                   T.C. Memo. 2005-4



                UNITED STATES TAX COURT



      SAL ALANIZ AND RUTH ALANIZ, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 5814-03L.            Filed January 11, 2005.



     Ps filed a petition for judicial review pursuant to
sec. 6330, I.R.C., in response to a determination by R to
proceed with collection by levy of assessed income tax
liabilities, plus penalties and interest, for 1994, 1996,
and 1997. Both parties filed motions for summary judgment
under Rule 121, Tax Court Rules of Practice and Procedure.

     Held: R’s rejection of a $2,000 offer in
compromise proposed by Ps did not constitute an abuse
of discretion.

     Held, further, R’s motion for summary judgment is
granted, and R may proceed with collection of balances
due as determined in a Notice Of Determination
Concerning Collection Action(s) Under Section 6320
and/or 6330. Ps’ motion for summary judgment is
denied.
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     David P. Leeper, for petitioners.

     Erin K. Huss, for respondent.



                         MEMORANDUM OPINION

     NIMS, Judge:    This case is before the Court on both parties’

motions for summary judgment pursuant to Rule 121.     The instant

proceeding arises from a petition for judicial review filed in

response to a Notice Of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330.     Unless otherwise

indicated, all section references are to the Internal Revenue

Code in effect for the years in issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure.     The

parties do not challenge the Court’s jurisdiction over this case.

Petitioners do not dispute their liability for underlying taxes,

penalties, and interest.   The sole issue for decision is whether

respondent’s rejection of petitioners’ offer in compromise

constitutes an abuse of discretion.

                             Background

     Some of the facts are stipulated and are incorporated herein

by this reference.   At the time the petition was filed in this

case, petitioners resided in El Paso, Texas.

     Petitioner Sal Alaniz is a 73-year-old insurance salesman

who has been diagnosed with high blood pressure and severe vision

impairment.   Petitioner Ruth Alaniz assists her husband in the
                               - 3 -

operation of his business, but is otherwise not employed outside

the home.   Petitioners filed joint Forms 1040, U.S. Individual

Income Tax Return, for the taxable years 1994, 1996, and 1997.

As of October 28, 2003, petitioners’ total unpaid income tax

liability, plus penalties and interest, for the foregoing taxable

years was $221,372.

     On February 29, 2000, petitioners offered to settle their

tax liabilities for $4,650.   Following submission of their

settlement offer, petitioners purchased two new automobiles and

took out additional life insurance on Mr. Alaniz.   These

transactions increased petitioners’ monthly expenses by

approximately $1,000.   Petitioners also transferred their 1964

Ford Thunderbird to a son-in-law for below market value.    On

February 20, 2001, respondent rejected the settlement offer.

     On March 11, 2002, respondent issued to petitioners a letter

entitled “Final Notice of Intent to Levy and Notice of Your Right

to a Hearing” relating to petitioners’ unpaid income tax

liabilities for the taxable years at issue.   Thereafter, on March

21, 2002, petitioners sent a Form 12153, Request for a Collection

Due Process Hearing, to respondent’s Appeals Office.   Petitioners

indicated they were unable to pay their tax liabilities because

they could not meet basic living expenses.    On August 14, 2002,

petitioners filed Form 656, Offer in Compromise (OIC), which

proposed to compromise petitioners’ liabilities for $2,000.
                                - 4 -

     As a basis for the OIC, petitioners submitted personal

financial information that showed monthly expenses exceeding

monthly income by $1,170.    Petitioners’ claimed $2,895 housing

expense and $500 insurance expense accounted for a large portion

of the deficit.    Petitioners made no reference to the Ford

Thunderbird.   The Appeals officer questioned the “arm’s length

nature” of the automobile’s transfer and concluded that the asset

belonged in the offer calculation.      Petitioners do not dispute

this conclusion.

     Respondent rejected petitioners’ OIC on March 13, 2003.

Respondent followed prescribed guidelines to determine

petitioners’ collection potential.      See 1 Administration,

Internal Revenue Manual (CCH), sec. 5.8.5.5., at 16,339.        The

Appeals officer adjusted petitioners’ claimed housing and life

insurance expenses to $789 and $200, respectively.      The Appeals

officer used monthly income of $4,860, consisting of $3,411

reflected on petitioners’ 2001 Schedule C, Profit or Loss From

Business, and $1,449 of Social Security income, less national

standard expenses of $4,148 to arrive at net monthly income of

$712.   Respondent fixed the present value of petitioners’ net

income for 48 months at $34,176.    Petitioners argue that this

figure is too high and claim that their income will decline in

future years because of Mr. Alaniz’s advanced age and

“deteriorating health.”
                               - 5 -

     The value of the Ford Thunderbird was not stipulated by the

parties.   The Appeals officer referred to the Internet National

Auto Dealers of America Guide for classic cars to arrive at a

forced sale value of $11,008 for the automobile in “deteriorated

restoration” condition.   Petitioners argue that the Ford

Thunderbird is “junked” and only worth between $2,200 and $4,000.

     The Appeals officer determined that an appropriate offer

amount approached $46,000, or approximately petitioners’ net

income for 48 months plus respondent’s valuation of the Ford

Thunderbird.   Negotiations between the Appeals officer and

petitioners’ counsel suggested the parties were too far apart to

reach an acceptable compromise.   The Appeals officer pointed out

that petitioners’ future earnings from the insurance business,

interest in the Ford Thunderbird, and increased personal

expenditures did not warrant acceptance of the $2,000 OIC.    The

Appeals officer also offered to suspend collection activities for

1 year to provide petitioners the opportunity to adjust their

finances and reduce expenses. Petitioners’ counsel declined the

offer.

     Petitioners contend in their Motion that respondent failed

to consider Mr. Alaniz’s advanced age, ill health, and declining

income from the insurance business.    Petitioners argue that the

Appeals officer’s calculations were unreasonable and rejection of

the $2,000 OIC was an abuse of discretion.
                               - 6 -

                             Discussion

     Summary judgment may be granted only if it is demonstrated

that no genuine issue exists as to any material fact, and a

decision may be rendered as a matter of law.   Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.

17 F.3d 965 (7th Cir. 1994).   Because the underlying tax

liability is not in dispute, we review the Appeals officer’s

actions under an abuse of discretion standard.    Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000).    Under the abuse of

discretion standard, a determination will be affirmed unless the

respondent took action that was arbitrary or capricious, lacks

sound basis in fact, or is not justifiable in light of the facts

and circumstances.   Mailman v. Commissioner, 91 T.C. 1079, 1084

(1988).

     Before a levy may be made on any property or right to

property, a taxpayer is entitled to notice of intent to levy and

notice of the right to a fair hearing before an impartial officer

of the IRS Appeals Office.   Secs. 6330(a) and (b), 6331(d).

Taxpayers may raise challenges to “the appropriateness of

collection actions” and may make “offers of collection

alternatives, which may include the posting of a bond, the

substitution of other assets, an installment agreement, or an

offer-in-compromise”.   Sec. 6330(c)(2)(A).   The Appeals officer

must consider those issues, verify that the requirements of
                                - 7 -

applicable law and administrative procedures have been met, and

consider “whether any proposed collection action balances the

need for the efficient collection of taxes with the legitimate

concern of the person [involved] that any collection action be no

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

petitioners do not dispute that all administrative procedures

have been met so the sole issue for our consideration is whether

respondent’s rejection of petitioners’ OIC was an abuse of

discretion.

     Section 7122 provides respondent with the authority to grant

an offer in compromise as an alternative to collection action.

Respondent grants an offer in compromise when there is a doubt as

to the actual tax liability, doubt as to collectibility, or for

other purposes relating to effective tax administration.     Sec.

301.7122-1, Proced. & Admin. Regs.; 1 Administration, Internal

Revenue Manual (CCH), sec. 5.8.1.1.2, at 16,253.

     The Appeals officer considered petitioners’ $2,000 offer on

the grounds of “doubt as to collectibility” (as such term is used

in the context of the foregoing reference to the regulations and

the Internal Revenue Manual).   The Appeals officer also took into

consideration as a potential ground for compromise the promotion

of effective tax administration.    See sec. 301.7122-1(b)(3),

Proced. & Admin. Regs.   Respondent may accept an offer in

compromise based on doubt as to collectibility when there are
                               - 8 -

questions concerning whether the tax liability will be collected

in full, as in petitioners’ case, and where the offered amount

reflects realistic collection potential.   1 Administration,

Internal Revenue Manual (CCH), sec. 5.8.1.1.3, at 16,253.

     We conclude that respondent’s rejection of the OIC was

reasonable in light of petitioners’ collection potential.     The

Appeals officer followed prescribed guidelines based on section

7122(c)(1) to determine whether the $2,000 OIC was acceptable.

The Appeals officer permitted petitioners national and local

allowances in accordance with section 7122(c)(2).   Respondent

based his calculation of Mr. Alaniz’s future net income on the

amount found in petitioners’ 2001 Schedule C less allowable

expenses.   The parties disagree about the exact value of the Ford

Thunderbird, but we agree with respondent that liquidation of the

automobile will generate more than $2,000 without rendering

petitioners penniless.   The Appeals officer valued the car at

$11,000, which, while not conclusive, is sufficient to create

serious questions as to petitioners’ valuation of the asset.

     The record shows that the Appeals officer considered Mr.

Alaniz’s age and health.   Cf. sec. 301.7122-1(c)(3)(i)(A),

Proced. & Admin. Regs., relating to effective tax administration.

The Appeals officer noted that Mr. Alaniz remains active in the

insurance business despite his age and medical conditions.     No

evidence of petitioners’ “deteriorating” health was given to the
                               - 9 -

Appeals officer at the administrative hearing.   Furthermore, the

Appeals officer’s offer to suspend collection activities for one

year demonstrates respondent’s willingness to give petitioners

more time to reduce their expenses, including those incurred

after rejection of the first settlement offer.

     Petitioners attached a number of exhibits to their Motion,

most of which were unavailable to the Appeals officer at the time

of the hearing, to support their argument that respondent’s

determination was an abuse of discretion.   Petitioners included a

Schedule C for 2002 reflecting monthly income of $2,605, a

junkyard’s appraisal of the Ford Thunderbird, and documentation

of petitioners’ medical problems.   However, it is self-evident

that the Appeals officer may not be held to have committed an

abuse of discretion where information that might have supported

petitioners’ position was not forthcoming at the time of the

administrative hearing.   In any event, we are unable to conclude

that the production of such additional information at the time of

the hearing might have led to a different result.   See Van

Vlaenderen v. Commissioner, T.C. Memo. 2003-346.

     We have reviewed the financial information which the record

reveals was available to the Appeals officer at the time of the

administrative hearing, and we conclude that respondent’s

rejection of the $2,000 offer in compromise was not arbitrary.

Respondent’s refusal of the de minimis offer was justified by
                              - 10 -

income generated from the insurance business, value in the Ford

Thunderbird, and petitioners’ increased expenditures since the

first settlement offer.   See Razo v. Commissioner, T.C. Memo.

2004-101.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, or moot.

     We hold that respondent did not abuse his discretion and

correctly determined that collection efforts should proceed.

     To reflect the foregoing,


                                      An appropriate order and

                                 decision will be entered for

                                 respondent.
