                        T.C. Memo. 2004-101



                      UNITED STATES TAX COURT



             SEGUDINO AND DELFA RAZO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16969-02L.           Filed April 9, 2004.


     David P. Leeper, for petitioners.

     Michael W. Bentley and Gordon P. Sanz, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   This proceeding was commenced in response to

a “NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER

SECTION 6320 AND/OR 6330" (notice of determination).   The notice

of determination sustained the Federal tax lien, but suspended

petitioners’ account as “temporarily not collectible”.   The issue

for decision is whether it was an abuse of discretion for
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respondent’s Appeals officer to sustain the lien and reject

petitioners' offer to compromise their 1995, 1996, and 1997

liabilities of $7,832.90 for $100.         Because of the value of

petitioners’ assets, we hold that it was not an abuse of

discretion.

Background

        The parties submitted this case fully stipulated under Rule

1221.       The stipulation of facts and the attached exhibits are

incorporated herein by this reference.         Petitioners, Mr. Razo and

Mrs. Razo, resided in El Paso, Texas, at the time they filed

their petition.       This Court, in an Order dated November 19, 2003,

denied a motion by respondent to dismiss for lack of

jurisdiction, as supplemented.

        Petitioners filed joint Federal income tax returns for 1995,

1996, and 1997.       Each of these returns showed tax due, but

petitioners did not submit payment with the returns.         On March 1,

2002, respondent issued petitioners a Notice of Federal Tax Lien

Filing and Your Right to a Hearing Under I.R.C. Section 6320,

listing their total 1995, 1996, and 1997 liabilities as

$7,832.90.       On March 4, 2002, respondent filed a notice of

Federal tax lien in El Paso County, Texas.



        1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at the time the petition was
filed, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                - 3 -

     On March 26, 2002, petitioners’ counsel, acting under a

power of attorney from petitioners, submitted on behalf of

petitioners a Form 12153, Request for a Collection Due Process

Hearing, requesting a hearing under section 6320 with

respondent's Appeals Office.    Also submitted with the Form 12153

was a Form 656, Offer in Compromise, setting forth petitioners’

offer to pay $100 to settle their 1995, 1996, and 1997 tax

liabilities.    Petitioners’ offer in compromise was based on

“effective tax administration” (ETA).

     A section 6320 hearing was held on August 14, 2002.    On

October 3, 2002, respondent's Appeals officer issued the notice

of determination rejecting petitioners’ offer in compromise and

sustaining the Federal tax lien, but recommending that

petitioners' accounts be suspended as "temporarily not

collectible".    The Appeals officer based his determination to

sustain the lien on the value of certain assets owned by

petitioners, which include a house, two vehicles, and personal

effects.   The Appeals officer measured the quick sale value of

petitioners’ assets, less encumbrances against them, and found

that the net amount of petitioners’ equity in the assets greatly

exceeded petitioners’ tax liabilities for the years 1995-97.      For

example, one of petitioners’ automobiles alone had a quick sale

value in excess of the tax liabilities.    However, the Appeals

officer then noted that petitioners faced various hardships that
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would impede their ability to earn greater income in the future,

or pay off their existing debts in an installment agreement.    Mr.

Razo is 62 years old and is employed as a manual laborer.    Mrs.

Razo is unemployed due to health problems.   In addition, the

Appeals officer noted that petitioners are currently in arrears

on their mortgage and car payments, and they owe significant

amounts of real estate taxes.   The Appeals officer recommended

that petitioners’ account be suspended as “temporarily not

collectible”.   By suspending their account as “temporarily not

collectible”, the Appeals officer halted collection activity

until petitioners’ financial situation changes and either payment

is forthcoming or another collection alternative is feasible.

The determination would allow the Government to recover a portion

of any proceeds from a future sale or foreclosure on any of

petitioners’ assets.   The Appeals officer concluded that although

it was unlikely that petitioners would be able to pay their

liabilities other than from the value of their assets, the lien

would enable the Government to preserve its priority rights in

any foreclosure or bankruptcy proceedings.    Petitioners timely

filed a petition with this Court for review of the Appeals

officer’s determination.

Discussion

     Sections 6320 (pertaining to liens) and 6330 (pertaining to

levies) were enacted as part of the Internal Revenue Service
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Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401,

112 Stat. 746, in order to afford taxpayers new procedural

protections with regard to collection matters.     Section 6320

generally provides that the Secretary cannot proceed with

collection of taxes by way of a lien on a taxpayer’s property

until the taxpayer has been notified in writing and provided with

an opportunity for an administrative review in the form of a

hearing before an impartial officer of the Internal Revenue

Service Office of Appeals.   Sec. 6320(b).    Generally, hearings

under section 6320 are conducted in accordance with the

procedural requirements set forth in section 6330(c).     Sec.

6320(c).   At the hearing, the Appeals officer shall obtain

verification that the requirements of any applicable laws and

administrative procedures have been met.     Sec. 6330(c)(1).

Taxpayers may raise appropriate spousal defenses, challenges to

the appropriateness of the collection action, and offers of

collection alternatives, which may include offers in compromise.

Sec. 6330(c)(2)(A)(iii).   In certain circumstances, taxpayers may

also challenge their underlying tax liability at the hearing.

Sec. 6330(c)(2)(B).

     In this case, petitioners do not dispute that the Appeals

officer obtained verification that the requirements of any

applicable laws and administrative procedures had been met.       In

addition, petitioners do not dispute the existence or amount of
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their underlying tax liability.    The only collection alternative

offered by petitioners at their hearing was their offer in

compromise for $100.   No other issues were raised.

     We review the Appeals officer’s determination for an abuse

of discretion.   Goza v. Commissioner, 114 T.C. 176, 182 (2000).

We must decide whether respondent exercised his discretion

arbitrarily, capriciously, or without sound basis in fact or law.

Woodral v. Commissioner, 112 T.C. 19, 23 (1999); Fargo v.

Commissioner, T.C. Memo. 2004-13. The issue raised with the

Appeals officer is the proper point of reference in determining

whether the Appeals officer abused his discretion. Magana v.

Commissioner, 118 T.C. 488, 493-494 (2002).

     Petitioners contend that the Appeals officer abused his

discretion in rejecting their offer to compromise the $7,832.90

total liability for $100.   Specifically, petitioners argue that

their offer in compromise should have been accepted because they

will not be able to meet basic living expenses if their assets

are lost to foreclosure and respondent’s lien is left in place.

They point to their poor health, age, and education as evidence

that they will experience economic hardship if the value of their

equity is not available to them.   They also argue that the

examples contained in section 301.7122-1(c)(3)(iii), Proced. &

Admin. Regs., compel respondent to accept their ETA offer.

     We note at the outset that based on the record petitioners
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are not destitute.    The record reflects that petitioners own two

automobiles, one with a quick sale value of $10,120, subject to

an encumbrance of $921, and the other with a quick sale value of

$8,988, subject to an encumbrance of $5,700.    Petitioners do not

dispute that these figures are correct.    The Appeals officer

sustained the lien and suspended their account as “temporarily

not collectible”.    There is no evidence that the Government is

currently taking any efforts to collect on petitioners’ account.

     Section 301.7122-1(c)(3), Proced. & Admin. Regs., authorizes

the Internal Revenue Service, in compromising liabilities, to

take into account circumstances where payment in full would

create economic hardship.    In this case, the Appeals officer

determined that petitioners did not have sufficient income to

enter an installment agreement.    However, the regulations do not

require the Commissioner to relieve a liability completely

because the taxpayers are unable to pay the liability from

current income.    Petitioners have not shown that they are unable

to pay at least a part of their liability from their remaining

assets.    Their $100 de minimis offer effectively asks respondent

to forgive their entire liability, despite the value of their

assets.    On the basis of the undisputed facts presented to the

Appeals officer, if petitioners were to sell one of their two

automobiles, they could pay the entire amount of the liability at

issue.    Under these circumstances, we cannot find an abuse of
                                 - 8 -

discretion in the Appeals officer’s determination to reject

petitioners’ de minimis offer in compromise.       The Government is

entitled to preserve its priority regarding petitioners’ assets,

given their value and the uncertainty regarding their

disposition.   In the face of petitioners’ de minimis offer,

respondent’s willingness to forgo collection until petitioners’

financial situation changes was reasonable and certainly was not

an abuse of discretion.

     To reflect the foregoing,



                                              Decision will be entered

                                         for respondent.
