                        T.C. Memo. 2011-138



                     UNITED STATES TAX COURT



            DALLAS ERIC GRAVETTE, SR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7260-09L.              Filed June 21, 2011.



     Dallas Eric Gravette, Sr., pro se.

     Kimberly L. Clark and John D. Davis, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MORRISON, Judge:   The petitioner, Dallas Gravette, Sr.,

failed to pay his income-tax liabilities for 2003 and 2004.     In

order to collect the liabilities, the IRS Office of Appeals

determined that the IRS should levy on Mr. Gravette’s assets.

Under section 6330(d) of the Internal Revenue Code, Gravette
                                -2-

challenges the determination of the Office of Appeals.1    We

sustain the determination.

                          FINDINGS OF FACT

     The IRS sent a notice of intent to levy and notice of right

to hearing to Gravette.   This notice consisted of one page--

according to the stipulation of the parties.   But the stipulated

page fails to state what type of tax the levy was intended to

collect, the amount of tax, or the tax periods involved.     We

surmise from other portions of the record that the notice was two

pages rather than one and that the second page of the notice

stated that the purpose of the levy was to collect Gravette’s

unpaid income-tax liabilities for 2003 and 2004.   On March 11,

2008, Gravette requested a collection-review hearing.     In the

request, he said he challenged the IRS levy to collect his

income-tax liabilities for tax years 1999 through 2007.     His

request was made within the requisite 30 days of the levy notice.

See sec. 6330(a)(3)(B) (giving 30-day requirement).   Thus, the

request was a timely appeal of the IRS proposal to levy to

collect Gravette’s tax liabilities for 2003 and 2004.2    In his




     1
      All references to sections are to sections of the Internal
Revenue Code, and all references to Rules are to the Tax Court
Rules of Practice and Procedure.
     2
      On Apr. 25, 2008, the IRS wrote Gravette to tell him that
the IRS had not issued a notice of intent to levy for the other
years and that therefore he did not have a right to an
administrative hearing to contest levies for those years.
                                -3-

request, Gravette stated that he lived at an address in the

District of Columbia.

     On April 7, 2008, Gravette signed a one-year lease on a

house in the District of Columbia.    The house was at the address

that was listed on his request for a hearing.    His fiancé, Shonna

White, signed the lease as a cotenant.   The two were required to

pay rent of $725 per month.   The record does not reflect how they

shared the responsibility for the monthly rent payment.    The term

of the lease was from April 11, 2008, to April 10, 2009.     The

lease agreement was eventually made a part of the administrative

record, meaning the set of documents that was considered by the

Office of Appeals when it sustained the levy.

     Deborah Douglas of the IRS Office of Appeals was assigned to

handle Gravette’s collection-review hearing.    On May 22, 2008,

she wrote a letter to Gravette notifying him that on May 6, 2008,

the Office of Appeals had received his case.

     Gravette submitted to Douglas an IRS Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals.   He also submitted supporting documentation.    The

Form 433-A, which was dated June 8, 2008, stated that Gravette

lived at the same address in the District of Columbia that

appeared on the lease that we discussed above.    Gravette stated

on the Form 433-A that the date of the lease was April 11,
                                -4-

2008, the date of final payment was April 11, 2009, and the

amount of the monthly payment was $725.   The Form 433-A contained

a blank for Gravette to enter his monthly expenses for housing

and utilities.   Although the preprinted words stated that the

housing and utilities expense includes rent, mortgage payments,

and utilities, Gravette mistakenly listed only $265, which was

his estimate of his monthly utilities expense in the District of

Columbia.   Gravette listed $830 per month on a blank for court-

ordered payments.

     Gravette submitted another Form 433-A, which, like the first

Form 433-A, had a date of June 8, 2008.   The preprinted words on

the second Form 433-A were different from those on the first Form

433-A in at least one relevant respect.   Unlike the first Form

433-A, the second form did not require the taxpayer to state

specific facts regarding real property rented by the taxpayer,

such as the date of the lease, the date of the final rent

payment, and the amount of the monthly rent payment.   On the

second Form 433-A, Gravette stated that the housing and utilities

expense was $990.   He did not explain how the $990 was

calculated; we surmise that $990 was the sum of the utilities

expense of $265 and a monthly rent of $725.   Gravette again

listed $830 per month in court-ordered payments.   The trial

record does not explain why Gravette prepared the second Form
                                 -5-

433-A.   The second Form 433-A was in the administrative record

that was eventually considered by the Office of Appeals.

     Another document in the administrative record is a June 18,

2008 report of Gravette’s history of making child support

payments.   The report showed that Gravette was required by court

order to make payments of only $630 per month.    The report showed

that the actual payments that Gravette had made over the last

five months amounted to $740.42 per month.    The report also

showed that Gravette owed over $20,000 in back child support.

     On July 8, 2008, Gravette completed a Form 656, Offer in

Compromise.    He proposed to pay $75 per month for 120 months.   He

stated that his offer would compromise his income tax liabilities

for 1999, 2000, 2001, 2002, 2003, 2004, 2005, and 2006.    The

basis for the offer was doubt that the IRS could collect the tax

liabilities.

     On July 15, 2008, Deborah Douglas had a telephone conference

with Gravette as part of the collection-review hearing.    Before

the telephone conference, Douglas decided that Gravette’s offer-

in-compromise should be reviewed by “BOIC” and that if the offer-

in-compromise was recommended for rejection, the Office of

Appeals would consider the offer.3



     3
      BOIC is apparently a reference to a centralized IRS unit
for evaluating offers-in-compromise.
                                 -6-

     In August 2008 Gravette moved from the District of Columbia

to Boise, Idaho.   He and White signed a one-year lease on a house

in Boise for $560 per month.

     On November 18, 2008, Stephanie Gage, an IRS Offer Examiner,

wrote a letter to Gravette4 stating:

     We have investigated your offer dated 07/08/2008 in the
     amount of $9000. * * *

     We have made a preliminary decision to reject your
     offer for the following reason(s):

     Your monthly income exceeds your expenses.

     The decision to reject your offer is a preliminary
     decision made by Collection personnel. Due to the fact
     that you have filed a request for a Collection Due
     Process (CDP) hearing, we are forwarding your case to
     Appeals. A final determination on the offer will be
     issued by Appeals in conjunction with the CDP case.

We surmise that Gage relied on monthly income and expense

estimates when considering the offer, that the estimates assumed

that Gravette’s housing and utilities expense was $265 per month,

and that Gravette was informed of these estimates.

     On December 11, 2008, Gravette wrote Gage that “I received

your letter dated November 18, 08, rejecting my Offer in

Compromise.”   He continued:   “I have enclosed IRS Form 13711 with

this letter indicating my request for appeal of this matter.”    He

stated:   “As you will see by the attached lease, my housing costs

are much higher than $256.00, without adding the utility costs

     4
      The record does not show the address to which Gage’s letter
was sent.
                                  -7-

associated with daily living.”5    Attached to the letter was a

lease for the house in Boise.     The lease required Gravette and

White, as cotenants, to pay $560 per month.     The term of the

lease was August 9, 2008, to September 1, 2009.     The return

address of the letter was the Boise address that was on the

lease.   Attached to the letter was a Form 13711, Request for

Appeal of Offer in Compromise, dated December 11, 2008.     On the

Form 13711, Gravette stated that he disagreed with “IET

[Income/Expense Table] - Housing and Utilities Costs” for the

following reason:

     My monthly rent and utilities are much higher than the
     amount allowed.
     * Copy of current lease attached.[6]

     On January 7, 2009, Deborah Douglas sent a letter to

Gravette at his address in the District of Columbia acknowledging

that she had received his appeal of the rejection of his offer to

pay $9,000 to compromise income tax liabilities for 1999, 2003,

2004, and 2006.7    The letter stated that Gravette had not filed a

Form 1040 for 2007 and that Gravette needed to file that return


     5
      Gravette probably meant $265.00, not $256.00.
     6
      The Form 13711 did not state any disagreement regarding
court-ordered payments. It is unclear what estimate of court-
ordered payments Gage relied on when she considered Gravette’s
July 8, 2008, offer-in-compromise.
     7
      The record does not reveal why Douglas did not consider
Gravette’s offer-in-compromise to cover 2000, 2001, 2002, or
2005.
                                 -8-

and pay any taxes due by January 21, 2009, for the offer-in-

compromise to be considered.

     On January 15, 2009, Gravette sent Douglas a copy of his

2007 income-tax return filed on that date.   The return reported

wages of $51,658 and business income of $2,696. The return

claimed that Gravette was due a refund.   The address on the tax

return was the Boise address.

     On January 28 or 29, 2009, Deborah Douglas sent a letter to

Gravette at the Boise address.   In the letter, Douglas stated

that “Centralized Offer in Compromise” had made a preliminary

determination to reject Gravette’s offer-in-compromise.    Douglas

stated that the offer-in-compromise had been forwarded to “this

office” (that is, the Office of Appeals) for review of Gravette’s

offer of $9,000 to compromise total tax liabilities of $22,881.38

for the tax years 1999, 2003, 2004, and 2006.    The letter

enclosed an Asset/Equity table and an Income/Expense table that

had been calculated by “Compliance”.   The Income/Expense table

calculated that Gravette would be able to pay the IRS $1,415.25

per month starting on January 1, 2009.    The table showed that in

16 months Gravette would pay off his liabilities, which comprised

$4,937.04 for 2004, $7,632.97 for 2003, and $9,183.16 for 1999.8

The table also showed that over his lifetime Gravette would be

capable of paying the IRS a total of $152,847.    In calculating

     8
      The table did not show a liability for 2006.
                                 -9-

that Gravette could pay $1,415.25 per month to the IRS, the table

assumed that Gravette would pay only $265 per month for “Housing

and Utili”.   The table also reflected that court-ordered payments

were $740.42.    Douglas asked Gravette to respond to the letter by

February 6, 2009.   Gravette did not respond, as far as we can

tell from the record.

     On February 24, 2009, the Office of Appeals determined that

relief would not be granted from the notice of intent to levy to

collect the 2003 and 2004 liabilities.   The determination stated

that the reasonable collection potential--that is, the amount the

IRS could collect from Gravette--was $34,250.   The determination

stated that total net equity from Gravette’s assets was

$1,213.79.    Gravette’s monthly disposable income was determined

to be $688.25.    A future income multiplier of 48 months was used,

resulting in future disposable income of $33,036.   An income and

expense table showed how the $688.25 monthly disposable income

was calculated:
                                    -10-

 Income                         Amount Claimed            Amount Allowed
 Gross wages--primary TP           [Blank]1                 $3,766.00
 Total income                      [Blank]                   3,766.00
 Expenses
 National Standard                    $400                   1,151.00
 Housing and utilities                 265                     265.00
 Transportation--                      145                    [Blank]
   ownership costs-
   vehicle 1
 Transportation--                       60                    [Blank]
   ownership costs-
 Transportation--                       20                      60.00
   operating costs
 Additional operating              [Blank]                     200.00
   costs--(age/mileage)
 Health care--insurance            [Blank]                      57.00
 Taxes (income and FICA)           [Blank]                     561.33
 Court-ordered payments                830                     740.42
 Public transportation             [Blank]                      43.00
   unreimbursed business
     Total expenses                  1,720                   3,077.75
 Monthly disposable                 -1,720                     688.25
   income

      1
       The reason the IRS made no entry here and directly below may be that on
the first Form 433-A, Gravette did not enter wages or total income. On the
second Form 433-A, Gravette entered $3,764.82 for wages and $3,764.82 for
total income.

The reasonable collection potential was calculated by adding

$33,036 and $1,213.79.        On the basis of this estimate of

reasonable collection potential, $34,250, the Office of Appeals

determined that Gravette could pay his tax liabilities in full

within the “Collection Expiration Statute Date”.            The total

amount of Gravette’s tax liabilities was not stated in the

determination.        The determination stated that “An Offer in
                                 -11-

Compromise can not be recommended.”       The determination stated:

“You indicated you are unable to make monthly Installment

Agreement payments.”     The determination stated that Gravette did

not dispute his liabilities.

     Gravette filed a petition with the Tax Court to challenge

the notice of determination.     At the time he was a resident of

Boise, Idaho.    Gravette argues that Appeals made two major

errors.     First, Gravette argues that Appeals should not have

determined that his housing and utilities expense was $265.       His

rent alone was $725, he claims.     Second, Gravette argues that the

IRS erred in determining that his child-support payments were

only $740.42 per month.    The correct number, he alleges, was

$830.

                                OPINION

        Before the IRS can collect tax liabilities by levy, it must

offer the taxpayer a hearing with the IRS Office of Appeals.

Sec. 6330(a)(1).     Among the issues that may be raised by the

taxpayer at the Office of Appeals are “offers of collection

alternatives” such as offers-in-compromise.      Sec.

6330(c)(2)(A)(iii).     In reviewing a rejection of an offer-in-

compromise, the Tax Court decides whether the rejection was

arbitrary, capricious, or without sound basis in fact or law and

therefore an abuse of discretion.       Murphy v. Commissioner, 125

T.C. 301, 320 (2005), affd. 469 F.3d 27, 32 (1st Cir. 2006).
                                -12-

     Section 7122(a) authorizes the IRS to compromise civil tax

cases.    In general, the decision to accept or reject an offer, as

well as the terms and conditions agreed to, are left to the

discretion of the IRS.   Sec. 301.7122-1(c)(1), Proced. & Admin.

Regs.    However, section 301.7122-1(f)(3), Proced. & Admin. Regs.,

provides “No offer to compromise may be rejected solely on the

basis of the amount of the offer without evaluating that offer

under the provisions of this section and the Secretary’s policies

and procedures regarding the compromise of cases.”    The three

possible grounds for accepting a compromise of a tax liability

are doubt as to liability, doubt as to collectibility, and

promotion of effective tax administration.   Sec. 301.7122-1(b),

Proced. & Admin. Regs.   Gravette attempted to justify his offer-

in-compromise on doubt as to collectibility.   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.   The IRS will generally

compromise a liability on the basis of doubt as to collectibility

only if the liability exceeds the taxpayer’s reasonable

collection potential.    Reasonable collection potential is “that

amount, less than the full liability, that the IRS could collect

through means such as administrative and judicial collection

remedies”.    Murphy v. Commissioner, supra at 309.
                                -13-

     The Office of Appeals did not abuse its discretion in

evaluating Gravette’s offer.   The administrative record showed

that Gravette had an ongoing child-support obligation of $630 per

month.   Gravette also had a substantial arrearage of child

support payments.   The total amount of the arrearage was

reflected on the child-support report that he submitted to

Appeals.   On June 25, 2010, the state court ordered Gravette to

pay $200 per month in back child support.    But this court order

did not exist at the time the Office of Appeals determined to

sustain the proposed levy, and therefore the order cannot serve

as a basis for challenging the determination of the Office of

Appeals.   The Office of Appeals did not err in concluding that

Gravette’s child support obligation was $740.42 per month.9

     The Office of Appeals calculated that Gravette’s housing and

utilities expense was $265 per month.    Gravette argues that the

Office of Appeals erred by not accepting his estimate of $990,

which was equal to his $725 rent (in the District of Columbia)

and his $265 estimate of utilities (in the District of Columbia).

We can see why the $990 estimate was not accepted by the Office

of Appeals.    The Forms 433-A were submitted by Gravette when he

lived in the District of Columbia.     Gravette moved to Boise in

August 2008.   Thus, the Forms 433-A were outdated by the time of


     9
      The $740.42 amount was equal to the child-support payments
that Gravette had made during the last 5 months covered by the
child-support report, divided by 5.
                                 -14-

the determination.   In addition, the Forms 433-A were confusing

even as an attempt to show Gravette’s housing and utilities

expense when he lived in the District of Columbia.       The first

Form 433-A listed his housing and utilities expense as only $265,

even though his rent was $725.    The second Form 433-A did not

completely resolve the confusion.       The Form 433-A listed his

housing and utilities expense as $990, apparently the sum of $265

and $725.   Although this $990 estimate was substantiated by

copies of Gravette’s utilities bills and by the $725 per month

lease, Gravette did not explain how much of the $725 rent was his

responsibility and how much was White’s.       After Gravette moved to

Boise, he submitted to the IRS his Boise lease, which showed a

rent obligation of $560.    But the Boise lease, like the District

of Columbia lease, showed that Gravette had a cotenant (White).

Gravette did not explain how he and White allocated the rent

responsibility.   Furthermore, Gravette failed to estimate his

utilities expense in Boise.    He notified the IRS only that his

Boise housing and utilities expense was “much higher” than $265,

meaning that the sum of his Boise rent and his Boise utilities

expense was greater than his District of Columbia utilities

expense.    How much greater he did not say.     When the Office of

Appeals sent Gravette a table estimating that Gravette’s housing

and utilities expense was $265 per month, this was Gravette’s

opportunity to explain what his rent and utilities expense in
                                 -15-

Boise was.   He did not do so.   In the light of his lack of

response, the Office of Appeals did not err in using $265 as the

estimate.

     Gravette contends that the Office of Appeals erred in other

ways.   He argues that the Office of Appeals erred in calculating

his monthly income because it failed to consider that, because of

the sporadic nature of his work, he was unemployed several months

out of the year.   But the Office’s estimates of Gravette’s

monthly income were based on monthly averages of Gravette’s

yearly income.   This yearly data took into account the monthly

variations in Gravette’s income.    Next Gravette argues that

Douglas had “prior involvement” in his case because Douglas

worked on Gravette’s case file for more than two months, from the

time she received the case until the telephone conference on July

15, 2008.    This is not a “prior involvement” prohibited by the

statute.    See sec. 301.6330-1(d)(2), Q&A-D4, Proced. & Admin.

Regs. (defining prior involvement as involvement in a matter

other than a CDP hearing).    Gravette also argues that he raised

the matter of his underlying tax liabilities at the

administrative hearing.   We disagree.   Although Gravette told the

Office of Appeals that he was unable to pay his tax because his

employer failed to withhold income tax from his wages, it was not
                                 -16-

apparent that this was a challenge to the amounts of his income

tax liabilities.   The Office of Appeals’ determination to sustain

the proposed levy was not an abuse of discretion.

     To reflect the foregoing,



                                             Decision will be entered

                                        for respondent.
