                  T.C. Summary Opinion 2007-206



                      UNITED STATES TAX COURT



            DOUGLAS W. AND GAIL CAPLE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22697-04S.            Filed December 10, 2007.



     Douglas W. and Gail Caple, pro sese.

     Mark D. Peterson and Mark Miller, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code.
                                - 2 -

     This matter 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 issued for unpaid

Federal income tax for taxable years 1993 and 1994.1

     The issues for decision are:    (1) Whether petitioners may

contest the liabilities respondent assessed for the taxable years

1993 and 1994, (2) whether respondent properly abated interest

and adjusted accuracy-related penalties assessed against

petitioners for 1993 and 1994 in accordance with an agreement

between the parties, and (3) whether respondent’s Appeals officer

abused her discretion in rejecting petitioner’s offer-in-

compromise.

                              Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

     Petitioners resided in Appleton, Wisconsin, on the date the

petition was filed.   Until 1994, petitioner Douglas W. Caple (Mr.

Caple) worked as a night-shift first-aid responder at Ocean Angle

Steel, an industrial plant.    After leaving this position sometime


     1
       The outstanding Federal tax owed for taxable year 1993 has
been paid in full as a result of respondent’s applying
petitioners’ overpayment refunds from subsequent years to the
amount owed for taxable year 1993. Respondent also applied a
portion of petitioners’ overpayment refunds to the amount owed
for taxable year 1994. As of Aug. 21, 2006, the outstanding
liability owed for 1994 was $14,670.74.
                                - 3 -

in 1994, Mr. Caple worked part time both as a school bus driver

and as a manager at Best Buy, an electronics retailer.    Most

recently, Mr. Caple has worked as a day trader of stocks.2

Petitioner Gail Caple (Mrs. Caple) is employed by Affinity Health

Systems as an insurance specialist.

     Before Mr. Caple’s separation from Ocean Angle Steel, he

underwent job-related medical testing that uncovered a condition

known as primary sclerosing cholangitis, a terminal disease, the

only known cure for which is a liver transplant.    At or near the

time of Mr. Caple’s diagnosis, his father (who was also suffering

from an unspecified terminal illness) gave petitioners the funds

necessary for Mr. Caple to pay for a liver transplant, provided

he were to receive a donor organ.    Although petitioners attempted

to “shelter”3 this gift, they later used the funds for

unspecified expenses.

     Petitioners have one child, Ashley Caple (Ashley), who is a

student at the University of Wisconsin at Oshkosh.    In addition

to paying Ashley’s college expenses totaling $14,000 per year

(tuition, room, and board), petitioners maintain health insurance

coverage for Ashley.    Petitioners incurred all medical costs for




     2
       In 2003, petitioners reported sales in excess of $2
million from Mr. Caple’s day trading activity.
     3
         This description is petitioners’, not the Court’s.
                               - 4 -

Ashley’s care that were not otherwise covered by their

insurance.4

Petitioners’ 1993 and 1994 Taxable Years

     In taxable years 1993 and 1994, petitioners sold Wal-Mart

stock for $57,400 and $56,650, respectively.    Petitioners failed

to report the proceeds from either sale on their 1993 or 1994

Federal income tax return.

     Respondent commenced an examination of petitioners’ 1993 and

1994 Federal income tax returns.   Following notice that these

returns had been selected for examination, petitioners promptly

contacted respondent’s Appeals Office; they were unable to reach

a mutually satisfactory resolution to the matter of petitioners’

unreported income.

     On December 6, 1996, respondent sent petitioners a notice of

deficiency for taxable years 1993 and 1994.    The notice of

deficiency was sent to petitioners’ current address, and it

informed petitioners of their right to file a petition for

redetermination with the Court no later than 90 days from the

date of mailing.   Petitioners filed a petition with the Court on

July 8, 1997, citing a series of “extra-ordinary [sic]

circumstances that prevented [them] from filing” before the 90-

     4
       Aside from petitioners’ testimony regarding Ashley’s
various medical conditions, and proof of their insurance, the
record is devoid of any evidence substantiating the costs
petitioners actually incurred with respect to Ashley’s medical
expenses.
                                - 5 -

day period for filing had elapsed.      Petitioners cited a series of

problems, including:   (1) Mr. Caple’s terminal illness,5 (2) the

death of Mr. Caple’s father in February 1997, (3) two “stressful

lawsuits” of an unspecified nature, and (4) petitioners’ “severe”

financial problems.

     On September 3, 1997, the Court issued to petitioners a

notice of filing by respondent of a motion to dismiss for lack of

jurisdiction.   Petitioners were required by the notice of filing

to file an objection to respondent’s motion to dismiss within 20

days; they failed to do so.    On October 8, 1997, the Court

granted respondent’s motion to dismiss.

     Respondent assessed petitioners’ Federal income tax owed for

taxable years 1993 and 1994, together with interest and

penalties, on June 23, 1997.    Respondent’s statements of account

show that from the date the assessment was made, there occurred a

series of payments, credits, additional assessments, and

adjustments with respect to both taxable years at issue.     As of

May 31, 2004, the date on which petitioners requested that a copy

of respondent’s statements be mailed to them, the transcripts

showed a zero balance remaining for taxable year 1993 and a

balance remaining (including interest and penalties) of

$21,606.92 for taxable year 1994.


     5
       Mr. Caple was told by his doctors in 1996 that he had only
2 years to live.
                                - 6 -

Collections Action and Petitioners’ Offer-in-Compromise

     On June 24, 2002, respondent filed a Notice of Federal Tax

Lien and Your Right to a Hearing Under IRC 6320 showing $1,346.96

owed for taxable year 1993 and $15,346.52 owed for taxable year

1994.    Respondent sent to petitioners a Final Notice--Intent to

Levy and Notice of Your Right to a Hearing on June 27, 2002.

     On August 19, 2002, petitioners mailed to respondent a Form

12153, Request for a Collection Due Process Hearing (CDP

hearing).    Respondent notified petitioners by letter on September

19, 2002, that he had received petitioners’ request for a CDP

hearing and, in turn, had forwarded that request to his Appeals

Office.

     On May 13, 2004,6 Appeals Officer Beverly A. Roberts (Ms.

Roberts) responded in writing to petitioners’ request for a CDP

hearing.    Ms. Roberts informed petitioners that they could

request either a face-to-face meeting or a telephone conference.

Petitioners requested a telephone conference with Ms. Roberts for

their CDP hearing on May 27, 2004.




     6
       At trial, respondent acknowledged that for reasons
unbeknownst to him, no action had occurred on petitioners’ file
from September 2002 until May 2004. Our examination of the
record, however, indicates that respondent was notified on July
24, 2002, that petitioners were parties in a bankruptcy suit.
                               - 7 -

     During their CDP hearing,7 petitioners requested that their

liabilities for 1993 and 1994 be “dropped” because of Mr. Caple’s

health status and the “inefficiency of the IRS personnel.”

Petitioners admitted during the hearing that while they had

“sufficient assets” to pay the amounts owed, they had no current

income and were living at “the poverty line.”8

     During the hearing, petitioners discussed the general nature

of Mr. Caple’s illness, but they did not provide Ms. Roberts with

any specific documentation relating to his current medical

condition and/or prognosis.   Petitioners did not provide Ms.

Roberts with any documentation relating to Mr. Caple’s medical

condition following the hearing.   Petitioners did provide a

written statement detailing Mr. Caple’s and Ashley’s

medical ailments; however, they did not provide any documentation

in support of their statements.9

     7
        Ms. Roberts and Mr. Caple exchanged telephone messages
before and on May 27, 2004. Sometime in the morning of May 27,
2004, Mr. Caple left Ms. Roberts a voicemail message asking her
to “call him back after he got back from his run at 1 p.m.”
     8
       Petitioners did not provide Ms. Roberts (either before or
after the hearing) with evidentiary support for their claim that
they were living at the “poverty line.” Petitioners did,
however, provide a summary of assets to respondent’s Appeals
Office that showed their total general equity to be $169,570. We
note that in 2004, the Federal poverty line for a family of three
was set at $15,670. Annual Update of HHS Poverty Guidelines, 69
Fed. Reg. 7336 (Feb. 13, 2004).
     9
       Petitioners’ only daughter, Ashley, was 16 years old at
the time of the hearing. When this matter was before the Court,
                                                   (continued...)
                               - 8 -

     Mr. Caple also raised the issue of whether respondent had

abated interest and adjusted accuracy-related penalties with

respect to their accounts for 1993 and 1994.    Respondent had

previously agreed to abate interest and adjust the penalties

assessed against petitioners, pursuant to an agreement reached

between petitioners and respondent’s Milwaukee Problem Resolution

Office.   During the hearing, petitioners questioned whether

respondent had, in fact, properly abated the interest and

adjusted these penalties per their agreement.    Ms. Roberts

reviewed petitioners’ account records during the hearing and

explained to them that these transcripts showed that the section

6662 penalties had been adjusted to zero and the interest had

been abated.   Per petitioners’ request, Ms. Roberts then sent a

copy of these account statements/transcripts to petitioners

following the hearing.

     On June 29, 2004, petitioners submitted to respondent a Form

656, Offer in Compromise (OIC).   Petitioners offered to settle

the outstanding amount of tax owed by them as follows:    (1) A

payment of $100 (to be obtained from “checking accounts,

investment accounts, and selling autos”10), (2) the application

     9
      (...continued)
Ashley was a college student and covered under their health
insurance plan.
     10
       Petitioners admitted, both during the hearing and when
this matter was heard by the Court, that in 1999, they purchased
                                                   (continued...)
                               - 9 -

of “$18,000 in tax credits”, and (3) petitioners’ expected

“future tax benefits.”   Petitioners attached five typed pages to

their Form 656 explaining their OIC.   In the attachment,

petitioners stated that their OIC was reasonable in the light of

their protracted dealings with respondent since 1996 and Mr.

Caple’s and Ashley’s extensive medical ailments and the costs

associated with their care.

     On September 22, 2004, respondent rejected petitioners’ OIC

on the grounds that petitioners had failed to substantiate their

hardship and that they had sufficient assets to pay the amount

owed.

     On October 27, 2004, respondent issued petitioners a Notice

of Determination Concerning Collection Action(s) Under Section

6320, in which respondent determined the notice of Federal tax

levy for taxable years 1993 and 1994 to be proper and determined

that collection of the tax liabilities for those years should

proceed.

     On June 26, 2006, respondent issued another notice of intent

to levy.   Petitioners filed a “Petition for Redetermination of a



     10
      (...continued)
for $12,000 an antique Porsche that in 2004, had a fair market
value of $9,000, and that in 2004, they sold for $14,000 a motor
boat that they had owned for several years. Petitioners maintain
that they “refunded” the proceeds from the sale of the boat to
Ashley, because they had previously “borrowed” $14,000 from her
college fund.
                               - 10 -

Deficiency” requesting the elimination of all taxes owed,

including penalties and interest.

                             Discussion

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

property, taxpayers are entitled to a notice of intent to levy

and notice of their right to a fair hearing before an impartial

officer of the Commissioner’s Appeals Office.   Secs. 6330(a) and

(b), 6331(d).    If the taxpayers request a hearing, they may raise

in that hearing any relevant issue relating to the unpaid tax or

the proposed levy, including challenges to the appropriateness of

the collection action and “offers of collection alternatives,

which may include * * * an offer-in-compromise.”   Sec.

6330(c)(2)(A).    A determination is then made that takes into

consideration those issues, the verification that the

requirements of applicable law and administrative procedures have

been met, and “whether any proposed collection action balances

the need for the efficient collection of taxes with the

legitimate concern of the person that any collection action be no

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

     Petitioners have not argued that any portion of their

outstanding tax liability is uncollectible; however, they do

argue that they were unfairly denied an opportunity to file a

petition with the Court for redetermination of the deficiencies,

and that a portion of their liability--the interest and the
                              - 11 -

penalties applied under section 6662--was not properly abated and

adjusted in accordance with the agreement they reached with

respondent’s Problem Resolution Office.   We will first consider

the merits of these arguments.

Petitioners’ Right To Contest the Underlying Liability

     The Court’s jurisdiction to redetermine a deficiency depends

upon the issuance of a valid notice of deficiency and the timely

filing of a petition for redetermination.    Levitt v.

Commissioner, 97 T.C. 437, 441 (1991).    Assuming the Commissioner

has issued a valid deficiency notice, section 6213(a) provides in

pertinent part that the taxpayer must file a petition with the

Court within 90 days of the mailing of the deficiency notice.

     Respondent mailed a deficiency notice to petitioners on

December 6, 1996.   It is undisputed that petitioners received

this notice in due course.   Petitioners failed to file a petition

for redetermination within 90 days of the date the notice was

mailed.   Because petitioners’ reasons as to why they did not file

a petition are irrelevant,11 we hold that petitioners are not

entitled to raise as an issue their underlying tax liability.

     11
       Petitioners admit their timely receipt of the notice.
They stated that the declining health of Mr. Caple’s father, and
other factors, left them unable to deal with the situation.
“Once respondent places the deficiency notice within the
taxpayer’s grasp * * * [in ample time to file a petition with the
Tax Court, respondent] satisfies the requirement of section 6212;
if the taxpayer turns a blind eye to that information, she does
so at her own peril.” Patmon & Young Profl. Corp., T.C. Memo.
1993-143, affd. 55 F.3d 216 (6th Cir. 1995).
                               - 12 -

Abatement of Interest and Adjustment of Penalties

     Petitioners challenge respondent’s collection action on the

grounds that respondent did not properly account for an agreement

reached between petitioners and respondent’s Milwaukee Problem

Resolution Office to abate all interest and adjust the section

6662(e) penalty to zero for each of the taxable years at issue.

Ms. Roberts testified that the agreement reached between the

parties applied to the original assessment only and did not apply

to the period after the assessment where petitioners’ outstanding

liability went unpaid.

     Our review of the record12 indicates that respondent did, in

fact, abate interest and adjust the section 6662(e) penalty to

zero with respect to the original assessment for each of the

taxable years in issue.   We believe Ms. Roberts’s testimony that

the agreement between the parties applied to the original

assessment only and not to the period after the assessment

through the present.   Accordingly, we hold that respondent did

properly abate and adjust the interest and the section 6662

penalties with respect to the assessments made for petitioners’

1993 and 1994 taxable years.




     12
       Specifically, respondent’s account statements for
petitioners’ 1993 and 1994 taxable years. These documents were
provided to petitioners, and petitioners offered no evidence to
contradict their content.
                                - 13 -

Rejection of Petitioners’ OIC

     Because petitioners cannot dispute their underlying tax

liability, we review respondent’s determination with respect to

their OIC under the abuse of discretion standard.     See sec.

6330(d); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

     We find that respondent’s rejection of petitioners’ proposed

OIC was not an abuse of discretion.      Respondent’s determination

was based on all of the information petitioners provided

reflecting their financial solvency to Ms. Roberts, respondent’s

Appeals Officer.   See Crisan v. Commissioner, T.C. Memo. 2003-

318; Schulman v. Commissioner, T.C. Memo. 2002-129.      The Appeals

officer reasonably determined, on the basis of petitioners’

yearly income ($35,616) and asset value (TD Waterhouse account,

$41,301.41; vehicles--including “1995 boat”, $59,100; and Mrs.

Caple’s profit sharing plan, $30,000)--totaling $166,017.41--that

petitioners’ proposed OIC to pay $100 should be rejected.

     In addition to the $100 payment, petitioners also offered

“$180,000 in future benefits” as part of their OIC.     Unsure of

exactly what petitioners meant by this offer, the Court attempted

to ascertain petitioners’ intent.    The Court’s query on this

matter resulted in the following exchange:

          THE COURT:            These are for future credits, not
                                past credits?

          MS. CAPLE:            Future credits.

          THE COURT:            Future credits?
                               - 14 -

          MR. CAPLE:           Future credits.

          THE COURT:           Well, suppose if, God forbid, both
                               of you passed away, there would be
                               no credits.

          MS. CAPLE:           Right. That’s right. It’s not
                               like you’re going to need them.

          MR. CAPLE:           We would like to apply some of
                               that * * *.

     On the basis of the foregoing exchange and Ms. Roberts’s

testimony explaining why she could not consider “future credits”

as part of petitioners’ OIC, we consider this portion of

petitioners’ OIC to be no more than an irrelevant and misguided

attempt on their part to satisfy their outstanding tax liability.

Ms. Roberts did not abuse her discretion in rejecting this

portion of petitioners’ OIC.

     Finally, and with respect to petitioners’ argument that Ms.

Roberts refused to consider factors illustrating petitioners’

economic hardship and extraordinary medical expenses, we are

unpersuaded, on the basis of the foregoing discussion of

petitioners’ assets, that petitioners were unable to pay the

$14,670.74 owed at the time of the hearing.   Second, the record

reflects only one letter, dated January 17, 1995, regarding Mr.

Caple’s medical condition.   Petitioners have provided no

additional evidence, aside from their statements (which were

neither substantive nor credible), to indicate the impact of

either Mr. Caple’s or Ashley’s medical expenses, although they
                             - 15 -

admit that both father and daughter were at that time, and still

are, covered under their medical insurance policy.

     Despite ample evidence to the contrary, petitioners have

maintained that they are unable to make more than the $100

proposed in their OIC, an amount that respondent’s Appeals

officer did not abuse her discretion in rejecting.

     We therefore hold that respondent’s determination was not an

abuse of discretion and that respondent may proceed with his

collection of the tax liability by levy upon petitioners’

property.


                                           Decision will be entered

                                      for respondent.
