Alcorte
calculated the average.
     9
      The following table shows Ms. Alcorte’s calculations:

              Income                          Living expenses
                        Gross                                   Actual
     Source            monthly        Expense items             monthly

Net income                            Food, clothing, misc.        $649
  from business        $3,700         Housing and utilities         600
    Total               3,700         Transportation                300
                                      Health care                   200
                                      Taxes (income and FICA)       155
                                      Court ordered payments        200
                                        Total                     2,104
                               - 7 -

     On December 14, 2005, respondent sent petitioner a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 for 1993, 1994, 1995, 1996, 1999, and 2000 sustaining

the proposed levy.   On January 19, 2006, petitioner petitioned

this Court challenging respondent’s determination.

     On May 16, 2006, the parties filed a joint motion to remand.

We granted the joint motion and remanded this case to

respondent’s Appeals Office.

     On June 8, 2006, Ms. Alcorte sent Mr. O’Laughlin a letter

scheduling a telephone hearing for June 28, 2006.    Ms. Alcorte

asked petitioner for information regarding his horses and proof

that petitioner did not own certain real and personal property.

In response Mr. O’Laughlin explained that the only real estate

petitioner owned was the property reported on the Form 433-A.

Mr. O’Laughlin also stated that the total value of the horses was

$1,250, and in March 2006 petitioner had sold a mule “for $70

with a value of $50.”   Mr. O’Laughlin also provided an affidavit

in which petitioner swore that he at no time owned any of the

vehicles registered in Mississippi to “Lee Henry Wright”.

     On June 28, 2006, Ms. Alcorte held a telephone hearing with

Mr. O’Laughlin (the second hearing).   During the second hearing

Mr. O’Laughlin asked Ms. Alcorte to consider an offer-in-

compromise of $2,000.   Ms. Alcorte informed Mr. O’Laughlin that

the offer was not feasible because on the basis of her analysis
                               - 8 -

of petitioner’s assets and future income the minimum offer was

$82,908.   Ms. Alcorte suggested that petitioner enter into a

partial payment installment agreement.

     On or about June 28, 2006,10 Mr. O’Laughlin faxed Ms.

Alcorte Form 656, Offer in Compromise, in which petitioner sought

to compromise his tax liability for $2,000 based on doubt as to

collectibility.11   On the Form 656, petitioner asserted that he

could not afford to pay the full amount of his tax liabilities.

On June 28, 2006, Ms. Alcorte faxed Mr. O’Laughlin a letter

explaining that petitioner’s offer-in-compromise was unacceptable

as the minimum offer amount was $82,908 and suggesting a partial

payment installment agreement of $1,596 per month.   Ms. Alcorte

also explained that she determined petitioner’s excess monthly

income of $1,596 on the basis of her adjustments to petitioner’s

Form 433-A, that petitioner’s income potential for the following

48 months was $76,608,12 and that petitioner’s net realizable

equity in assets was $6,300.   Ms. Alcorte determined petitioner’s

net realizable equity in his assets by adding the amounts

attributable to real estate ($5,000) and animals ($1,300) he


     10
      Although the parties stipulated that petitioner’s counsel
sent the offer-in-compromise by fax on June 28, 2006, the fax
appears to have been sent on June 27, 2006.
     11
      Petitioner submitted the June 2006 offer-in-compromise
with respect to 1993, 1994, 1995, 1996, 1999, and 2000.
     12
      Ms. Alcorte arrived at petitioner’s future income by
multiplying petitioner’s excess monthly income by 48.
                                - 9 -

owned.    Ms. Alcorte determined petitioner’s equity in his real

estate by taking 80 percent of the value of the real estate

listed on his Form 433-A and subtracting the loan balance

reported on the Form 433-A.    She determined the equity in the

animals by adding the value of two horses ($750 and $500) and the

value of a mule ($50).13

     On July 5 and 6, 2006, Ms. Alcorte held telephone

conferences with Mr. O’Laughlin during which they discussed the

offer-in-compromise and the partial payment installment

agreement.    Mr. O’Laughlin informed her that petitioner did not

wish to enter into a partial payment installment agreement

because petitioner “would get a better deal by filing for

bankruptcy.”

     On July 17, 2006, respondent issued petitioner a

Supplemental Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (supplemental notice).

In the supplemental notice, the Appeals Office determined that

respondent met all administrative and procedural requirements,

that the offer-in-compromise was too low, that no viable

alternatives to the levy were established, and that the levy was

not considered an overly intrusive action.




     13
      In calculating net realizable equity in assets Ms. Alcorte
added the value of the mule although petitioner had sold the mule
in March 2006.
                                - 10 -

     The parties have stipulated Ms. Alcorte’s sworn declaration

dated August 21, 2006, with attachments (declaration).    In the

declaration Ms. Alcorte stated that she made her determination to

proceed with the levy after reviewing (1) the correspondence

between respondent and petitioner or Mr. O’Laughlin, (2)

documents petitioner sent to Ms. Alcorte, (3) results of the

research she conducted on October 28, 2005, such as the State of

Mississippi Motor Vehicles Report, property assessment record,

and a printout of online search results, and (4) TXMODA14

transcripts of petitioner’s account for 1993, 1994, 1995, 1996,

1999, and 2000 (transcripts).    From the transcripts, Ms. Alcorte

determined that respondent followed administrative procedures

before the issuance of the supplemental notice.   Ms. Alcorte

attached to the declaration all documents she reviewed.

                            Discussion

     Section 6330(a) provides that 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 the right to a hearing

before the levy is made.   If the person requests a hearing, a

hearing shall be held before an impartial officer or employee of


     14
      A TXMODA transcript contains current account information
from the Commissioner’s master file. TXMODA is a command that
the Commissioner’s employee enters into the Commissioner’s
integrated data retrieval system (IDRS) to obtain a transcript.
Crow v. Commissioner, T.C. Memo. 2002-149 n.6. In essence, IDRS
is the interface between the Commissioner’s employees and the
Commissioner’s various computer systems. Id.
                               - 11 -

the Internal Revenue Service Office of Appeals.      Sec. 6330(b)(1),

(3).   At the hearing, a taxpayer may raise any relevant issue,

including appropriate spousal defenses, challenges to the

appropriateness of the collection action, and collection

alternatives.    Sec. 6330(c)(2)(A).    A taxpayer may contest the

existence or amount of the underlying tax liability at the

hearing if the taxpayer did not receive a notice of deficiency

for the tax liability or did not otherwise have an opportunity to

dispute the tax liability.    Sec. 6330(c)(2)(B); see also Sego v.

Commissioner, 114 T.C. 604, 609 (2000).

       Following a hearing, the Appeals Office must make a

determination whether the proposed levy action may proceed.       The

Appeals Office is required to take into consideration:      (1)

Verification presented by the Secretary that the requirements of

applicable law and administrative procedure have been met, (2)

relevant issues raised by the taxpayer, and (3) whether the

proposed levy action appropriately balances the need for

efficient collection of taxes with a taxpayer’s concerns

regarding the intrusiveness of the proposed levy action.      Sec.

6330(c)(3).

       Section 6330(d)(1) grants this Court jurisdiction to review

the determination made by the Appeals Office in connection with

the section 6330 hearing.    Where the underlying tax liability is

not in dispute, the Court will review the determination of the
                              - 12 -

Appeals Office for abuse of discretion.     Lunsford v.

Commissioner, 117 T.C. 183, 185 (2001); Sego v. Commissioner,

supra at 610; Goza v. Commissioner, 114 T.C. 176, 182 (2000).       An

abuse of discretion occurs if the Appeals Office exercises its

discretion “arbitrarily, capriciously, or without sound basis in

fact or law.”   Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

     Petitioner does not dispute the underlying tax liability for

any of the years in question.15   Accordingly, we shall review

respondent’s determination for abuse of discretion.

     Petitioner argues that respondent erred in the determination

to sustain the levy because Ms. Alcorte incorrectly calculated

petitioner’s gross monthly income.     Petitioner asks that we again

remand his case to respondent’s Appeals Office to redetermine

petitioner’s excess monthly income for an offer-in-compromise or

installment agreement.

     Section 7122(a) authorizes the Secretary to compromise any

civil or criminal case arising under the internal revenue laws.

Section 7122(c) provides that the Secretary shall prescribe

guidelines for evaluation of whether an offer-in-compromise

should be accepted.   Regulations under section 7122 set forth

three grounds for compromise of a taxpayer’s liability.    One of

those grounds is doubt as to collectibility.    A compromise based


     15
      Although the record does not indicate whether petitioner
received a notice of deficiency, he does not challenge the
underlying liability.
                               - 13 -

on doubt as to collectibility may be accepted “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.

     In a section 6330 proceeding, we do not normally conduct an

independent review of whether an offer-in-compromise is

acceptable.   Rather, our review is generally limited to

determining whether the hearing officer’s or Appeals officer’s

rejection of the offer-in-compromise submitted by the taxpayer

was arbitrary, capricious, or without sound basis in fact or law.

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), affd. 469 F.3d

27 (1st Cir. 2006).   We have found no abuse of discretion where

the hearing officer followed the Commissioner’s guidelines in

rejecting the taxpayer’s collection alternative.    See, e.g.,

McClanahan v. Commissioner, T.C. Memo. 2008-161; Lemann v.

Commissioner, T.C. Memo. 2006-37; Schulman v. Commissioner, T.C.

Memo. 2002-129.

     The Internal Revenue Manual (IRM) contains procedures for

the submission and evaluation of offers-in-compromise under

section 7122.    Under the IRM, absent special circumstances, an

offer-in-compromise based on doubt as to collectibility is

acceptable if it reflects the taxpayer’s reasonable collection

potential.    1 Administration, IRM (CCH), pt. 5.8.1.1.3(3), at

16,253-16,254 (Sept. 1, 2005).    The IRM provides that a

taxpayer’s reasonable collection potential consists of, inter
                               - 14 -

alia, the taxpayer’s net realizable equity in his assets and his

future income potential.    Id. pt. 5.8.4.4.1, at 16,307 (Sept. 1,

2005).    The IRM defines the net realizable equity in assets as

quick sale value, which is usually calculated at 80 percent of

the fair market value, less amounts owed to secured lien holders

with priority over the Federal tax lien.    Id. pt. 5.8.5.3.1(1),

(3), at 16,337 (Sept. 1, 2005).    The IRM defines the future

income potential with respect to a cash offer as expected future

income minus necessary living expenses multiplied by 48 months.16


     16
      The Financial Analysis Handbook of the IRM (the Handbook),
2 Administration, IRM (CCH), pt. 5.15 (May 1, 2004), as in effect
when petitioner submitted his Form 433-A and the offer-in-
compromise, provides that net income from self-employment
consisted of the amount the taxpayer earned after allowing for
ordinary and necessary business expenses. 2 Administration, IRM
(CCH), pt. 5.15.1.11(2)(c) (May 1, 2004). The Handbook and part
5.8.5 of the IRM contain instructions for analyzing a taxpayer’s
financial condition to determine reasonable collection potential.
1 Administration, IRM (CCH), pt. 5.8.5.1(1) at 16,333 (Sept. 1,
2005); 2 Administration, IRM (CCH), pt. 5.15.1.1(1) (May 1,
2004). Both part 5.8.5 of the IRM and the Handbook instruct the
reviewing officer to verify the taxpayer’s collection information
statement. 1 Administration, IRM (CCH), pt. 5.8.5.2(1) at 16,333
(Sept. 1, 2005); 2 Administration, IRM (CCH), pt. 5.15.1.3(3)
(May 1, 2004). Such verification includes “reviewing information
available from internal sources and requesting that the taxpayer
provide additional information or documents that are necessary to
determine reasonable collection potential”. 1 Administration,
IRM (CCH), pt. 5.8.5.2(1) at 16,333 (Sept. 1, 2005); 2
Administration, IRM (CCH), pt. 5.15.1.3(3) (May 1, 2004).
     The Handbook provides that the reviewing officer should
verify as much of the collection information statement as
possible through internal sources, including, inter alia, (1)
RTVUE, which is a record of line items from Federal income tax
returns and accompanying schedules, Whittington v. Commissioner,
T.C. Memo. 1999-279 n.3, or the last filed return, (2) state
motor vehicles records, and (3) real estate records. 2
                                                   (continued...)
                              - 15 -

Id. pt. 5.8.4.4.1, at 16,307 (Sept. 1, 2005); see also id. pt.

5.8.5.5, at 16,339-7 (Sept. 1, 2005).

     Ms. Alcorte calculated petitioner’s net realizable equity in

assets as $6,300.   The record indicates she determined this

amount by first calculating the quick sale value of the real

estate as $32,000 and then subtracting the loan balance of

$27,000.   She based the calculations on the market value and loan

balance information petitioner provided on the Form 433-A.     Ms.

Alcorte also added the value of petitioner’s animals of $1,300.

Ms. Alcorte also determined that petitioner’s gross monthly

income was $3,700 and net monthly income was $1,596.   Ms. Alcorte

based her calculations of petitioner’s income on copies of the 10

checks drawn on the account of TLJ Wrightway, L.L.C., payable to

petitioner.




     16
      (...continued)
Administration, IRM (CCH), pt. 5.15.1.5(1), (4) (May 1, 2004).
The Handbook also provides that the reviewing officer should use
RTVUE or the taxpayer’s last filed return, including Schedule C,
Profit or Loss From Business, to compare the reported income to
income declared on the collection information statement. 2
Administration, IRM (CCH), pt. 5.15.1.5(4) (May 1, 2004). The
IRM provides that when internal sources are unavailable or
indicate a discrepancy, the officer should request the taxpayer
to provide reasonable information to support the collection
information financial statement. 2 Administration, IRM (CCH),
pt. 5.15.1.5(2) (May 1, 2004). With respect to external sources
for self-employed taxpayers, the IRM requires the reviewing
officer to request certain documents, such as proof of income for
the prior 3 months, and to compare average earnings to the Form
433-A income. 1 Administration, IRM (CCH), pt. 5.8.5.2.2.(6), at
16,335 (Sept. 1, 2005).
                              - 16 -

     Although we have some concern that Ms. Alcorte’s analysis of

petitioner’s future income was incomplete and her determination

of petitioner’s future income potential was flawed, we do not

need to reach this issue in deciding whether her determination to

sustain the proposed levy was an abuse of discretion.   Petitioner

submitted an offer-in-compromise of $2,000.   The offer-in-

compromise was $3,000 less than net realizable equity in real

estate and $4,250 less than net realizable equity in real estate

and horses he owned when he submitted the offer-in-compromise.

We conclude that the offer-in-compromise was less than net

realizable equity in petitioner’s assets, and this fact alone

justified Ms. Alcorte’s rejection of the offer-in-compromise.

     Ms. Alcorte also discussed her concerns about petitioner’s

offer-in-compromise with petitioner’s counsel and gave petitioner

a chance to respond before she made her determination to proceed

with the proposed collection action.   For example, the stipulated

record indicates that during the first hearing on October 20,

2005, Mr. O’Laughlin told Ms. Alcorte that on the Form 433-A

petitioner overstated the value of real estate due to necessary

repairs.   However, petitioner never documented the need for

repairs, and he did not submit a revised Form 433-A.    Petitioner

also did not dispute Ms. Alcorte’s calculation of petitioner’s

net realizable equity in his assets based on the information

petitioner had submitted.   After Ms. Alcorte suggested a partial
                              - 17 -

payment installment agreement during the second hearing,

petitioner did not propose a revised collection alternative.

Instead, Mr. O’Laughlin conveyed to Ms. Alcorte petitioner’s

decision not to enter into a partial payment installment

agreement as petitioner “would get a better deal by filing for

bankruptcy.”   Petitioner’s failure to submit a revised offer-in-

compromise or any other reasonable collection alternative

supports respondent’s determination that the only viable

alternative is the proposed levy.

     On the basis of the record presented, we conclude that Ms.

Alcorte did not abuse her discretion when she rejected

petitioner’s offer-in-compromise because the offer did not

satisfy the requirements for a proper offer-in-compromise based

on doubt as to collectibility.   We have considered the remaining

arguments made by the parties and to the extent not discussed

above, conclude those arguments are irrelevant, moot, or without

merit.   We conclude it is neither necessary nor productive to

remand the case to respondent.   We sustain respondent’s

determination to proceed with collection of petitioner’s 1993,

1994, 1995, 1996, 1999, and 2000 Federal income tax liabilities.
                        - 18 -

To reflect the foregoing,


                                  Decision will be entered

                             for respondent.
