                   T.C. Memo. 2009-4



                UNITED STATES TAX COURT



      EDWARD AND MARY E. SULLIVAN, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 15124-06L.            Filed January 5, 2009.

     Ps had unpaid liabilities of income tax for six
years (some joint, and some the liability of P-H only),
for which R sent notices of liens and proposed levies
under secs. 6320(a) and 6330(a), I.R.C. Pursuant to
secs. 6320(b) and 6330(b), Ps requested a collection
review hearing, and in that hearing submitted several
Forms 656, Offers in Compromise (OIC) (with which they
submitted financial information), proposing compromise
of liabilities estimated at $210,405, consisting of the
six years of income tax liabilities, plus other
liabilities whose collection is outside this Court’s
jurisdiction to review. Ps informally proposed their
last offer--$54,000--in writing but not on Form 656,
offered to submit Form 656, and disclosed their equity
of $464,653 in a house they owned as tenants by the
entirety. R’s appeals officer rejected the OICs and
the informal proposal, and issued notices of
determination to proceed with collection. Ps filed
their petition, and R moved for summary judgment.

     Held: The Court’s jurisdiction to review
collection as to Ps’ liability for six years of income
                         - 2 -

tax enables the Court to review the exercise of
discretion by R’s appeals officer in rejecting OICs
that included both those liabilities and other
liabilities whose collection the Court does not have
jurisdiction to review.

     Held, further, the $54,000 written proposal that
was not submitted on Form 656, although not a formal
OIC for purposes of sec. 7122, I.R.C., was preceded by
formal OICs, was accompanied by the information
required with an OIC, and did constitute a “collection
alternative” (under sec. 6330(c)(2)(A)(iii), I.R.C.)
that was properly raised at the hearing and is subject
to our review.

     Held, further, it was not an abuse of discretion
for R’s appeals officer to consider the value of Ps’
entirety property as contributing to their reasonable
collection potential.

     Held, further, it was not an abuse of discretion
for R’s appeals officer to reject Ps’ $54,000 proposal,
because she reasonably determined that there was no
basis for compromise on (i) doubt as to liability,
because Ps do not challenge liability; (ii) doubt as to
collectibility, because Ps’ reasonable collection
potential was substantially greater than their OICs,
including their $54,000 proposal, and greater than
their liabilities; or (iii) promotion of effective tax
administration, because Ps failed to show any special
circumstances which would demonstrate that collection
of the full liability would undermine public confidence
that tax laws are being administered fairly.


Joseph A. Ryan, for petitioners.

Kristina L. Rico, for respondent.
                                - 3 -

                         MEMORANDUM OPINION


     GUSTAFSON, Judge:   The petition in this case is an appeal,

pursuant to section 6330(d)(1),1 of three Notices of

Determination Concerning Collection Action(s) under Section 6320

and/or 6330, which were issued by the Internal Revenue Service

(IRS) to petitioners Edward and Mary E. Sullivan in connection

with Mr. Sullivan’s unpaid income taxes for tax years 1993 and

1995 and Mr. and Mrs. Sullivan’s joint unpaid income taxes for

tax years 1996, 1997, 2000, and 2001.   The issue for decision is

whether the IRS abused its discretion in rejecting the offers-in-

compromise (OICs) that the Sullivans submitted to satisfy those

liabilities (and others)2 or whether instead the IRS may proceed

to collect those liabilities.




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code (26 U.S.C.), and all Rule references
are to the Tax Court Rules of Practice and Procedure.
     2
      The Sullivans’ several OICs which the Court must consider
here, and which are discussed in more detail below, proposed to
satisfy not only the liabilities whose collection is within our
jurisdiction but also additional liabilities--i.e., Mr. and Mrs.
Sullivan’s joint income tax liabilities for several other tax
years (for which it is not alleged that the IRS ever issued any
notice under section 6320(a) or 6330(a)) and for Mr. Sullivan’s
liability for the trust fund penalties. For reasons explained
below, this Court does not have jurisdiction to review the IRS’s
proposed collection of those other liabilities, but they are
relevant to the issues that are within the Court’s jurisdiction.
                               - 4 -

                            Background

     This case was submitted fully stipulated pursuant to Rule

122, reflecting the parties’ agreement that the relevant facts

could be presented without a trial.    The stipulation of facts and

the attached exhibits are incorporated herein by this reference.

Mr. and Mrs. Sullivan resided in Pennsylvania at the time they

filed their petition.

Tax Years 1993 and 1995

     Mr. Sullivan filed income tax returns for 1993 and 1995.

The IRS conducted an examination of those returns and sent him a

statutory notice of deficiency for 1993 and 1995.   Because

Mr. Sullivan did not petition this Court with respect to the

deficiency notice, the IRS assessed the 1993 and 1995 income tax

deficiencies, along with additions to tax and interest, in

June 1997 and in March 1998.   Subsequently, in May 2005, the IRS

sent to Mr. Sullivan a Final Notice--Notice of Intent to Levy and

Notice of Your Right to a Hearing, pursuant to sections

6330(a)(1) and 6331(d)(1), advising him of the IRS’s intent to

levy upon his property, and also sent to him a Notice of Federal

Tax Lien Filing and Your Right to a Hearing, pursuant to

section 6320(a)(1), advising him that the IRS had filed a notice

of tax lien against him.   Both notices reflected the income tax

liabilities for 1993 and 1995; however, the notice of lien also

reflected other liabilities the collection of which is, for
                               - 5 -

reasons explained below, not within our jurisdiction here--i.e.,

Mr. Sullivan’s liability in calendar quarters in 1998 and 1999

for so-called “trust fund penalties” under section 6672, with

respect to the operation of Paoli Local Restaurant.

Tax Years 1996, 1997, 2000, and 2001

     Mr. and Mrs. Sullivan filed joint income tax returns for the

four years 1996, 1997, 2000, and 2001.   For the first two of

those years--1996 and 1997--the IRS conducted an examination of

the returns and sent the Sullivans a statutory notice of

deficiency.   Because the Sullivans did not petition this Court

with respect to the deficiency notice, the IRS assessed in

April 1999 the income tax deficiencies it had determined for 1996

and 1997, along with additions to tax and interest.

     For the later years 2000 and 2001, the IRS assessed in

October 2001 and April 2002 the income tax liabilities that the

Sullivans had self-reported on their tax returns, but which they

had not fully paid when they filed those returns.

     Subsequently, in May 2005, the IRS sent to each of Mr. and

Mrs. Sullivan separately a Notice of Federal Tax Lien Filing and

Your Right to a Hearing, pursuant to section 6320(a)(1), advising

each of them that the IRS had filed a notice of tax lien against

them for all four years (1996, 1997, 2000, and 2001), and sent to

each of them separately a Final Notice--Notice of Intent to Levy

and Notice of Your Right to a Hearing, pursuant to sections
                                  - 6 -

6330(a)(1) and 6331(d)(1), advising each of them of the IRS’s

intent to levy upon their property for 2000 and 2001 only.     (The

record does not show why no notice of levy was sent for 1996 or

1997.)

       The six collection notices that the Sullivans received from

the IRS can be summarized thus:

Type of
                   Recipient        Liability
Notice
Levy               Mr. Sullivan     Income tax: 1993, 1995
Lien               Mr. Sullivan     Income tax: 1993, 1995;
                                    Sec. 6672 penalty: 1998, 1999
Levy               Mr. Sullivan     Income tax: 2000, 2001
Lien               Mr. Sullivan     Income tax: 1996, 1997, 2000,
                                                2001
Levy               Mrs. Sullivan    Income tax: 2000, 2001
Lien               Mrs. Sullivan    Income tax: 1996, 1997, 2000,
                                                2001


Agency Hearing

       In response to these six notices, the Sullivans’

representative submitted to the IRS on May 27, 2005, four

Forms 12153, Request for a Collection Due Process Hearing--two

for Mr. Sullivan, one for Mrs. Sullivan, and one for the

Sullivans jointly.3   In the aggregate, the requests pertained to


       3
      The Sullivans’ Forms 12153 included references to supposed
notices of levy for 1996 and 1997 income tax and for the trust
fund penalties, even though the record here does not include
evidence of any such notices. The district court’s decision in
                                                   (continued...)
                              - 7 -

all of the liabilities that had been reflected on the IRS’s six

collection notices--i.e., the liability of Mr. Sullivan for 1993

and 1995 income tax and for the trust fund penalty from quarters

in 1998 and 1999, and the liability of both Mr. and Mrs. Sullivan

for income tax for 1996, 1997, 2000, and 2001.

     With their requests for a hearing, the Sullivans submitted

financial information about themselves (on Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals) and on Mr. Sullivan’s bankrupt business (on

Form 433-B, Collection Information Statement for Businesses).

The forms disclosed bank accounts with modest balances; a

retirement account worth $11,530; a house worth $350,000 subject

to a mortgage of $78,520; credit card debt of $9,938; car loans

totaling $16,118; and no other debt.

     On the Forms 12153 requesting a hearing, the Sullivans did

not challenge the underlying tax liabilities; rather, the forms

stated only their desire for an OIC.   Even before requesting the

hearing, the Sullivans had proposed such a compromise:

     More than a month earlier, on April 14, 2005, the Sullivans

had jointly submitted a Form 656, Offer in Compromise, pursuant



     3
      (...continued)
Mr. Sullivan’s case involving the trust fund penalties does refer
to collection by levy, so it appears that a notice of levy must
have been issued as to the trust fund penalties. Sullivan v.
United States, 100 AFTR 2d 2007-6204, at 2007-6207 (E.D. Pa.
2007). This discrepancy does not affect the outcome here.
                               - 8 -

to section 7122, proposing compromise on the basis of effective

tax administration (ETA).   The OIC proposed that the IRS accept

payment of $34,017 from the Sullivans to satisfy Mr. Sullivan’s

liability for trust fund penalties and Mr. and Mrs. Sullivan’s

income tax liabilities for 1993, 1995, 1996, 1997, and 2000.4    To

justify the compromise on ETA grounds, a letter accompanying the

Form 656 argued that the offer should be accepted because the

Sullivans had tried to resolve their dispute with the IRS in a

“timely and equitable manner” and because their tax troubles were

largely a result of unfortunate circumstances outside of their

control, such as Mr. Sullivan’s inconsistent employment and the

bankruptcy of their family business.

     On May 7, 2005 (again, before the Sullivans’ Forms 12153

requesting a hearing were submitted to the IRS), the IRS’s

Centralized OIC Unit in Holtsville, New York, sent the Sullivans

a letter indicating, among other things, that each of them would

need to submit a separate OIC on Form 656.

     In response, on May 27, 2005--the same day the Sullivans

submitted their Forms 12153 requesting a collection review



     4
      It is unclear whether the April 2005 OIC excludes the year
2001 deliberately or in error. However, the later OICs do
explicitly include 2001. Similarly, although the parties have
stipulated that the April 2005 OIC included “employment * * * tax
liabilities” (by which they presumably mean the trust fund
penalty), the Form 656 does not say so in the appropriate line
under “Item 5”. However, the trust fund penalty liabilities are
explicitly included in Mr. Sullivan’s May 2005 OIC.
                               - 9 -

hearing--Mr. Sullivan submitted an OIC on the basis of doubt as

to liability (DATL) and doubt as to collectibility (DATC),

proposing that the IRS accept payment of $31,629 to satisfy his

individual trust fund penalties and his income tax liabilities

for eight years.   Those eight years consisted of his two non-

joint tax years that had been the subject of the IRS’s prior

notices (1993 and 1995), the four joint years that had been the

subject of the IRS’s prior notices (1996, 1997, 2000, and 2001),

and two additional years, newly brought into consideration--2003

and 2004.   On the same day, Mrs. Sullivan submitted an OIC on the

basis of DATL and DATC, proposing that the IRS accept payment of

$10,000 to satisfy her income tax liabilities for six years:      the

four joint years that had been the subject of the IRS’s prior

notices (1996, 1997, 2000, and 2001), and the two additional

years--2003 and 2004.

     To justify their individual OICs on grounds of DATL and

DATC, Mr. and Mrs. Sullivan each cited the same reasons that had

previously been argued in favor of their prior, joint OIC, and

additional reasons stated in a letter dated May 23, 2005.    In

that letter, the Sullivans argued that there was doubt as to

liability because (i) Mr. Sullivan’s trust fund penalties were

allegedly discharged in the bankruptcy of Paoli Local Restaurant

(a contention later rejected in separate litigation, as explained

below) and (ii) the IRS had allegedly failed to apply several
                              - 10 -

credits to their unpaid income taxes.   They argued that there was

doubt as to collectibility because “the only substantive asset

[they] possess is [their] personal residence”.

     In that letter of May 23, 2005, the Sullivans valued their

house at $375,0005 and stated their mortgage balance (along with

necessary “[c]ommissions”, “repairs”, and “taxes” incidental to a

sale) amounted to $125,000; and they conceded that the resulting

equity in their home (apparently $250,000) was sufficient to

fully satisfy their liabilities to respondent (i.e., $210,405),

with almost $40,000 left over.   However, they argued that forcing

them to sell their house “would be neither fair nor equitable”,

because it would leave them “with $40,000, no home, poor credit,

no pension/retirement funds to speak of, and limited earning

ability at age 55.”   Their representative’s letter of May 27,

2005, added that their house “is owned jointly under a tenancy by

the entireties thereby creating serious questions regarding

collectability [sic] of any taxes purportedly owed by

Mr. Sullivan individually”, but did not elaborate on those

“questions.”

     The so-called “collection due process” (CDP) hearing was

held as a telephone conference on November 28, 2005, between



     5
      This $375,000 value was somewhat greater than the $350,000
value reported on their Form 433-A. And, as is stated below, it
is substantially less than the value at which this residence was
appraised less than a year later: $538,000.
                               - 11 -

respondent’s hearing officer, Darryl Lee, and the Sullivans’

representative; and subsequently, numerous telephone calls and

correspondence were exchanged between the hearing officer and the

Sullivans’ representative.

Petitioners’ Latest Proposal

     The total of Mr. Sullivan’s May 2005 offer ($31,629) and

Mrs. Sullivan’s May 2005 offer ($10,000) had been $41,629.   In

February 2006 the hearing    officer apparently suggested that he

would recommend that his superiors approve an agreement if the

Sullivans would increase their offer to $54,000; so on March 8,

2006, their representative sent respondent a letter stating--

     that Mr. and Mrs. Sullivan agree to your recommended
     lump sum settlement payment of $54,000. The Sullivans’
     approval is conditioned upon the following:

     (1)   the settlement would extinguish any and all
           alleged tax liabilities (including any and all
           interest and penalties) which the Sullivans may
           individually or jointly have for tax years
           1993-2004, and

     (2)   the settlement would extinguish any and all alleged
           trust fund tax responsibilities that Mr. Sullivan may
           have arising from the operation of the Paoli Local
           Restaurant.

          Please advise as to whether we will need to modify
     and resubmit the Offers in Compromise separately
     submitted by Mr. and Mrs. Sullivan. Once we have been
     advised that your recommendation has been approved, the
     Sullivans will proceed with finalizing in obtaining the
     home equity loan. * * *

     By its literal terms, this March 2006 proposal included

Mr. and Mrs. Sullivan’s income tax liabilities for the twelve
                               - 12 -

years 1993 through 2004 and Mr. Sullivan’s trust fund penalty

liabilities.    Those twelve years of income tax included four tax

years (1994, 1998, 1999, and 2002) that had not been the subject

of the Sullivans’ previous offers, and included six years (the

same four, plus 2003 and 2004) for which the IRS had not issued

any notice of the filing of a lien nor any notice of intent to

levy.    If the IRS had accepted the March 2006 proposal, the

resulting agreement would have “extinguish[ed]” not only the

liabilities whose collection is properly at issue in this case

(i.e., income tax for the six years 1993, 1995-1997, and 2000-

2001) but also income tax liabilities for six additional years

(1994, 1998-1999, and 2002-2004) plus the trust fund penalties.

     The record before us does not permit a precise calculation

of the liabilities that would have been “extinguish[ed]” by the

March 2006 offer.    However, according to the Sullivans’ counsel’s

letter of May 23, 2005, “the amounts claimed to be due to the

IRS” totaled $210,405 at that time, and we will assume that

number.6


     6
      This amount apparently includes additions to tax and
interest but does not include any income tax for the years 1994,
1998, 1999, or 2002. Counsel’s letter of May 2005 appears to
reflect an expectation that the crediting of a $105,775 payment
that the IRS had allegedly received from the Bankruptcy Court in
2001 (apparently in relation to the employment taxes underlying
the trust fund liabilities) would reduce that $210,405 total
(which included trust fund liabilities of $115,625). However, as
was noted above, in 2007, the district court upheld respondent’s
determination “that the payment to the I.R.S., agreed on in the
                                                   (continued...)
                              - 13 -

     In April 2006 the Sullivans’ counsel and the hearing officer

discussed (but did not resolve) how the OICs should be revised to

allocate the $54,000 amount among the various liabilities

involved in the OIC.   However, no revised Forms 656 reflecting

the $54,000 proposal were ever solicited by the IRS or submitted

by the Sullivans; and the Sullivans’ counsel’s letter made it

clear that the hearing officer’s recommendation of the $54,000

was contingent upon his receiving, inter alia, an appraisal of

the Sullivans’ house and information about their mortgage on that

house.

     On May 12, 2006, the Sullivans’ counsel sent the IRS a

letter transmitting information that had been requested by the

hearing officer and that was intended to persuade the IRS that it

should accept the Sullivans’ $54,000 proposal.   That information

included the Sullivans’ 2005 joint income tax return showing

gross income of $53,384, and bank statements showing account

balances of $1,981.43 and $1,320.11.   The most significant

information pertained to their residence, held jointly by them as

tenants by the entirety.7   They sent the IRS an appraisal of


     6
      (...continued)
Stipulated Order, applied to taxes owed by Paoli Restaurant,
Inc., and did not apply to the unpaid employment taxes owed by
Plaintiff individually.” Sullivan v. United States, 100 AFTR 2d
2007-6204, at 2007-6207.
     7
      Under Pennsylvania law, a tenancy by the entirety is a
joint estate held by a husband and wife that is protected from
                                                   (continued...)
                             - 14 -

their residence, reporting its value to be $538,000.    This

appraised value was $163,000 greater than the estimated value of

$375,000 that the Sullivans had provided a year earlier.    The

information sent to the hearing officer also included a mortgage

statement reflecting a balance due of $73,346.78.   That

information provided in May 2006 thus showed that their equity in

the house amounted to $464,653.22--an amount more than double the

amount of their own estimate of their total tax liability (i.e.,

$210,405).



     7
      (...continued)
certain types of involuntary transfers:

     A tenancy by the entirety is an estate which exists
     whenever property is held jointly by a husband and a
     wife by virtue of title which they acquired after
     marriage.

     A tenancy by the entirety is an estate "per tout et non
     per my"; that is, each spouse is seised of the whole of
     the property and not of any share, divisible part or
     interest thereof. The concept arises from the
     common-law theory that marriage creates a unified
     holding of property whereby neither spouse maintains an
     individual interest in entireties property, but rather,
     both spouses share possession and all rights and
     enjoyment arising therefrom.

                          * * * * * * *

     An estate by the entirety differs from a joint tenancy
     in that the right of survivorship cannot be defeated by
     a conveyance by one of the spouses, nor by an
     involuntary transfer of the interest of one of the
     spouses.

“Tenancy by Entirety in General”, 26 Pennsylvania Law
Encyclopedia sec. 42 (2007)(fn. refs. omitted).
                              - 15 -

The Appeals Officer’s Determination, and the Commencement of
This Suit

     On July 7, 2006, after having received the May 2006 letter

and exhibits that showed the Sullivans to have net assets

substantially greater than their total tax liability, the IRS

appeals officer8 rejected all three of the OICs that the

Sullivans had submitted on Form 656.   Each of the three

Forms 5402-c, Appeals Transmittal and Case Memo, reflecting that

decision for each OIC had an attached “Appeals Case Memorandum”,

evidently prepared by the hearing officer, that included

identical language:   “As the total of equity in assets exceeds

the liability, there is no basis for an offer in compromise.”

In making that judgment, the hearing officer had discounted the

Sullivans’ equity of $464,653 by approximately 25 percent to



     8
      The hearing had been conducted by Mr. Lee, whom we refer to
here as the “hearing officer”. His recommendations to reject the
OICs and to issue determinations to proceed with collection were
approved and issued by Ms. Laura Weening, the Appeals Team
Manager, whom we refer to as the “appeals officer”. Petitioners’
briefs as quoted here use the pronouns “he” and “his” to refer to
the appeals officer who exercised discretion to make the
determinations at issue here, and we do not correct those
pronouns. The distinction between the hearing officer and the
appeals officer is not material here. Section 6330(b)(1)
provides that the hearing “shall be held by the Internal Revenue
Service Office of Appeals” (emphasis added); section 6330(b)(3)
provides that the hearing may be “conducted by an officer or
employee” of the Office of Appeals (emphasis added); and
section 6330(c)(3) provides that the determination is made “by an
appeals officer” (emphasis added); and the statute does not
require that the “appeals officer” making the determination must
be the same person as the “officer or employee” conducting the
hearing.
                              - 16 -

$357,400, for reasons not explained in the record.   The memoranda

attached to the Forms 5402-c further show that the Sullivans’

joint OIC of $34,017 was rejected because the Sullivans had not

demonstrated that a special circumstance existed to support a

compromise of the liability, and that the Sullivans’ individual

OICs were rejected because no special circumstances existed,

there was no doubt as to liability, and there was therefore no

basis for accepting an OIC.   The Office of Appeals did not

solicit any amended Form 656 reflecting the Sullivans’ $54,000

proposal, and it thereby implicitly rejected that proposal.

     On July 7, 2006, the IRS issued three Notices of

Determination Concerning Collection Action(s) under Section 6320

and/or 6330: one such notice to Mr. Sullivan, determining to

uphold its liens and proceed with a levy to collect income tax

for 1993 and 1995; a second notice to Mr. and Mrs. Sullivan

jointly, determining to proceed with a levy to collect income tax

for 2000 and 2001; and a third notice to Mr. and Mrs. Sullivan

jointly, upholding the filing of a tax lien as to income tax for

1996, 1997, 2000, and 2001.   In response, Mr. and Mrs. Sullivan

timely filed a petition with this Court.

Resolution of the Trust Fund Penalties in District Court

     The Sullivans’ original petition in this Court sought the

Court’s collection review as to both the six years of income tax

and the trust fund penalties; but by our order of November 24,
                                - 17 -

2006, we granted respondent’s motion to dismiss the petition in

part, for lack of jurisdiction, to the extent that, inter alia,

it sought review of the IRS’s collection of the trust fund

penalties.   Mr. Sullivan then filed suit in federal district

court to obtain that court’s review, under section 6330(d), of

the IRS’s proposed collection of the trust fund penalties.    The

district court held that Mr. Sullivan was liable for the

penalties, that his liability was not discharged in bankruptcy,

“that Plaintiff had sufficient equity to pay the taxes and that

imposing a levy was the ‘most efficient method of collection

remaining.’”   Sullivan v. United States, 100 AFTR 2d 2007-6204,

at 2007-6207 (E.D. Pa. 2007).

     The Sullivans were subsequently granted leave to file an

amended petition in this Court, and the amended petition requests

this Court’s review as to only the six years of income taxes and

asks this Court to find that the appeals officer abused her

discretion in rejecting the Sullivans’ $54,000 proposal.   Shortly

thereafter, the parties submitted a stipulation of facts pursuant

to Rule 122, which provides that “Petitioners’ [sic] are not

challenging the underlying liability in this Tax Court

Proceedings [sic]”, and “Petitioners’ [sic] are challenging that

the settlement officer abused his discretion by not accepting

petitioners’ offer-in-compromise in the amount of $54,000".
                              - 18 -

                            Discussion

I.   The Tax Court Has Jurisdiction Under Section 6330 To Review
     the IRS’s Proposed Collection of Petitioners’ Income Tax
     Liabilities for Six Years.

     The facts of this case present a logical puzzle as to this

Court’s jurisdiction, because of the mixed nature of the

Sullivans’ OICs.

     A.   Petitioners’ Offers-in-Compromise Included Other Income
          Tax Liabilities and Trust Fund Penalty Liabilities, the
          Collection of Which Is Outside This Court’s
          Jurisdiction To Review.

     The IRS sent to the Sullivans various notices of its filing

of liens, and of its intent to levy, with respect to

Mr. Sullivan’s individual unpaid income taxes for two years (1993

and 1995) and Mr. and Mrs. Sullivans’ joint unpaid income taxes

for another four years (1996, 1997, 2000, and 2001); and this

Court has jurisdiction to review that proposed collection of

income taxes.   However, one of the lien notices also included

Mr. Sullivan’s liability for trust fund penalties; and as a

further complication, the Sullivans’ OICs--the IRS’s rejection of

which must now be reviewed for abuse of discretion--offered to

pay a given amount to satisfy not only the income tax liabilities

for those six years, but also (i) the Sullivans’ income tax

liabilities for several other tax years for which they had
                                - 19 -

received no collection notices or determinations from the IRS,

and (ii) Mr. Sullivan’s liability for trust fund penalties.9

     The appeals officer rejected the OICs and determined to

proceed with collection.     The appeals officer’s determinations

were issued before October 16, 2006, at a time when this Court

had no jurisdiction to review the IRS’s proposed collection as to

the trust fund penalties.     See Moore v. Commissioner, 114 T.C.

171 (2000).   Furthermore, this Court has jurisdiction to review

the collection activities of the Commissioner only with respect

to tax liabilities for which a valid notice of determination was

issued.   Sec. 6330(d)(1).    Here, valid notices of determination

were issued as to collection of only six years of the Sullivans’

income tax liabilities, and we have no jurisdiction to review the

IRS’s collection activity as to their income tax liabilities for

other tax years.   Consequently, respondent moved to dismiss the

petition in part, insofar as it pertained to those liabilities

whose collection is outside this Court’s jurisdiction to review,




     9
      First, in April 2005 the Sullivans filed their joint OIC,
offering to pay $34,017 to satisfy income tax liabilities and
trust fund penalties. Second, in May 2005 Mr. Sullivan made
another OIC and offered to pay $31,629 to satisfy his income tax
liabilities and trust fund penalties. (Mrs. Sullivan
simultaneously made an OIC, offering to pay $10,000 to satisfy
income tax liabilities only.) Third, in March 2006 the Sullivans
jointly made an informal written proposal to pay $54,000 to
satisfy all of their income tax liabilities for twelve years, and
Mr. Sullivan’s trust fund penalties.
                                - 20 -

and this Court granted that motion by its order of November 24,

2006.

     B.      This Court Has Jurisdiction To Review the IRS’s
             Proposed Collection of the Income Tax Liabilities for
             Six Years and, in So Doing, To Consider Facts Relating
             to the Other Liabilities That Were Included in
             Petitioners’ OICs.

        The record is thus clear that this Court now retains

jurisdiction to review respondent’s proposed collection of income

tax for only six of the years--Mr. Sullivan’s liability for

income tax for 1993 and 1995, and the Sullivans’ joint liability

for income tax for 1996, 1997, 2000, and 2001.     The Court must

now determine whether the appeals officer abused her discretion

in determining to proceed with collection of those liabilities

notwithstanding the Sullivans’ OICs, which she determined to

reject.     However, the Sullivans’ OICs proposed compromises of

both the liabilities whose collection is properly before us and

the extra-jurisdictional liabilities.     The Sullivans’ OICs

proposed to compromise both sets of liabilities in one agreement;

and the appeals officer made a determination (which either was or

was not an abuse of her discretion) to reject each OIC and

proceed with collection.     This prompts the question whether and

how this Court can evaluate that decision without addressing

matters outside its jurisdiction.

        One answer, which is not tenable, would be that the Court

should simply ignore the existence of the extra-jurisdictional
                               - 21 -

liabilities and should evaluate the OICs (and the appeals

officer’s rejection of the OICs) as if those liabilities did not

exist.    Under that approach, the Court would simply consider

whether the amount that the Sullivans had offered should have

been accepted in satisfaction of the six years of income tax only

(without regard to the OIC’s effect on the extra-jurisdictional

liabilities).    We decline to follow this approach for two

reasons:    First, this Court would be reviewing a hypothetical

decision that was never made by the appeals officer, instead of

reviewing her actual decision.    And second, ignoring an extra-

jurisdictional liability that an OIC would have required the IRS

to compromise could materially alter the reasonableness of the

OIC.    An offer to pay $54,000 to satisfy income tax liabilities

totaling less than $100,000 is very different from an offer to

pay $54,000 to satisfy income tax liabilities and trust fund

penalties totaling more than $210,000.    Ignoring some of the

liabilities in the OIC could radically distort this Court’s

review.

       A second answer, which is also not tenable, is that when

taxpayers have offered a hybrid or mixed OIC that includes extra-

jurisdictional liabilities, this Court is required to dismiss the

petition altogether.    However, this Court has not taken that
                               - 22 -

approach,10 and for good reason:   The Court has jurisdiction to

review proposed collection of petitioners’ income tax liabilities

for which a valid notice of determination was issued; and the

matter that it lacks jurisdiction to review is collection of the

other liabilities.   This Court is disabled from halting the IRS’s

collection of these other liabilities, but it is not disabled

from knowing about them.   In determining whether the rejection of

the OICs and the collection of the six years of income tax is

appropriate, this Court is authorized (as the appeals officer was

required) to consider “any relevant issue relating to * * * the

proposed levy”.   Sec. 6330(c)(2)(A), (d).

     In reviewing the appropriateness of a collection action, the

Court must inevitably consider facts in addition to the tax

liabilities whose collection is at issue.    For example, although

this Court has no jurisdiction to adjudicate the Sullivans’

liability for their mortgage, it can and must consider the

mortgage as a fact in determining the quantum of their equity

interest in their residence.   Similarly, although this Court has

no jurisdiction to adjudicate Mr. Sullivan’s liability for the



     10
      See, e.g., Orum v. Commissioner, 123 T.C. 1 (2004)
(reviewing an OIC that covers income tax liabilities for tax
years that are both within and outside of this Court’s
jurisdiction), affd. 412 F.3d 819 (7th Cir. 2005); Milnes v.
Commissioner, T.C. Memo. 2003-62 (reviewing the Commissioner’s
determination to proceed with the collection of income tax
liabilities and dismissing the case as to the Commissioner’s
determination to collect extra-jurisdictional liabilities).
                              - 23 -

trust fund penalties, nor to halt respondent’s collection of

those penalties, the Court nonetheless can and must consider the

trust fund penalties (and their inclusion in the OIC) as a fact

in determining the reasonableness of the offer.

      We therefore proceed to evaluate the appeals officer’s

exercise of discretion in rejecting the OICs, taking into account

all the liabilities that were proposed to be compromised, even

though we do not have jurisdiction to review the collection of

all those liabilities.

II.   The Appeals Officer Did Not Abuse Her Discretion in
      Rejecting Petitioners’ OICs and Determining To Proceed With
      Collection.

      A.   The Internal Revenue Code Provides the IRS’s Collection
           Procedures, the Agency Hearing to Which a Taxpayer Is
           Entitled, and the Court Review to Which the Agency
           Determination Is Subject.

      If a taxpayer fails to pay any Federal income tax liability

after notice and demand, chapter 64 of the Internal Revenue Code

provides two means by which the IRS can collect the tax:    First,

section 6321 imposes a lien in favor of the United States on all

the property of the delinquent taxpayer, and section 6323(f)

authorizes the IRS to file notice of that lien.   Second,

section 6331(a) authorizes the IRS to collect the tax by levy on

the taxpayer’s property.

      However, Congress has added to chapter 64 of the Code

certain provisions (in subchapter C, part I, and in subchapter D,

part I) as “Due Process for Collections”, and those provisions
                              - 24 -

must be complied with after the IRS files a tax lien, and before

the IRS can proceed with a levy:    Within five business days after

filing a notice of tax lien, the IRS must provide written notice

of that filing to the taxpayer.    Sec. 6320(a).   After receiving

such a notice, the taxpayer may request an administrative hearing

before the Office of Appeals.11    Sec. 6320(b)(1).   Similarly,

before proceeding with a levy, the IRS must issue a final notice

of intent to levy and notify the taxpayer of the right to an

administrative hearing before the Office of Appeals.     Sec.

6330(a) and (b)(1).

     At that CDP hearing, the taxpayer may generally raise

relevant issues relating to the unpaid tax or the proposed levy,

including offers of collection alternatives.    Such collection

alternatives may include, among other things, an installment

agreement or offer in compromise.    Sec. 6330(c)(2)(A).   The

appeals officer must make a determination whether or not the lien

should be released and/or whether the proposed levy action may

proceed.   The appeals officer is required to take into

consideration: (1) “verification from the Secretary that the

requirements of any applicable law and administrative procedure

have been met” (see sec. 6330(c)(3)(A), citing sec. 6330(c)(1));


     11
      To the extent practicable, a CDP hearing concerning a lien
(under sec. 6320) is to be held in conjunction with a CDP hearing
concerning a levy (under sec. 6330), and the conduct of the lien
hearing is to be in accordance with the relevant provisions of
section 6330. See sec. 6320(b)(4), (c).
                              - 25 -

(2) relevant issues raised by the taxpayer (see sec.

6330(c)(3)(B), citing sec. 6330(c)(2)12); and (3) “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”

(see sec. 6330(c)(3)).   If the Office of Appeals then issues a

notice of determination to uphold the lien and/or to proceed with

the proposed levy, the taxpayer may appeal the determination to

this Court within 30 days (see secs. 6320(c), 6330(d)(1)), as the

Sullivans have done.

     B.   In Their CDP Hearing, the Sullivans Offered To Pay
          $54,000 To Extinguish Liabilities of No Less Than
          $210,405.

      The Sullivans’ sole remaining contention here, stated in

the parties’ stipulation, is “that the settlement officer abused

his discretion by not accepting the Sullivans’ offer-in-



     12
      Under section 6330(c)(2), a taxpayer may raise collection
issues under subsection (c)(2)(A) and may, under certain
circumstances, challenge the underlying tax liability under
subsection (c)(2)(B). Where the underlying tax liability is
properly at issue in a section 6330 hearing, the Court will
review the matter de novo. Davis v. Commissioner, 115 T.C. 35, 39
(2000). However, where the underlying liability is not at issue,
we review the appeals officer’s determinations regarding the
collection action for an abuse of discretion. Goza v.
Commissioner, 114 T.C. 176 (2000). The Sullivans have not
challenged their underlying liability. Accordingly, we review
the IRS’s determinations for abuse of discretion; that is,
whether the determinations were arbitrary, capricious, or without
sound basis in fact or law. See Murphy v. Commissioner, 125 T.C.
301, 320 (2005), affd. 469 F.3d 27 (1st Cir. 2006); Sego v.
Commissioner, 114 T.C. 604, 610 (2000).
                               - 26 -

compromise in the amount of $54,000.”13    As is noted above, one

of the issues that a taxpayer may raise in a collection hearing

is “offers of collection alternatives, which may include * * * an

offer-in-compromise.”   Sec. 6330(c)(2)(A)(iii).

     The regulations require OICs to be submitted on “forms

prescribed by the Internal Revenue Service”, sec. 301.7122-

1(d)(1), Proced. & Admin. Regs. (26 C.F.R.).     The prescribed form

for an OIC is Form 656, but the Sullivans’ latest proposal of

$54,000 was not stated on a Form 656.     However, they had

previously submitted three OICs on Form 656; they had submitted

financial information on Form 433-A and otherwise; they made

their revised proposal in writing; and they expressly offered to

submit a revised Form 656.14   The $54,000 proposal originated as

a recommendation from the hearing officer, so there is no




     13
      Since the Sullivans’ sole remaining contention here
relates to their proposal to pay $54,000, and since the amount of
that proposal was greater than the amounts offered in their prior
OICs (i.e., $34,017 and $41,629), we need not address separately
whether the appeals officer abused her discretion in rejecting
the prior OICs for lesser amounts.
     14
      The facts of this case are thus plainly different from
those of Godwin v. Commissioner, T.C. Memo 2003-289, 86 TCM (CCH)
451, 457 (2003), affd. 132 Fed. Appx. 785 (11th Cir. 2005). In
that case, the taxpayers “did not submit a Form 656 or otherwise
describe their income, assets, and other financial information
* * *. Instead petitioners attempted to settle their entire
liability for $100,000 without providing any facts to support
their claimed inability to pay the full tax liability”. But see
infra note 21.
                               - 27 -

suggestion that the IRS failed to consider the proposal because

of its informality.

     Rather, it was understood by both parties that the Sullivans

were offering $54,000 to extinguish liabilities estimated to be

$210,405.   Consequently, the $54,000 proposal--although not a

formal OIC for purposes of section 7122--did constitute a

“collection alternative” that was properly raised at the CDP

hearing under section 6330(c)(2)(A)(iii) and is subject to our

review.

     C.     The Appeals Officer Did Not Abuse Her Discretion in
            Rejecting Petitioners’ $54,000 Proposal, Since She
            Reasonably Concluded That They Had Assets (Chiefly
            Their Home Equity of $464,653.22) That Were Sufficient
            (Even If Discounted to $357,400) To Pay Their Estimated
            Liability of $210,405.

     Where, as here, the underlying tax liability is not at

issue, we review the Commissioner’s determination for abuse of

discretion.    Sego v. Commissioner, 114 T.C. 604, 610 (2000).

This standard does not require us to decide what we think would

be an acceptable OIC.    Murphy v. Commissioner, 125 T.C. 301,

308-310 (2005), affd. 469 F.3d 27 (1st Cir. 2006).   Rather, our

review is to determine whether the appeals officer’s rejection of

the Sullivans’ OIC was arbitrary, capricious, or without sound

basis in fact or law.    See id.

     The grounds for compromise of a tax liability are (i) doubt

as to liability (DATL), (ii) doubt as to collectibility (DATC),

and (iii) promotion of effective tax administration (ETA).    Sec.
                             - 28 -

301.7122-1(b), Proced. & Admin. Regs.   Mr. and Mrs. Sullivan made

their original joint OIC on grounds of ETA and their later

individual OICs on grounds of DATL and DATC.   Since the Sullivans

thus raised all three grounds for compromise in their prior OICs

submitted on Form 656, we consider all three grounds in

evaluating their $54,000 proposal.

          1.   Doubt as to Liability Is Not an Issue.

     Whether the appeals officer abused her discretion in

determining that there is no DATL is not an issue here.

Asserting doubt as to liability is equivalent to challenging the

underlying liability under section 6330(c)(2)(B),15 and the

Sullivans have stipulated that they are not challenging

underlying liability in this case.




     15
      See Baltic v. Commissioner, 129 T.C. 178, 183 (2007);
Yesse v. Commissioner, T.C. Memo. 2008-157 (“a challenge to the
amount of the tax liability made in the form of an offer-in-
compromise based on DATL by a taxpayer who has received a notice
of deficiency is a challenge to the underlying liability
precluded by section 6330(c)(2)(B)”). For most of the
liabilities included within the Sullivans’ OICs, such a challenge
would be legally precluded here. As to the trust fund penalties,
Mr. Sullivan was held liable in Sullivan v. United States, supra.
As to the income taxes for 1993, 1995, 1996, and 1997, the
Sullivans received statutory notices of deficiency and chose not
to petition this Court; they therefore are barred by section
6330(c)(2)(B) from contesting that liability.
                              - 29 -

          2.    The Appeals Officer Reasonably Ruled Out Doubt as
                to Collectibility, as a Basis for an OIC.

                a.   Doubt as to Collectibility Is Determined By
                     Reference to Published Standards.

     The appeals officer did not abuse her discretion in

determining that there was no doubt as to collectibility.    The

guidelines for evaluating OICs on the basis of DATC are published

in the regulations interpreting section 7122.    See sec.

301.7122-1(c)(2), Proced. & Admin. Regs.; see also 1

Administration, Internal Revenue Manual (IRM), pt. 5.8.4.4, at

16,306.   Under this administrative guidance, the Secretary will

generally compromise a liability on the basis of DATC only if the

liability exceeds the taxpayer’s reasonable collection potential.

See Murphy v. Commissioner, supra at 308-310; Schwartz v.

Commissioner, T.C. Memo. 2008-117.     Furthermore, an OIC based on

DATC will be acceptable only if the offer reflects the taxpayer’s

reasonable collection potential, i.e., that amount, less than the

full liability, that the IRS could collect through means such as

administrative and judicial collection remedies.     Murphy v.

Commissioner, supra at 309; Rev. Proc. 2003-71, sec. 4.02(2),

2003-2 C.B. 517, 517.   A taxpayer’s reasonable collection

potential is determined, in part, using the published guidelines

for certain national and local allowances for basic living

expenses and essentially treating income and assets in excess of

those needed for basic living expenses as available to satisfy
                                - 30 -

Federal income tax liabilities.    See 2 Administration, IRM, exh.

5.15.1-3, at 17,668, exh. 5.15.1-8, at 17,686, exh. 5.15.1-9, at

17,742.

                  b.   The Amount of Petitioners’ Equity in Their
                       Residence Removed Doubt as to Collectibility.

     In this instance it is simple to determine that the

Sullivans’ collection potential exceeded their liability.    Their

reasonable collection potential, absent special circumstances,

was equal to no less than their equity in their house.    Even the

Sullivans’ original lowball estimate of their house’s value,

given in the May 2005 letter accompanying their individual OICs,

showed that their equity exceeded their total tax liability by

almost $40,000.    The appraisal they later submitted in May 2006

showed that their equity interest in their house was in fact

$464,653.22--an amount that was more than double the $210,405 of

tax liabilities they tried to settle, and that was more than

eight times the amount of their latest proposal of $54,000.16

Even if one were to assume (as the Sullivans assert) that neither

of them would ever generate income in excess of their living

expenses, their reasonable collection potential, which includes

both income and assets, was still substantially greater than

their total tax liability or their $54,000 offer.


     16
      The hearing officer’s unexplained 25 percent discount of
that equity yielded an amount--$357,400--that still greatly
exceeded the total liability, and was more than six times their
$54,000 proposal.
                               - 31 -

               c.   This Analysis Is Not Changed By the Argument
                    That Petitioners Owned Their Home as Tenants
                    By the Entirety.

     The Sullivans argue for the possibility that, under

Pennsylvania law, none of the value of their house would be

available to satisfy Mr. Sullivan’s liabilities, because they

owned the property as tenants by the entirety.17     This

possibility, the Sullivans argue, raises doubt as to

collectibility despite the hundreds of thousands of dollars of

equity in their house.   This argument does not survive analysis.

     The IRS filed a notice of lien and, in deciding whether to

compromise the Sullivans’ liability, took into account their

equity in their home.    The IRS could force a sale of the house

upon the severance of the entirety property (e.g., upon the

divorce of Mr. and Mrs. Sullivan).      See “Tenancy by Entirety in

General”, 26 Pennsylvania Law Encyclopedia sec. 42 (2007).


     17
      The Sullivans’ argument on this issue has evolved. As
previously noted supra p. 10, their only contention at the agency
hearing was that the entirety ownership raised “serious” but
unstated “questions”. In this litigation, an early version of
the argument, in a brief filed July 25, 2007, was that under
Pennsylvania law, only 50 percent of the value of their house is
available to reduce the tax liability of Mr. Sullivan, who has
substantially greater tax liabilities than Mrs. Sullivan.
However, if the appeals officer had anticipated this argument,
his evaluation of the OICs could have considered only 50 percent
of the $464,653 of equity in the Sullivans’ house (i.e., only
$232,326) but still determined that the reasonable collection
potential was higher than any of their OICs--and higher than the
liability. If the appeals officer had considered only 50 percent
of the discounted equity of $375,400 (i.e., only $187,700), the
reasonable collection potential was still more than three times
the offer of $54,000.
                                - 32 -

Furthermore, the IRS, through its Federal tax lien, could

restrict the Sullivans’ ability to extract equity from their

home.     Thus, even short of forcing an immediate sale,18 the IRS

could reasonably expect the Sullivans to consider the value of an

unencumbered title to their home in determining the ultimate

value of settling their tax liabilities.

     Generally, when the tax liability at issue is owed by only

one spouse (as is true for most but not all of the liabilities

here) and real estate is held in tenancy by the entirety, it is

the IRS’s policy to consider 50 percent of that real estate’s net

realizable equity in calculating a taxpayer’s reasonable

collection potential.     IRS Notice 2003-60, 2003-2 C.B. 643;

1 Administration, IRM, pt. 5.8.5.3.11, at 16,339-5.     Furthermore,

the Court of Appeals for the Third Circuit (to which an appeal in


     18
      The IRS did not threaten an immediate forced sale of their
house; and had it done so, not the Tax Court but the district
court would have had jurisdiction to approve that levy, under
section 6334(e); so we do not reach the question whether the IRS
could have done so. However, we note that the Sullivans had
unpaid joint tax liabilities, and they have suggested no reason
that the IRS did not have the right to levy on the jointly held
property to collect the joint liability. See Napotnik v.
Equibank, 679 F.2d 316, 320 (3d Cir. 1982) (“in Pennsylvania
entirety property may be reached by creditors to satisfy the
joint debts of husband and wife”); United States v. Eglinton,
71A AFTR 2d 93-3689, 90-1 USTC par. 50,322 (E.D. Pa. 1990)
(applying Napotnik to federal tax debts). Whether such a levy to
collect the joint liability would thereafter permit the
collection of a spouse’s separate federal tax liability from his
share of the remaining proceeds is a further question we need not
reach. But see Fitzgerald v. Fitzgerald, 13 Pa. D. & C.3d 278
(Pa. Ct. Com. Pl. 1979) (after mortgage foreclosure, remaining
proceeds retained their entirety character until severance).
                               - 33 -

this case would lie) endorsed the IRS’s receipt and retention of

50 percent of the proceeds of sale of entirety property in the

context of dividing the proceeds under Pennsylvania law.       See

Popky v. United States, 419 F.3d 242, 244-245 (3d Cir. 2005).

Where the tenants are jointly liable, there is of course even

more reason to consider the property in calculating the tenants’

collection potential.    In this instance, 50 percent of the

Sullivans’ equity in their house would have satisfied the entire

estimated liability, joint and separate.

     The Sullivans argue, however, that their case is

distinguishable from Popky because they have no intention or plan

to sell their house.    Furthermore, they argue that under

Pennsylvania law the IRS may never be able to levy on and sell

their house, because of its status as entirety property.19


     19
      We do not need to definitively resolve this legal question
to decide this case, since for present purposes it is enough that
the appeals officer made a reasonable judgment of the Sullivans’
collection potential. However, we observe that existing
precedent does not appear to favor the Sullivans’ argument that
entirety property in Pennsylvania is exempt from levy and forced
sale by the IRS--even in the case of an attempt to collect only
non-joint liabilities of one of the tenants. In United States v.
Craft, 535 U.S. 274 (2002), the Supreme Court held that a federal
tax lien under section 6321 can attach to entirety property. To
date, the Supreme Court has yet to extend Craft’s holding to
levies or forced sales under section 6331. However, Craft’s
holding has been extended to levies and forced sales by the IRS,
in its IRS Notice 2003-60, 2003-2 C.B. 643, and by the Sixth
Circuit, in Hatchett v. United States, 330 F.3d 875, 882 (6th
Cir. 2003). Furthermore, in Popky v. United States, 326 F. Supp.
2d 594, 604-605 (E.D. Pa. 2004), affd. 419 F.3d 242 (3d Cir.
2005), the district court followed Hatchett, and its opinion was
                                                   (continued...)
                               - 34 -

However, under Sego v. Commissioner, 114 T.C. at 610, we review

respondent’s determination for abuse of discretion, and we

decline to hold that the appeals officer abused her discretion in

her estimate of the Sullivans’ reasonable collection potential.

Absent a showing of special circumstances (discussed below), the

Sullivans’ $54,000 proposal was inadequate under the regulations,

when compared even to 50 percent of the value of the entirety

property.    See Popky v. United States, supra; Murphy v.

Commissioner, 125 T.C. at 309; Rev. Proc. 2003-71, sec. 4.02(2),

2003-2 C.B. 517, 517.

     Upon a showing of special circumstances by the taxpayer, the

formulaic approach described above is modified, and an OIC may be

accepted even if it is for less than the taxpayer’s reasonable

collection potential, e.g., where a long-term illness prevents

the taxpayer from earning a living, and it is reasonably

foreseeable that the taxpayer’s financial resources will be

exhausted providing for care and support during the course of the

condition.   Sec. 301.7122-1(b)(3), (c)(3), Proced. & Admin.

Regs.; see also 1 Administration, IRM, pt. 5.8.11.2.1, at 16,375,

pt. 5.8.11.2.2, at 16,377.   No such circumstances have been shown


     19
      (...continued)
affirmed by the Court of Appeals for the Third Circuit without
discussion or criticism on this point. The district court held
that entirety property (in that case, the proceeds of a sale) was
subject to levy under section 6331, provided that the procedural
requirements of the statute are followed and the property is not
otherwise exempt under section 6334. Id.
                                 - 35 -

here.     The Sullivans have not shown that payment of more than the

amount that they offered in settlement of their liabilities would

have rendered them unable to meet basic living expenses.          Their

projections of future income and expenses are speculative and

unpersuasive.     The Sullivans’ situation is not comparable to the

examples given in the regulations.        The appeals officer

thoroughly considered and addressed their arguments.

             3.   The Appeals Officer Reasonably Ruled Out Promotion
                  of Effective Tax Administration, as a Basis for
                  an OIC.

     The appeals officer did not abuse her discretion in

determining that the Sullivans failed to show that their final

offer of $54,000 promotes effective tax administration.         Under

the regulations,20 a liability may be compromised in order to

promote ETA if there are compelling public policy or equity

considerations identified by the taxpayer.        Compromise is

justified where, because of exceptional circumstances, collection

of the full liability would undermine public confidence that tax

laws are being administered fairly.        Sec. 301.7122-1(b)(3)(ii),

Proced. & Admin. Regs.     Some examples of a compromise that is

allowed for purposes of public policy and equity are:        (i) a

taxpayer who was hospitalized regularly for a number of years and

was unable, at that time, to manage his financial affairs, and

(ii) a taxpayer who learns at audit that he was given erroneous


     20
          See also 1 Administration, IRM, pt. 5.8, at 16251.
                              - 36 -

advice and, as a result of actions taken in reliance on it, is

facing additional taxes, penalties, and additions to tax.    Sec.

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

     The Sullivans have not shown that requiring them to pay more

than $54,000 would undermine public confidence that tax laws are

being administered fairly.   In fact, the opposite may more likely

be true:   If the IRS had accepted the Sullivans’ proposal that

they pay no more than a fourth of their total tax liability--and

an eighth of their reasonable collection potential--simply

because they had endured a number of unfortunate circumstances,

such as intermittent unemployment and the bankruptcy of their

family business, then taxpayers in similar situations who lose a

job or a business, but dutifully pay their taxes nonetheless,

might lose confidence in a system that charges some but exempts

others when they fail to comply.   The Sullivans’ situation is not

comparable to the examples given in the regulations.   The appeals

officer considered and addressed their arguments.

     In sum, the appeals officer reviewed and considered the

information that the Sullivans submitted.   On the basis of the

Sullivans’ facts and circumstances as they had been presented to

her, the appeals officer determined that none of the Sullivans’

OICs, nor their final offer of $54,000, met the applicable

guidelines for acceptance of an OIC with respect to DATL, DATC,
                                - 37 -

or promotion of ETA.    We find no abuse of discretion in that

determination.

          4.      The Notices of Determination Adequately Address
                  the Issues.

     The Sullivans take exception to the fact that the notices of

determination do not specifically acknowledge that they are in

their fifties, have modest income, and hold few assets aside from

their house.     The Sullivans speculate from this fact that the

appeals officer did not adequately take into account their

special circumstances.     However, their assertions and speculation

are without merit.     The Office of Appeals has no obligation to

specifically list in the notice of determination every single

fact that it considered in arriving at the determination.       See

Johnson v. Commissioner, T.C. Memo. 2007-29; Barnes v.

Commissioner, T.C. Memo. 2006-150.       Nor do we find that the

appeals officer inadequately considered the information actually

given to her by the Sullivans.     In fact, their own calculations

of their net assets and total tax liability support the appeals

officer’s conclusion that their total equity in assets exceeded

their liability.

     The Sullivans also take exception to the fact that their

$54,000 proposal was not specifically discussed in the notices of

determination, nor was it formally rejected by respondent on a

Form 5402-c.     However, these objections are without merit.

Again, the Office of Appeals has no obligation to list every
                               - 38 -

single fact that it considered in arriving at its determination.

See Johnson v. Commissioner, supra; Barnes v. Commissioner,

supra.    Furthermore, the IRS cannot be required to issue a formal

rejection on Form 5402-c where there has been no formal offer on

Form 656.21   The Sullivans’ informal proposal of a payment of

$54,000 was adequately addressed when the Office of Appeals

determined that the Sullivans’ equity in their house (discounted

to $357,400) exceeded their estimated liability of $210,405,

rendering the proposal unacceptable.

     We hold that the appeals officer did not abuse her

discretion in rejecting as inadequate the Sullivans’ OICs,

including their $54,000 informal proposal.   Consequently, we

sustain the IRS’s determination that the proposed levies and the

filing of a notice of Federal tax lien were appropriate.


     21
      For OICs submitted after July 15, 2006, an implicit
obligation to reject a formal OIC is reflected in a new
subsection 7122(f), which provides: “Any offer-in-compromise
submitted under this section shall be deemed to be accepted by
the Secretary if such offer is not rejected by the Secretary”
within 24 months. (Emphasis added.) This obligation to reject a
formal OIC under section 7122(f) is effective only as to OICs
submitted on and after the date which is sixty days after the
date of enactment, May 17, 2006 (see Tax Increase Prevention and
Reconciliation Act of 2005, Pub. L. 109-222, 120 Stat. 345), and
thus could not be applicable to the Sullivan’s informal offer
made on March 8, 2006. Furthermore, this obligation exists only
as to an OIC “submitted under this section”, and the IRS is
entitled to insist on compliance with its regulation requiring
that offers under section 7122 be submitted on “forms prescribed
by the Internal Revenue Service”, sec. 301.7122-1(d)(1), Proced.
& Admin. Regs. (As is explained supra pp. 25-27 in part II.B,
the Sullivans’ informal offer, though not a formal OIC, was a
“collection alternative” under section 6330(c)(2)(A)(iii).)
                        - 39 -

To reflect the foregoing,



                                 Decision will be entered for

                            respondent.
