                        T.C. Memo. 2010-100



                      UNITED STATES TAX COURT



             MANUEL AND JUDY F. VELA, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 26644-07L.               Filed May 6, 2010.



     Alvaro G. Velez, for petitioners.

     Emily Giometti, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   Petitioners petitioned the Court pursuant to

section 6330(d)1 to review determinations of the Internal Revenue

Service’s Office of Appeals (Appeals Office) (1) sustaining 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. All dollar amounts are
rounded to the nearest dollar.
                               - 2 -

filing of notices of Federal tax lien relating to trust fund

recovery penalties assessed against petitioners pursuant to

section 6672 as responsible persons for the payment of quarterly

employment taxes for the periods ending December 31, 1999,

through December 31, 2002, and for the periods ending December

31, 2003, through September 30, 2004, with respect to unpaid

liabilities of Apex Mental Health Services, Inc., Ohio Treatment

Alliance, Inc., and Symbiont NFP, Inc.; (2) sustaining the filing

of a notice of Federal tax lien relating to petitioners’ unpaid

Federal income tax for 2003; and (3) rejecting a separate offer-

in-compromise (OIC) submitted by each petitioner based on doubt

as to collectibility.   This case is before us on respondent’s

motion for summary judgment and petitioners’ response thereto.

The issues for decision are whether the Appeals Office abused its

discretion in sustaining the filing of notices of Federal tax

lien and in rejecting the separate OICs petitioners submitted.

                            Background

     Petitioners resided in Ohio at the time they filed their

petition.

     Petitioners owned and operated several businesses from 1999

through 2004, and they also owned real estate properties in the

Newark and Columbus, Ohio, area.

     Apex Mental Health Services, Ohio Treatment Alliance, and

Symbiont were three corporations that failed to pay their
                               - 3 -

employment taxes reportable on Form 941, Employer’s Quarterly

Federal Tax Return.   The Internal Revenue Service (IRS) found

petitioners liable as responsible persons for those taxes and

assessed section 6672 penalties against them for the quarterly

periods ending December 31, 1999, through December 31, 2002, and

for the periods ending December 31, 2003, through September 30,

2004.2

     On September 22, 2004, the IRS sent petitioners Notices of

Federal Tax Lien Filing and Your Right to a Hearing under section

6320 for section 6672 penalties for the quarterly periods ending

December 31, 1999, through December 31, 2002.    The IRS recorded

the liens for each of the periods on September 27, 2004.

     Two years later, on September 22, 2006, the IRS again issued

notices of lien to petitioners.   The notices included all periods

listed on the prior notices dated September 22, 2004, as well as

the quarterly periods ending December 31, 2003, March 31, 2004,

June 30, 2004, and September 30, 2004.   The IRS recorded the

liens for those periods on September 28, 2006.

     The IRS also issued a notice of levy with respect to

petitioners’ Federal income tax liability for 2003 on September


     2
      We note that the IRS had previously assessed sec. 6672
penalties against petitioners with respect to two other
corporations, Frenier Sheet Metal, Inc., and Frenier Building
Systems, Inc., which are not involved in this case. It appears
that petitioners, who are fiduciaries charged with the
responsibility of paying trust fund taxes to the IRS, have
converted those funds for their personal use.
                              - 4 -

22, 2006, and recorded a lien for that liability on October 6,

2006.

     At the end of September 2006 petitioners owed a total unpaid

balance of approximately $983,560 with respect to their

liabilities for the section 6672 trust fund penalties and their

joint income tax liability for 2003.

     On October 31, 2006, each petitioner filed a Form 12153,

Request for a Collection Due Process Hearing (CDP request), with

respect to their 2003 income tax liability and the section 6672

penalties for all of the quarterly periods involved.   Each CDP

request asked for a face-to-face conference to discuss

alternative collection methods, including the possibility of an

installment agreement or an OIC.   In their CDP requests

petitioners did not raise any issues regarding the

appropriateness of the collection action or dispute their

underlying liabilities.

     The IRS subsequently recorded an additional lien on November

6, 2006, and issued a notice of lien on November 10, 2006, both

relating to the same periods for which it had previously filed

liens.

     Petitioners filed second CDP requests on November 24, 2006,

which raised the same issues as had their first CDP requests.

     On December 7, 2006, the Appeals Office mailed letters to

petitioners acknowledging that it had received the case for
                                - 5 -

consideration.    On January 10, 2007, the Appeals Office in

Columbus, Ohio, sent a similar letter to petitioner Manuel Vela

(Mr. Vela) acknowledging receipt of the case and explaining its

role and purpose in conducting CDP proceedings.

     On January 12, 2007, Alvaro G. Velez (Mr. Velez),

petitioners’ counsel, sent the IRS a letter verifying the

entities and periods with respect to which the employment taxes

and the section 6672 penalties had been assessed.

     On February 23, 2007, Settlement Officer Thomas J. Fehr (SO

Fehr) sent petitioners letters scheduling a face-to-face CDP

hearing with them for March 28, 2007.    The letters explained the

issues the Appeals Office would consider during the hearing and

listed items which petitioners should provide to support any

proposed collection alternatives.

     On March 13, 2007, each petitioner submitted a separate OIC

on Form 656, Offer in Compromise, offering a compromise of the

petitioner’s liabilities for all periods at issue based on a

short-term deferred payment of $50,885, a total of $101,770 for

the two offers.    With their OICs petitioners provided Forms 433-

A, Collection Information Statement for Wage Earners and Self-

Employed Individuals, which showed they own interests in three

businesses:   (1) Alps, Ltd. (Alps); (2) Fairfield Academy, Ltd.

(Fairfield); and (3) McVee Holdings, Ltd. (McVee).
                               - 6 -

     Alps is a partnership that provides assisted living services

to individuals with mental or developmental disabilities or

illnesses.   Each petitioner owns a 33.33-percent interest in

Alps.   Fairfield is a residential center and school for boys with

mental retardation, developmental disabilities, mental illness,

or past criminal behavior.   Each petitioner owns a 50-percent

interest in Fairfield.   McVee is a real estate holding company in

which Mr. Vela owns a 98-percent interest and Mrs. Vela owns a 2-

percent interest.   McVee rents some of the real estate it owns to

Alps and Fairfield.

     On March 27, 2007, the Appeals Office sent a letter to Mr.

Vela stating that it had received and would consider his OIC.

The next day SO Fehr spoke on the telephone with Mr. Velez, at

which time they agreed to postpone the hearing and communicate by

telephone or correspondence as to the evaluation of petitioners’

OICs.

     On May 7, 2007, the Appeals Office decided that Settlement

Officer Christopher Hosking (SO Hosking) would assist SO Fehr in

the evaluation of the OICs and sent a letter so notifying

petitioners.

     On May 22, 2007, SO Hosking reviewed petitioners’ OICs and

their Forms 433-A and sent a letter to them requesting additional

information and supporting documents.   SO Hosking also sent three

other letters to Mr. Vela requesting that he provide completed
                               - 7 -

Forms 433-B, Collection Information Statement for Businesses, and

other financial information with respect to Alps, Fairfield, and

McVee.

     Between May and July 2007, petitioners submitted Forms 433-B

for Alps, Fairfield, and McVee.

     On July 11 and 12, 2007, SO Hosking sent letters to

petitioners, with which he returned to them their Forms 433-A and

Forms 433-B because they had not fully completed the forms or

provided the necessary requested data.   The letters listed the

additional information needed to evaluate petitioners’ OICs and

determine the reasonable collection potential.

     Petitioners responded in a letter dated August 8, 2007, with

which they provided some of the additional information requested.

With respect to their Forms 433-A, they submitted their tax

returns, bank statements, financial information, a list of real

estate properties purportedly held by them personally, and

information regarding each of the properties.

     Petitioners’ list of properties states that they own the

following:   (1) 22 4th Street, Newark, Ohio 43055; (2) 662

Westwood Drive, Newark, Ohio 43055; (3) 174 Mt. Vernon Road,

Newark, Ohio 43055; and (4) 82 Hoover Street, Newark, Ohio 43055.

     The Integrated Tax, Real Estate, Assessment, and Collections

records maintained by Licking County, Ohio, show that petitioners

also own a property at 11-15 W. Church Street, Newark, Ohio 43055
                                - 8 -

(11-15 Church property), which petitioners had stated was owned

by McVee.

     Petitioners, rather than McVee, apparently own a sixth

property, at 117 North Columbus Street, Lancaster, Ohio 43130.

     Petitioners submitted to the Appeals Office appraisal and

valuation information with respect to the following properties

purportedly owned by McVee:    (1) 7860 Pleasantville Road,

Thornville, Ohio 43076; (2) 21/27 W. Church Street, Newark, Ohio

43055; (3) 20 Arcadia Avenue, Columbus, Ohio 43202; (4) #8 Hollow

Road, Rehoboth, Ohio; and (5) 26 3rd Street, Newark, Ohio 43055.

     For Alps, petitioners submitted tax returns, bank

statements, a statement of deposits and filings, and a summary of

wages paid.   For Fairfield, petitioners submitted tax returns,

bank and financial statements, and other information.    The record

shows that both Alps and Fairfield received regular aid

contributions and deposits from the State of Ohio auditor.    For

McVee, petitioners submitted tax returns, bank statements, and

other financial information.

     On August 20, 2007, SO Hosking sent a letter to petitioners

stating that he had completed review of their OICs and could not

recommend acceptance because their reasonable collection

potential far exceeds the combined amount of their offers.    The

letter included his analysis of petitioners’ reasonable

collection potential, explaining that petitioners had total
                               - 9 -

equity of $797,703, including $398,072 invested in real estate,

and business equity in Alps, Fairfield, McVee, Apex Mental

Health, and Prudential Financial of $12,735, $11,991, $255,498,

$4,380, and $82,280, respectively.     The analysis also concluded

that petitioners had monthly disposable income of $5,541

resulting in collectible future income of $537,477 and a total

reasonable collection potential of $1,335,180.

     Mr. Velez, petitioners’ counsel, met with SO Fehr and SO

Hoskings to discuss the OICs on September 5, 2007.    Petitioners

did not present at that meeting any specific information to rebut

the findings made in SO Hosking’s collection potential analysis.

However, during that meeting the parties discussed the

possibility of entering into an installment agreement with an

unspecified period during which petitioners would liquidate their

real estate assets, with the proceeds to be applied to their

Federal tax liabilities.   Petitioners were given until September

21, 2007, to submit a final proposal for this collection

alternative, but they did not submit any such proposal.

     On the basis of SO Fehr’s review of SO Hosking’s analysis

and the documents petitioners provided during the CDP proceeding,

SO Fehr determined that petitioners’ OICs should be rejected.     At

the time of his determination on September 24, 2007, petitioners

had outstanding tax liabilities of at least $1,180,652.
                              - 10 -

     On October 17, 2007, SO Fehr sent letters to petitioners

notifying them that the Appeals Office had rejected their OICs.

Also on October 17, 2007, the Appeals Office issued three notices

of determination, one to petitioners jointly and one to each

petitioner separately, sustaining respondent’s collection action

with respect to the section 6672 penalties for the quarterly tax

periods involved and with respect to petitioners’ joint income

tax liability for 2003.   The notices included SO Hosking’s

analysis as previously provided to petitioners along with his

letter of August 20, 2007.

     Each notice of determination, approved by Appeals Team

Manager Dewayne Turk, stated that Appeals rejected petitioners’

OICs and sustained the filing of the notices of Federal tax lien.

The Appeals Case Memorandum (ACM) attached to petitioners’

notices of determination submitted by SO Fehr, states, in

pertinent part, as follows:

     II.   Issues Raised by the Taxpayer

     After the initial evaluation of the taxpayer’s OIC, his
     requested hearing was scheduled for August 31, 2007.
     At Mr. Velez’s request, the hearing was rescheduled for
     September 5, 2007. At that hearing, the taxpayer was
     given until September 21, 2007, to provide additional
     information or to submit another collection
     alternative. There was no additional response from the
     taxpayer.

     NFTL - The taxpayer did not raise specific issues with
     regards to the filing of the NFTL for Appeals’
     consideration.
                        - 11 -

Appeals determined that all legal and administrative
requirements for filing a NFTL were followed. Finding
no basis for granting relief on this issue, Appeals
sustains the filing of the NFTL.

Collection Alternative (OIC) - Mr. Vela submitted an
OIC to compromise his tax liabilities for the joint
income tax due for 2003 and Trust Fund Recovery
Penalties (TFRP) assessed against each individually.

The terms of Mr. Vela’s short term deferred offer were
as follows: $50,885 payable $2,120.19 within 30 days
of acceptance and monthly payments in the same amount
payable on the 23rd day of each month for 23 months.

The evaluation of the taxpayer’s financial information
concluded that the joint reasonable collection
potential (RCP) was $1,335,180. The work papers
showing how the RCP was calculated are attached to this
ACM.

The taxpayer did not provide any additional information
for consideration by the deadline of September 21,
2007.

Appeals has rejected the taxpayer’s OIC because the
amount offered did not equal or exceed his RCP.

Collection Alternative - At the conference on September
5, 2007, Mr. Velez also inquired about the possibility
of the taxpayer making payments with a period of time
for liquidating real estate assets. As of the deadline
of September 21, 2007, no specific proposal for
Appeals’ consideration was forthcoming.

The taxpayer did not raise any issues challenging the
underlying tax liability.

The taxpayer raised no other relevant issues.

III. Balancing the Need for Efficient Collection with
the Taxpayer’s Concern that the Collection Action be
no More Intrusive than Necessary

Has efficient tax collection been balanced with concern
regarding intrusiveness of the filing of the NFTL?
                              - 12 -

     Yes, IRC section 6330 requires that the settlement
     officer consider whether any collection action balances
     the need for efficient collection of taxes with the
     taxpayer’s legitimate concern that any collection
     action be no more intrusive than necessary.

     Given the total balance due for all of the taxpayer’s
     tax liabilities, which is over $1,000,000, the
     taxpayer’s failure to raise specific issues with
     regards to the filing of the NFTL and her failure to
     negotiate a collection alternative, both the filing of
     the NFTL and the proposed levy action do balance the
     need for efficient collection of taxes with the
     taxpayer’s legitimate concern that any collection
     action be no more intrusive than necessary.

     Respondent moved for summary judgment on the ground that SO

Fehr and SO Hosking did not abuse their discretion in rejecting

petitioners’ OICs and in sustaining the collection action against

petitioners.   Petitioners filed a response to respondent’s motion

urging that the motion be denied and that the case be remanded to

the Appeals Office.

                            Discussion

I.   Summary Judgment

      Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no
                                - 13 -

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.”    Rule 121(a) and (b).

      When the case was called for trial, counsel for petitioners

stated, as did counsel for respondent, that no testimony or

further documentary evidence would be offered to supplement

respondent’s motion for summary judgment and that the relevant

documents were contained in the administrative record.

Therefore, after reviewing the record, we are satisfied that

there is no genuine issue as to any material fact, and a decision

may be rendered as a matter of law.

II.   Standard of Review

      Petitioners do not contest their underlying Federal tax

liabilities for the section 6672 trust fund recovery penalties

assessed against them for certain quarterly periods ending

December 31, 1999, through September 30, 2004, and their joint

Federal income tax liability for 2003.    They also do not

challenge the validity of the notices of Federal tax lien

respondent filed for those taxable periods.    Rather, petitioners

dispute only respondent’s rejection of their OICs.      Thus, the

Court reviews respondent’s determination for abuse of discretion.

See Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.

Commissioner, 114 T.C. 176, 182 (2000).    We have described the

abuse of discretion standard as meaning “arbitrary, capricious,

or without sound basis in fact or law.”    Giamelli v.
                                - 14 -

Commissioner, 129 T.C. 107, 111 (2007) (citing Woodral v.

Commissioner, 112 T.C. 19, 23 (1999)).    In reviewing for abuse of

discretion, we generally consider “only arguments, issues, and

other matter that were raised at the collection hearing or

otherwise brought to the attention of the Appeals Office.”

Magana v. Commissioner, 118 T.C. 488, 493 (2002); see Living Care

Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 631

(6th Cir. 2005); Giamelli v. Commissioner, supra at 115; cf.

Hoyle v. Commissioner, 131 T.C. 197 (2008).

III.    Offers-in-Compromise

       Section 7122(a) provides that “The Secretary may compromise

any civil * * * case arising under the internal revenue laws”.

Whether to accept an OIC is left to the Secretary’s discretion.

See Fargo v. Commissioner, 447 F.3d 706, 712 (9th Cir. 2006),

affg. T.C. Memo. 2004-13; sec. 301.7122-1(c)(1), Proced. & Admin.

Regs.

       The regulations under section 7122(a) set forth three

grounds for the compromise of a tax 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.    Petitioners submitted OICs based only on doubt as

to collectibility.

       The Commissioner may compromise a tax liability based on

doubt as to collectibility where the taxpayer’s assets and income
                               - 15 -

are less than the full amount of the liability.    Sec. 301.7122-

1(b)(2), Proced. & Admin. Regs.    But, generally, under the

Commissioner’s administrative pronouncements an OIC based on

doubt as to collectibility will be acceptable only if it reflects

the taxpayer’s reasonable collection potential.    Murphy v.

Commissioner, 125 T.C. 301, 309 (2005), affd. 469 F.3d 27 (1st

Cir. 2006); Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517,

517.

       Petitioners filed identical offers-in-compromise of $50,885

each “payable $2,120.19 within 30 days of acceptance and monthly

payments in the amount payable on the 23rd day of each month for

23 months.”    At the time the Appeals Office rejected petitioners’

offers on October 17, 2007, their unpaid tax liabilities were at

least $1,184,683.

IV.    Reasonable Collection Potential

       As reflected in the Appeals Office’s analysis, the following

Asset Equity Table shows the total amount of $797,703 determined

as being collectible from petitioners’ net realizable equity in

assets:
                                      - 16 -
                                ASSET EQUITY TABLE

                                            Quick
                  Market    Percentage      Sale
   Assets         Value      reduced        Value       Encumbrances      Equity

Checking
 accounts         $3,159          0         $3,159           -0-          $3,159
Other
 accounts           3,644        40           2,186          -0-           2,186
Investments          -0-          0            -0-           -0-             -0-
Cash                  150         0             150          -0-             150
Life insurance     26,581         0          26,581       $23,530          3,051
Life insurance      9,201         0           9,201          -0-           9,201
Vehicle            15,000         0          15,000          -0-          15,000
Real estate       398,072         0         398,072          -0-         398,072
Real estate          -0-         20            -0-           -0-            -0-
Personal assets     4,500        20           3,600         7,720           -0-
Personal tools       -0-         20            -0-          3,860           -0-
Business assets      -0-         20            -0-           -0-            -0-
Dissipated
 assets             -0-           0           -0-            -0-            -0-
Alps, Ltd.        12,735          0         12,735           -0-          12,735
Fairfield
 Academy           11,991         0          11,991          -0-          11,991
McVee Holdings    255,498         0         255,498          -0-         255,498
Apex Mental
 Health            4,380          0            4,380         -0-           4,380
Prudential
 Financial        82,280          0         82,280           -0-          82,280
    Total                                                                797,703

     We find and conclude that most of the amounts in

petitioners’ equities, as set forth in the above table, are

correct and supported by the record.             Any changes in the amount

of the net realizable equity are discussed later.

     Most significant are petitioners’ equities in their personal

real estate holdings, as follows:

                                                                        Equity
   Real Estate          Value     Percent      QSV     Encumbrances    for Offer

82 Hoover              $84,480         0    $84,480      $49,000       $35,480
11-15 W. Church St.    135,000        20    108,000       55,825        52,175
662 Westwood           325,000        20    260,000       61,883       198,117
22 N. 4th St.          131,800         0    131,800       52,000        79,800
174 Mt. Vernon Rd.      92,100         0     92,100       59,600        32,500
117 N. Columbus St.     71,250        20     57,000       66,105         -0-
    Total                                                              398,072
                                      - 17 -

     In addition, petitioners have substantial equities in the

real estate of McVee Holdings Ltd., a partnership wholly owned by

them, as follows:

                                                                         Equity
   Real Estate            Value     Percent    QSV       Encumbrances   for Offer

7860 Pleasantville Rd.   $190,000    20       $152,000     $120,000       $32,000
20 Arcadia Ave.           162,000    20        129,600       44,141        85,459
#8 Hollow Rd               39,850    20         31,880        9,959        21,921
26 3rd St. Newark          43,800     0         43,800       49,677         -0-
29 W. Church St. and
 21/27 W. Church St.     500,000     20        400,000      288,084       111,916
    Total                                                                 251,296

     Petitioners assert that the Appeals Office abused its

discretion in rejecting their OICs, for several reasons.                  First,

they argue that their proposed collection alternatives were

denied because the settlement officers would not allow them the

opportunity to liquidate their real estate assets and apply the

proceeds to pay their tax liabilities.               While respondent

acknowledges that the parties discussed the possibility of

petitioners’ satisfying some of their liabilities by selling

their real estate holdings, and the settlement officers gave

petitioners a reasonable time to submit a definite proposal,

petitioners never submitted a proposal or a timeline for

liquidating any of their real estate assets.                Apparently,

petitioners never made any attempts in the 4 years after the

section 6672 penalties were assessed to pay their tax obligations

by selling their properties.          Under the circumstances, SO Fehr

did not abuse his discretion in declining to grant petitioners a

collection alternative based on the possibility of selling their
                              - 18 -

properties at some unspecified time in the future.   See Kindred

v. Commissioner, 454 F.3d 688, 696 (7th Cir. 2006); Clawson v.

Commissioner, T.C. Memo. 2004-106.

     Second, in their response to respondent’s motion for summary

judgment, petitioners assert that SO Hosking erred in calculating

their future business income because he failed to consider that

McVee earned its income entirely from renting its properties and

therefore the income would dissipate upon sale of the properties

to satisfy their tax obligations.    Similarly, they claim that SO

Hosking overestimated the future income of Alps and Fairfield

because both companies would incur higher rental expenses after a

sale of McVee’s properties.

     The Internal Revenue Manual (IRM) provides that when, in

determining reasonable collection potential, the IRS identifies

an asset necessary for the production of income, it may be

appropriate to adjust the income or expense calculation for the

taxpayer to account for the loss of the income stream if the

asset is either liquidated or used as collateral to secure a loan

to fund the offer.

     SO Hosking included both petitioners’ equity in McVee and

their income from McVee in the calculation of their reasonable

collection potential.   Respondent admits that petitioners’

reasonable collection potential cannot include the same amount of

future business income from McVee if petitioners sell McVee’s
                              - 19 -

assets to satisfy tax liabilities, and that SO Hosking erred in

concluding otherwise.   But the collection potential, if adjusted

downward to correct his error, would still surpass the offer to

such a degree that we find no abuse of discretion.     We conclude

that his projection of future income from Alps and Fairfield was

reasonable.

     Third, petitioners assert in their response that SO Hosking

erred by assigning a 20-percent quick sale reduction to only some

of their properties when determining their net realizable equity.

     Generally, for OIC purposes, the IRS considers, in

determining a taxpayer’s net realizable equity in assets, the

quick sale value of the assets reduced by any amounts owed to

secured lien holders with priority over Federal tax liens.     IRM

pt. 5.8.5.4.1(1) (Sept. 23, 2008).     The IRM defines quick sale

value as an estimate of the price a seller could get for the

asset in a situation where financial pressures motivate the owner

to sell in a short time, usually 90 calendar days or less.     Id.

pt. 5.8.5.4.1(2) (Sept. 23, 2008).

     Generally, the IRS calculates quick sale value at 80 percent

of fair market value.   However, it may apply a higher or lower

percentage, depending on the type of asset and current market

conditions, if the value chosen represents a fair estimate of the

price a seller could obtain when attempting to sell the asset

quickly.   Id. pt. 5.8.5.4.1(3).
                               - 20 -

     Of the six properties petitioners owned personally, SO

Hosking employed a 20-percent quick sale reduction for the three

properties with respect to which petitioners had submitted

current appraisals and other information verifying the property

values and available equity.    For the remaining three properties,

the Hoover property, the 4th Street property, and the Mt. Vernon

property, SO Hosking did not calculate quick sale values because

of a lack of valuation information from petitioners.

     For the Hoover property, petitioners provided a 3-year-old

appraisal valuing the property at $58,000, but no other

information.    SO Hosking assigned a value of $84,480 to the

property but did not reduce it for a quick sale.    It is unclear

from the record how he determined the value to be $84,480 rather

than $58,000.   We think he should have used the $58,000 value

without any quick sale reduction.

     For the 4th Street property, petitioners provided no

appraisal or information showing the current mortgage balance.

SO Hosking obtained information on the 4th Street property from

the Licking County, Ohio, auditor, showing the appraisal value of

the property as $131,800 for tax purposes.    SO Hosking used the

$131,800 as a quick sale value, and allowed petitioners an

additional reduction of $52,000 for encumbrances, despite the

lack of information verifying any encumbrances.    Absent

information from petitioners, SO Hosking reasonably determined
                              - 21 -

that the value for tax purposes determined by the Licking County

auditor represented a fair estimate of the amount petitioners

could get for the 4th Street property if they should attempt to

sell it quickly.

     For the Mt. Vernon property, petitioners likewise did not

provide an appraisal.   However, they submitted a copy of a

promissory note showing a loan of $82,000 taken out on the

property on December 5, 2000, but they did not verify the loan

balance.   Information from the Licking County auditor shows that

the property has a market value of $92,100, and no evidence

suggests that SO Hosking acted unreasonably in not reducing this

value for a quick sale.

     Fourth, petitioners assert in their response that SO Hosking

erred in determining that they had equity of $82,280 in

Prudential Financial.   Petitioners reported on their 2006 Federal

income tax return a $4,114 dividend received from Prudential

Financial.   They did not report ownership of any interest in

Prudential Financial on their Forms 433-A.    Each petitioner later

submitted a declaration with the response to respondent’s motion

for summary judgment that states:    “I do not own an $82,280

investment in Prudential Financial, nor did I own such an

investment at any time in 2007.”    SO Hosking used a 5-percent

rate of return in determining petitioners’ interest in Prudential

Financial to be $82,280, which he included as equity in his
                                - 22 -

calculation of their reasonable collection potential when they

submitted their OICs on March 13, 2007.    Petitioners did not take

advantage of the opportunity they were given to present

information to rebut SO Hosking’s calculation of any interest

they had in Prudential Financial before the Appeals Office issued

the notices of determination.    In opposition to the motion for

summary judgment, petitioners averred that they did not own an

$82,280 investment in Prudential Financial at any time in 2007

even though they had received and reported dividend income from

Prudential Financial in 2006.    The record does not show that

petitioners sold any investment they had had in Prudential during

2006.   Petitioners did not show the source of the dividend they

had received in 2006 and the value of their investment.    Under

the circumstances, we find that SO Hosking’s determination of

petitioners’ interest was reasonable.

     On this record, we conclude that the total reasonable

collection potential from petitioners’ net realizable equity in

assets is at least $771,223, instead of $797,703, after the

$26,480 reduction in the fair market and quick sale values of the

Hoover property.

     We sustain the settlement officers’ determinations that

petitioners’ monthly disposable income is $5,541 and that the

projected value of their future income is correct.
                              - 23 -

V.   Doubt as to Collectibility

      For the IRS to accept an OIC based on doubt as to

collectibility absent special circumstances, such as economic

hardship or public policy or equity considerations, the offer

amount must equal or exceed a taxpayer’s reasonable collection

potential.   Murphy v. Commissioner, 125 T.C. at 309; IRM pt.

5.8.1.1.3(2) and (3) (Sept. 1, 2005); see also Lloyd v.

Commissioner, T.C. Memo. 2008-15 (holding that an Appeals officer

did not abuse his discretion in rejecting an OIC based on doubt

as to collectibility where the reasonable collection potential,

if calculated as advocated by the taxpayer, would still exceed

the amount offered).

      Even if all of petitioners’ allegations are correct and the

reasonable collection potential is calculated as they contend,

petitioners would still have at least $635,163 in net realizable

equity, which is more than six times their present combined OICs.

In fact, their equity of $198,117 in their residence, the

Westwood property, is almost double the combined amount they

offered.   We point out, however, that we do not substitute our

judgment for that of the Appeals Office, and we do not specify

the amount we believe would be an acceptable offer-in-compromise.

See Murphy v. Commissioner, supra at 320; see also Fowler v.

Commissioner, T.C. Memo. 2004-163.
                               - 24 -

VI.   Conclusion

      Petitioners have not shown that the Appeals Office’s

rejection of their OICs was arbitrary, capricious, or without

sound basis in fact or law.   Nor have they set forth specific

facts showing that there is a genuine issue for trial in that

respect.    Accordingly, we find and hold that the Appeals Office

did not abuse its discretion in determining to reject

petitioners’ OICs, to sustain the filing of the notices of

Federal tax liens, and to proceed with collection action.     The

Court views this as an egregious case in which petitioners

willfully and deliberately failed to pay over large amounts of

trust fund taxes for extended periods.    Thus, the IRS is

justified in pursuing collection and filing notices of Federal

tax lien.   We shall grant respondent’s motion for summary

judgment.

      In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

      To reflect the foregoing,


                                           An appropriate order and

                                      decision will be entered

                                      granting respondent’s motion

                                      for summary judgment.
