                        T.C. Memo. 2010-52



                      UNITED STATES TAX COURT



             MAYER INVESTMENT COMPANY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3844-08L.              Filed March 18, 2010.



     Harry Anthony Tipping, for petitioner.

     Anita A. Gill and Dennis G. Driscoll, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Pursuant to section 6330(d),1 petitioner

seeks review of respondent’s determination to proceed with



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
                               - 2 -

collection of its unpaid 2003 additions to tax.   The issue for

decision is whether the Internal Revenue Service (IRS) Appeals

Office abused its discretion in sustaining the IRS’s proposed

levy action against petitioner and denying petitioner’s offer-in-

compromise (OIC) based on doubt as to collectibility with special

circumstances.

                         FINDINGS OF FACT

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

The stipulation of facts and the supplemental stipulation of

facts, together with the attached exhibits, are incorporated

herein by this reference.   At the time petitioner filed its

petition, petitioner was incorporated in Ohio.

I.   Mayer Investment Co.

     Petitioner’s sole shareholders in 2003 were Charles W.

Mayer, Jr., the 89-year-old founder of the company, and his

nephew, Keith Barton.   Petitioner’s primary assets in 2003 were

an 85-year-old building in Akron, Ohio, and two adjoining parking

lots.   Petitioner leased space in the building to commercial

tenants.

     Mr. Mayer served as the president of petitioner and was

responsible for the company’s day-to-day operations until March

2005, when he was confined to a nursing home and his sons, Rory

and Jeffrey, assumed control of petitioner.   Mr. Mayer failed to

make petitioner’s 2003 estimated tax payments or timely file
                               - 3 -

petitioner’s 2003 Form 1120, U.S. Corporation Income Tax Return.

However, Mr. Mayer paid every other bill that came due for

petitioner in 2003.

     Petitioner engaged in several major financial transactions

in 2003.   In March petitioner received $66,806 from Union Central

Life Insurance Co. for the cash surrender value of a life

insurance policy on Mr. Mayer and promptly transferred these

funds to Mr. Mayer.   Throughout the year petitioner transferred a

total of $43,400 to Charles Mayer Studios, Inc., a struggling

commercial photography business owned by Mr. Mayer.

     Petitioner also found itself in the middle of a real estate

dispute in 2003.   During the first half of 2003 petitioner sold a

parking lot for $300,000 and deposited $205,347 of the proceeds

into its checking account.   In July petitioner wrote two checks

to Mr. Mayer from the proceeds in the total amount of $146,803.

In November petitioner placed $90,000 from the proceeds into an

escrow account because of a civil complaint filed against the

company by Mr. Barton (Barton litigation).   The funds were not

released from escrow until early 2005.

     On April 11, 2005, petitioner filed and paid the tax shown

on its 2003 Form 1120, which contained Mr. Mayer’s signature.
                                - 4 -

II.   Collection Action

      A.   Abatement

      On May 30, 2005, respondent assessed section 6651 and

section 6655 additions to tax against petitioner in the total

amount of $21,936 for tax year 2003.    On July 7, 2005, petitioner

filed a Form 843, Claim for Refund and Request for Abatement, in

which petitioner stated that reasonable cause existed to remove

the additions to tax because petitioner lacked the funds to

timely pay the 2003 additions to tax.    The reason given was the

restriction on access to the $90,000 placed in escrow on account

of the Barton litigation.    Petitioner also stated that payment of

the additions to tax would impose an extreme hardship on

petitioner.    On October 4, 2005, the IRS denied petitioner’s

request for abatement.

      On October 21, 2005, petitioner sent the IRS a letter

appealing the denial of its abatement request.    In its letter

petitioner reiterated the financial distress arguments it had

asserted in its Form 843.    On July 10, 2006, petitioner sent the

IRS an additional letter which stated that Mr. Mayer was

suffering from Alzheimer’s disease and dementia in 2003.    On July

18, 2006, the Appeals Office responded by noting that petitioner

made no attempt to provide supporting documentation for its

contention that Mr. Mayer suffered from Alzheimer’s disease.
                                  - 5 -

     B.     Telephone Hearings

     On October 22, 2005, respondent issued to petitioner a

Notice of Intent to Levy and Notice of Your Right to a Hearing

for 2003.    On October 28, 2005, petitioner requested a section

6330 hearing.    Telephone conferences with the Appeals Office were

held on August 16, 2006, February 21, 2007, and November 6, 2007.

At one or more of these scheduled conferences, petitioner

informed the Appeals Office that Mr. Mayer was in a nursing home

on account of his poor health.

     C.     Offer-in-Compromise

     On February 9, 2007, petitioner submitted an offer-in-

compromise (OIC) of $4,000 based on doubt as to liability and

doubt as to collectibility with special circumstances.

Petitioner’s OIC reiterated the financial distress arguments

presented in its Form 843.    On June 20, 2007, in support of the

OIC, petitioner submitted a Form 433-B, Collection Information

Statement for Businesses, signed by its vice president, Jeffrey

W. Mayer.    Petitioner’s Form 433-B indicated that petitioner had

the following assets:    (1) Notes receivable of $354,600 from

Charles Mayer Studios, Inc.; (2) notes receivable of $164,860

from Mr. Mayer; (3) two parcels of unencumbered real property

consisting of a commercial building and parking lot valued at

$468,630 and $42,880, respectively; (4) $8,104 in cash in a First

Merit Bank checking account; and (5) net monthly income of
                                - 6 -

$1,825.    The total value of the assets listed on petitioner’s

Form 433-B was $1,039,074.

       On July 17, 2007, the IRS offer examiner sent petitioner an

OIC analysis which determined that petitioner had a reasonable

collection potential of $620,314.    On July 27, 2007, petitioner

sent the IRS a letter disagreeing with the offer examiner’s

analysis.    Petitioner’s letter explained that the building

required extensive repairs and that the accounts receivable were

unlikely to be collected.

       On November 26, 2007, the Appeals Office sent petitioner a

letter rejecting petitioner’s OIC.      The letter stated that the

Appeals Office rejected petitioner’s doubt as to liability claim

because the petitioner had failed to show reasonable cause and

rejected petitioner’s doubt as to collectibility claim because

petitioner had sufficient assets to pay the additions to tax.

The letter concluded by offering petitioner an installment

agreement of $800 to $1,000 per month.      Petitioner did not

respond to the Appeals Office’s offer.      On January 18, 2008,

respondent issued a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 to petitioner.

III.    Tax Court Petition

       On February 13, 2008, petitioner filed a petition with this

Court.    The petition raised the issue of doubt as to liability by

disputing the Appeals Office’s rejection of petitioner’s request
                               - 7 -

for a reasonable cause reduction in the additions to tax.    The

parties subsequently agreed that the issue for decision is

whether the Appeals Office abused its discretion by denying

petitioner’s OIC based on doubt as to collectibility with special

circumstances.2

     On May 29, 2009, respondent filed a motion in limine

requesting the Court to limit the testimony of Jeffrey Mayer,

Rory Mayer, and petitioner’s employee Dan Reimenschneider to

conversations they had had with the Appeals Office and to the

explanation of documents that were prepared and provided to the

Appeals Office.   The motion also requested that the Court limit

all exhibits to documents that were provided to the Appeals

Office and that were not expert testimony.   Petitioner objected

to the motion.

     On June 3, 2009, trial was held in Cleveland, Ohio.    At the

conclusion of trial, we granted petitioner’s unopposed oral

motion to amend the pleadings to conform to proof.




     2
      Petitioner’s original petition did not raise the issue of
abuse of discretion due to the Appeals Office’s denial of
petitioner’s OIC based on doubt as to collectibility. However,
on Feb. 12, 2009, respondent consented to trial of the doubt as
to collectibility issue under Rule 41(b)(1) by raising it in a
motion for summary judgment. On Mar. 13, 2009, petitioner
conceded the doubt as to liability issue in a memorandum in
opposition to respondent’s motion.
                                  - 8 -

                                 OPINION

I.    Procedural Issues

      At trial, petitioner submitted documents and offered witness

testimony regarding Mr. Mayer’s medical condition and

petitioner’s financial situation that were not part of the

administrative record of the Appeals Office.     Respondent argues

in his motion in limine that we should not consider any evidence

in a case brought under section 6330 that was not part of the

administrative record.      We need not address the issue raised by

respondent’s motion in limine because respondent prevails on the

merits even if we consider the testimony and documents to which

respondent objects.

II.   Abuse of Discretion

      Petitioner argues that respondent abused his discretion by

rejecting petitioner’s OIC based on doubt as to collectibility

with special circumstances.     Petitioner contends the Appeals

Office (1) overvalued petitioner’s building and outstanding

accounts payable in calculating petitioner’s reasonable

collection potential, (2) failed to consider Mr. Mayer’s dementia

and Alzheimer’s disease, and (3) failed to consider pending

litigation that encumbered petitioner’s assets.     Respondent

argues that the Appeals Office did not abuse its discretion when

calculating petitioner’s reasonable collection potential and gave
                                - 9 -

proper consideration to petitioner’s unique situation on the

basis of information petitioner provided.

     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.

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.

     The Commissioner may compromise a tax liability based on

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

are less than the full amount of the assessed liability.    Sec.

301.7122-1(b)(2), Proced. & Admin. Regs.    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.    Rev. Proc. 2003-

71, sec. 4.02(2), 2003-2 C.B. 517, 517.    In some cases the

Commissioner will accept an OIC of less than the reasonable

collection potential if there are “special circumstances”.      Id.

Special circumstances are:   (1) Circumstances demonstrating that

the taxpayer would suffer economic hardship if the IRS were to
                              - 10 -

collect from him an amount equal to the reasonable collection

potential; or (2) circumstances justifying acceptance of an

amount less than the reasonable collection potential based on

public policy or equity considerations.   See Internal Revenue

Manual (IRM) pt. 5.8.4.3(4) (Sept. 1, 2005).    However, in

accordance with the Commissioner’s guidelines, an OIC based on

doubt as to collectibility with special circumstances should not

be accepted, even when economic hardship or considerations of

public policy or equity circumstances are identified, if the

taxpayer does not offer an acceptable amount.    See IRM pt.

5.8.11.2.1(11), 5.8.11.2.2(12) (Sept. 1, 2005).

     Because the underlying tax liability is not at issue, our

review under section 6330 is for abuse of discretion.    See Sego

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

114 T.C. 176, 182 (2000).   This standard does not ask us to

decide whether in our opinion petitioner’s OIC should have been

accepted, but whether the Appeals Office’s rejection of the OIC

was arbitrary, capricious, or without sound basis in fact or law.

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

Commissioner, T.C. Memo. 2006-166, affd. in part and vacated in

part 568 F.3d 710 (9th Cir. 2009); Fowler v. Commissioner, T.C.

Memo. 2004-163.

     The record indicates that the Appeals Office gave adequate

consideration to the special factors petitioner raised. The
                              - 11 -

Appeals Office’s letter rejecting petitioner’s OIC indicates that

Mr. Mayer’s medical condition was a factor examined by the

Appeals Office:

     Also, you stated that the president of the corporation
     is currently in a nursing home due to his health.
     However, the business is still operating and generating
     some income. Therefore, it is reasonable for the
     Service to be of the opinion that the tax can be
     collected over time.

In its Appeals case memorandum, the Appeals Office also

considered petitioner’s claim that petitioner’s accounts

receivable will never be paid and that petitioner is operating at

a loss:

     The Offer Specialist determined that the taxpayer has a
     monthly surplus of $1,825, which yields a future income
     potential in excess of $87,600. The [taxpayer], on the
     other hand, argued that the taxpayer is actually
     operating at a deficit * * * I reviewed the Offer
     Specialist’s income and expense analysis and concur
     with her findings. Neither the taxpayer nor his
     representative presented any information to warrant a
     change * * *

     The record provides adequate justification for the Appeals

Office’s determination.   Petitioner’s assets, although eroded,

are worth many times the amount at issue in the collection

action, and the record does not indicate that petitioner would

experience severe hardship from payment.   Despite the Barton

litigation and the restriction on the $90,000, petitioner was

able to transfer large sums of money in 2003 to support Mr.

Mayer’s other business interests.   Finally, although the record

indicates Mr. Mayer experienced symptoms of Alzheimer’s disease
                                - 12 -

in 2003, petitioner was able to satisfy most of its outstanding

obligations in 2003 and engage in new business transactions.

Unlike taxpayers in other cases where we have found abuse of

discretion on account of the ill health of taxpayers, Mr. Mayer

was not bedridden or completely unable to manage his financial

affairs in 2003.   See Sullivan v. Commissioner, T.C. Memo. 2009-

4; sec. 301.7122-1(b)(3)(ii) and (c)(3)(iv), Proced. & Admin.

Regs.

     Petitioner cites Blosser v. Commissioner, T.C. Memo. 2007-

323, for the proposition that the Commissioner has an affirmative

duty to investigate possible special circumstances raised by a

taxpayer in a section 6330 hearing and that the Appeals Office

erred by failing to ask petitioner for additional documentation

regarding Mr. Mayer’s illness and petitioner’s financial

troubles.   Petitioner reads Blosser too broadly.   In Blosser, we

determined that the Commissioner abused his discretion in denying

a taxpayer’s proposed collection alternative because the Appeals

Office refused to consider the changes in the taxpayer’s

financial information from the time she completed a collection

information statement (CIS).3    The Appeals Office also failed to

consider the taxpayer’s excuse, raised at the taxpayer’s section

6330 hearing, for not filing a more recent statement or complying



     3
      The taxpayer in Blosser v. Commissioner, T.C. Memo 2007-
323, had lost her job after filing her CIS.
                               - 13 -

with the Appeals Office’s request to file returns for prior

years.4    Blosser does not stand for the proposition that the

Appeals Office has an open-ended duty to inquire, but rather that

it must make its determination after giving adequate

consideration to all meritorious issues a taxpayer raises during

a section 6330 hearing.

     Petitioner’s situation is distinguishable from the facts in

Blosser.    Petitioner has not shown that any substantial changes

in its financial viability took place from the time that it

supplied the IRS with its Form 433-B to the time the Appeals

Office rejected the OIC. Moreover, the Appeals Office gave

consideration to both Mr. Mayer’s illness and petitioner’s

financial health.

     The Appeals Office reviewed petitioner’s financial

information, and considered whether special circumstances

existed, at the section 6330 hearing and determined that an OIC

was not appropriate.    We received as exhibits the financial

information presented to the IRS and find that the Appeals Office

could have reasonably concluded that there are sufficient income

and assets to satisfy the tax liabilities.    We also received

medical records and heard testimony regarding the special


     4
      The taxpayer stated in her sec. 6330 hearing that she had
been unable to complete a new CIS on account of a family tragedy
and did not have to file returns for past years because she had
been incarcerated.
                              - 14 -

circumstances petitioner raised at the hearing and find that the

Appeals Office’s conclusion that the circumstances did not

justify acceptance of an amount less than the reasonable

collection potential of petitioner was not arbitrary or

capricious.   Accordingly, we find that the Appeals Office did not

abuse its discretion in determining to reject petitioner’s OIC

and proceed with the collection action.

     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,


                                           Decision will be entered

                                      for respondent.
