                          T.C. Memo. 2008-15



                       UNITED STATES TAX COURT



                     HENRY M. LLOYD, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4395-06L.                  Filed January 29, 2008.



     Stephen P. Kauffman, for petitioner.

     C. Teddy Li, for respondent.



                          MEMORANDUM OPINION


     CHIECHI, Judge:    This case is before the Court on respon-

dent’s motion for summary judgment (respondent’s motion).    We

shall grant respondent’s motion.

                              Background

     The record establishes and/or the parties do not dispute the

following.
                              - 2 -

     Petitioner resided in Washington, D.C., at the time he filed

the petition in this case.

     On April 15, 1991, petitioner filed a Federal income tax

(tax) return (return) for his taxable year 1990 (1990 return).

When petitioner filed his 1990 return, he paid the tax due shown

in that return.

     At a time not disclosed by the record after petitioner filed

his 1990 return and before September 2, 1996, the Internal

Revenue Service (IRS) conducted an examination with respect to

petitioner’s taxable year 1990.   During that examination, the IRS

proposed an increase in petitioner’s tax of $55,609 for that

taxable year, to which petitioner agreed.

     On September 2, 1996, respondent assessed the additional tax

of $55,609 to which petitioner had agreed and interest as pro-

vided by law for petitioner’s taxable year 1990.1   (We shall

refer to any unpaid assessed amounts with respect to petitioner’s

taxable year 1990, as well as interest as provided by law accrued

after September 2, 1996, as petitioner’s unpaid 1990 liability.)




     1
      On Feb. 13, 1997, and Jan. 22, 1998, petitioner made pay-
ments with respect to his taxable year 1990 of $3,000 and $6,000,
respectively. In addition, respondent credited a refund of $859
due to petitioner for his taxable year 2001 against the liability
for petitioner’s taxable year 1990.
                               - 3 -

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a)2 with respect to petitioner’s

unpaid 1990 liability.

     On April 15, 1992, petitioner filed a return for his taxable

year 1991 (1991 return).   In that return, petitioner showed no

tax due.

     At a time not disclosed by the record after petitioner filed

his 1991 return and before August 26, 1996, the IRS conducted an

examination with respect to petitioner’s taxable year 1991.

During that examination, the IRS proposed an increase in peti-

tioner’s tax of $13,380 for that taxable year, to which peti-

tioner agreed.

     On August 26, 1996, respondent assessed the additional tax

of $13,380 to which petitioner had agreed and interest as pro-

vided by law for petitioner’s taxable year 1991.   (We shall refer

to any unpaid assessed amounts with respect to petitioner’s

taxable year 1991, as well as interest as provided by law accrued

after August 26, 1996, as petitioner’s unpaid 1991 liability.)

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 1991 liability.

     On July 12, 1993, petitioner filed a return for his taxable


     2
      All section references are to the Internal Revenue Code in
effect at all relevant times. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 4 -

year 1992 (1992 return).   When petitioner filed his 1992 return,

he paid the tax due shown in that return.3

     At a time not disclosed by the record after petitioner filed

his 1992 return and before September 2, 1996, the IRS conducted

an examination with respect to petitioner’s taxable year 1992.

During that examination, the IRS proposed an increase in peti-

tioner’s tax of $323 for that taxable year, to which petitioner

agreed.

     On September 2, 1996, respondent assessed the additional tax

of $323 to which petitioner had agreed and interest as provided

by law for petitioner’s taxable year 1992.   (We shall refer to

any unpaid assessed amounts with respect to petitioner’s taxable

year 1992, as well as interest as provided by law accrued after

September 2, 1996, as petitioner’s unpaid 1992 liability.)4

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 1992 liability.

     On April 15, 1995, petitioner filed a return for his taxable

year 1994 (1994 return).   When petitioner filed his 1994 return,


     3
      On Aug. 16, 1993, respondent assessed an addition to tax
under sec. 6651(a)(2) of $3.27 and interest as provided by law.
On Aug. 31, 1993, petitioner paid those assessed amounts.
     4
      We shall refer collectively to petitioner’s unpaid 1990
liability, petitioner’s unpaid 1991 liability, and petitioner’s
unpaid 1992 liability as petitioner’s unpaid liabilities for
1990, 1991, and 1992.
                                - 5 -

he did not pay the tax due shown in that return (i.e., $656).

     On May 29, 1995, respondent assessed the tax due of $656

shown in petitioner’s 1994 return, an addition to tax under

section 6651(a)(2) of $6.56, and interest as provided by law for

petitioner’s taxable year 1994.    (We shall refer to any unpaid

assessed amounts with respect to petitioner’s taxable year 1994,

as well as interest as provided by law accrued after May 29,

1995, as petitioner’s unpaid 1994 liability.)

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 1994 liability.

     On October 10, 1997, petitioner filed a return for his

taxable year 1996 (1996 return).    When petitioner filed his 1996

return, he did not pay the tax due shown in that return (i.e.,

$4,291).

     On November 10, 1997, respondent assessed the tax due of

$4,291 shown in petitioner’s 1996 return, additions to tax under

sections 6651(a)(1) and (2) and 6654 of $386.19, $133.38, and

$202, respectively, and interest as provided by law for peti-

tioner’s taxable year 1996.   On April 13, 1998, respondent abated

$480 of the assessed tax and $43.20 of the assessed addition to

tax under section 6651(a)(1).   On the same date, respondent also

assessed an addition to tax under section 6651(a)(2) of $95.28
                              - 6 -

and interest as provided by law accrued after November 10, 1997.5

(We shall refer to any unpaid and unabated assessed amounts with

respect to petitioner’s taxable year 1996, as well as interest as

provided by law accrued after April 13, 1998, as petitioner’s

unpaid 1996 liability.)

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 1996 liability.

     On September 10, 1998, petitioner filed a return for his

taxable year 1997 (1997 return).    When petitioner filed his 1997

return, he did not pay the tax due shown in that return (i.e.,

$12,530).

     On October 26, 1998, respondent assessed the tax due of

$12,530 shown in petitioner’s 1997 return, additions to tax under

sections 6651(a)(1) and (2) and 6654 of $563.85, $438.55, and

$228.11, respectively, and interest as provided by law for

petitioner’s taxable year 1997.    (We shall refer to any unpaid

assessed amounts with respect to petitioner’s taxable year 1997,

as well as interest as provided by law accrued after October 26,

1998, as petitioner’s unpaid 1997 liability.)

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

     5
      On Apr. 15, 1999, respondent credited a refund of $610 due
to petitioner for his taxable year 1998 against the liability for
petitioner’s taxable year 1996.
                                - 7 -

unpaid 1997 liability.

     On April 15, 2003, petitioner filed a return for his taxable

year 2002 (2002 return).    When petitioner filed his 2002 return,

he paid $36,389 of the tax due shown in that return (i.e.,

$37,248).

     On June 16, 2003, respondent assessed the tax due, including

the $859 unpaid portion of that tax, shown in petitioner’s 2002

return, an addition to tax under section 6651(a)(2) of $12.88,

and interest as provided by law for petitioner’s taxable year

2002.    On January 19, 2005, petitioner paid $1,095.63 with

respect to his taxable year 2002.6      On February 14, 2005, respon-

dent assessed a total of $216.42 consisting of an additional

amount of the addition to tax under section 6651(a)(2) of $150.33

and interest as provided by law accrued after June 16, 2003, of

$66.09 for petitioner’s taxable year 2002.      (We shall refer to

any unpaid assessed amounts with respect to petitioner’s taxable

year 2002,7 as well as interest as provided by law accrued after

February 14, 2005, as petitioner’s unpaid 2002 liability.)8

     6
      After petitioner’s payment on Jan. 19, 2005, petitioner’s
account with respect to his taxable year 2002 showed a credit of
$216.42 with respect to that year.
     7
      It does not appear from the record that there is any unpaid
amount of liability with respect to petitioner’s taxable year
2002. However, neither party makes any argument that there is no
unpaid amount of liability with respect to that year.
     8
        We shall refer collectively to petitioner’s unpaid liabili-
                                                     (continued...)
                                 - 8 -

     Respondent issued to petitioner the notice and demand for

payment required by section 6303(a) with respect to petitioner’s

unpaid 2002 liability.

     On November 20, 2002, Kenneth H. Silverberg (Mr.

Silverberg), petitioner’s authorized representative, sent a

letter (Mr. Silverberg’s November 20, 2002 letter) to a manager

in the IRS’s offer-in-compromise unit (IRS offer-in-compromise

unit).     In that letter, Mr. Silverberg stated in pertinent part:

     RE:     Henry M. Lloyd * * *
             Henry M. Lloyd PC * * *
             Attached Offers in Compromise

         *        *       *        *         *    *       *

          Pursuant to your letters of November 5, 2002, and
     on behalf of my clients identified above, I respect-
     fully submit copies of two Offers In Compromise, at-
     tached as completed Forms 656, along with supporting
     Forms 433-A and 433-B, and additional documentation
     which was provided by your Revenue Officer * * * [first
     revenue officer].

          We were advised by your Process Examiners that
     this OIC as previously submitted to you on October 28,
     2002, was acceptable in form other than the fact that
     certain previous-period returns were not on file with
     the IRS (see attached statement by the taxpayer ex-
     plaining why these returns were not required, and
     attaching copies of returns as recently filed) and also
     that an obsolete version of Form 433-A and 433-B was
     used (the obsolete forms have been replaced with appro-
     priate forms, revision date 5/2001).

     8
      (...continued)
ties for 1990, 1991, and 1992, petitioner’s unpaid 1994 liabil-
ity, petitioner’s unpaid 1996 liability, petitioner’s unpaid 1997
liability, and petitioner’s unpaid 2002 liability as petitioner’s
unpaid liabilities for 1990, 1991, 1992, 1994, 1996, 1997, and
2002.
                         - 9 -


     The history of this OIC is set forth here as
follows:

     I am advised by the taxpayer and his accountant
that a lengthy Collection Division investigation and
negotiation process has been conducted by * * * [the
first revenue officer]. In early 2002, * * * [the
first revenue officer] and the taxpayers’ accountant
reached agreement regarding the amount of an OIC that
would be satisfactory to the Service. * * * [the first
revenue officer] had reviewed the taxpayers’ Forms 433-
A and 433-B, and had prepared the Service’s analysis of
the “Amount That Could Be Paid” by each taxpayer. * * *
[the first revenue officer] asked for an OIC in the
amount of $19,200 from Mr. Lloyd’s PC, and for an OIC
in the amount of $6,576 from Mr. Lloyd personally. The
accountant was assured by * * * [the first revenue
officer] that these OIC’s would be accepted by the
Service. A copy of the “Amount That Could Be Paid”
analysis is also included for your reference.

     The OIC’s were submitted on February 13, 2002 in
the exact amounts requested and the taxpayer received
no response to date from the Service in respect of
these OIC’s.

     We have been advised by your Revenue Officer * * *
[second revenue officer] of the IRS Appeals Office in
Baltimore that the PC was considered to be “out of
compliance” during the first quarter of 2002, because a
payment by the taxpayer of a Form 941 payroll deposit
was timely but mistakenly mailed as an attachment to
the Form 941 return as opposed to being correctly
deposited with a bank. Therefore, these two OIC’s were
not rejected, but rather “returned” and thus held in
abeyance and eligible for resubmission once the taxpay-
ers were compliant for two consecutive calendar quar-
ters from the first quarter of 2002. Both taxpayers
have been fully compliant for the second and third
quarters of 2002, and these OIC’s should thus be eligi-
ble for action.

     After familiarizing herself with the case, and
after consulting with the OIC Manager in the IRS Balti-
more Office, * * * [the second revenue officer] in-
structed us that, since the February 13 OIC’s had not
been “rejected” (only “returned”), the taxpayers may
now resubmit the OIC’s directly to your office.
                                  - 10 -

            Accordingly, since the taxpayers have now been in
       compliance for the two calendar quarters ended June 30,
       2002 and September 30, 2002——and since the taxpayers
       are currently in full compliance——I respectfully submit
       the attached OIC’s.

       Mr. Silverberg enclosed with Mr. Silverberg’s November 20,

2002 letter, inter alia, (1) completed Form 656, Offer in Compro-

mise (Form 656 or offer-in-compromise), that petitioner signed

and that was dated November 27, 2002 (petitioner’s November 27,

2002 offer-in-compromise) and (2) completed Form 433-A, Collec-

tion Information Statement for Wage Earners and Self-Employed

Individuals (Form 433-A), that petitioner signed and that was

dated November 27, 2002 (petitioner’s November 27, 2002 Form 433-

A).9

       Respondent assigned an offer-in-compromise specialist (first

offer specialist) with the IRS offer-in-compromise unit to

investigate petitioner’s November 27, 2002 offer-in-compromise.

       On January 12, 2004,10 Mr. Silverberg sent a letter to the

first offer specialist (Mr. Silverberg’s January 12, 2004 let-

ter).       In that letter, Mr. Silverberg stated in pertinent part:



       9
      The record does not indicate how Mr. Silverberg could have
enclosed with Mr. Silverberg’s November 20, 2002 letter Form 656
and Form 433-A that petitioner signed and that were dated Nov.
27, 2002, which was after the date of that letter. We note that
each of those documents was apparently signed by petitioner again
on Jan. 9, 2003.
       10
      The record does not disclose what transpired with respect
to petitioner’s November 27, 2002 offer-in-compromise and peti-
tioner’s November 27, 2002 Form 433-A between the time respondent
assigned them to the first offer specialist and Jan. 12, 2004.
                                 - 11 -

             RE:   Offer In Compromise -- Henry M. Lloyd * * *
                   and Henry M. Lloyd, P.C. * * *

         *         *       *       *       *       *       *

         This letter and its attachments constitute revised
    Offers In Compromise (OIC) for the two taxpayers iden-
    tified above.

         In our telephone discussion of December 22, you
    described certain things which needed to be done in
    order for the Service to consider the revised offers.
    This cover letter describes how everything you sought
    has been accomplished. The attached Forms 656 contain
    the actual OIC’s.[11]

         *         *       *       *       *       *       *

    Court-Ordered Payments
         You advised me that your computation of Reasonable
    Collection Potential, which indicates Mr. Lloyd has the
    ability to pay monthly installments of $1,304, includes
    no consideration of the cost of supporting his children
    or providing for their education, because we had pro-
    duced no evidence that he was required by a court order
    to pay such amounts. I apologize if you asked for the
    court order and I neglected to supply it – I did not
    understand that such a request had been made.

         The Marital Settlement Agreement between Mr. Lloyd
    and his ex-wife is attached for your use. It imposes a
    number of financial obligations on Mr. Lloyd, including
    the provision of health insurance and education, both
    of which Mr. Lloyd is currently paying for. If you add
    these obligations to the other Necessary Living Ex-
    penses on your worksheet, you will see that they to-
    tally eliminate Mr. Lloyd’s ability to make any in-


    11
      The record does not contain Forms 656 referred to in Mr.
Silverberg’s January 12, 2004 letter. That is because the
declaration by Mr. Silverberg filed in support of petitioner’s
response to respondent’s motion indicates that he was unable to
locate such forms. (Petitioner filed a response to respondent’s
motion, a declaration by Mr. Silverberg in support of that
response, and a supplement to that response consisting of a
declaration by petitioner. We shall refer collectively to those
filings by petitioner as petitioner’s response.)
                              - 12 -

     stallment payments in connection with this OIC.

          He is required to pay for private school or col-
     lege undergraduate tuition for his two children, and
     his wife is only required to contribute in the event
     her income exceeds $75,000 per year (page 10 of agree-
     ment). It does not. In this event, Mr. Lloyd’s obli-
     gation is limited to the cost of providing the cost of
     undergraduate out-of-state education at the University
     of Virginia. I have attached information from the
     internet which indicates that the cost of tuition,
     required fees, room and board for an out-of-state
     student was $25,036 per year during the 2002-2003
     academic year.

           Per child annual obligation              25,036

           X 2 children                             50,072

           Per month                                4,172

          Since this additional obligation exceeds by more
     than threefold the amount you computed as a reasonable
     installment payment, I trust you will understand why
     the OIC cannot include any installment amount. * * *

     On September 6, 2004, the first offer specialist sent a

letter to petitioner (first offer specialist’s September 6, 2004

letter).   In that letter, the first offer specialist stated in

pertinent part:

     This letter is only being sent to you because your
     representative Mr. Silverberg, doesn’t have coverage
     for the Excise tax assessed on Form 5330, Return of
     Initial Excise Taxes Related to Employee Benefit Plans
     for tax periods ending December 31, 1991 and December
     31, 1992. The payoff balance computed through October
     15, 2004 is $5,875.78.

     In order to perfect your offer we have enclosed an
     amended Form 656, Offer in Compromise that includes
     these tax periods and have adjusted the offer figure to
                              - 13 -

     $139,766.00[12] and this is based on the math error on
     your last amended F656 that you signed on September 29,
     2004.[13] If agreed, sign, date and return to the ad-
     dress listed below.

     Your timely response is requested by October 15, 2004
     or your current offer may be returned without any
     appeal rights.

     If you have any questions or need more information,
     please contact me at the address or the telephone
     number listed below * * *

     On September 15, 2004, the first offer specialist sent

another letter to petitioner (first offer specialist’s September

15, 2004 letter).   In that letter, the first offer specialist

stated in pertinent part:

     During an offer investigation an offer may be returned
     when the investigation reveals the taxpayer doesn’t
     have sufficient income tax withheld or paid. Our
     records show you have an extension until October 15,
     2004 for filing your year 2003 return. But only
     $68,499.00 in tax payments was withheld. Based on our
     calculations for year 2003 and using a gross income
     figure of $351,223.00 a total of $105,161.00 should
     have been paid on the income earned.

     Enclosed is a copy of Form 1040-ES, Estimated Tax for
     Individuals for you to figure and pay your estimated
     tax due for year 2003. Provide us with a copy of the
     completed worksheet and a check for the payment due, if
     any[,] should be mailed to the address listed below.



     12
      The record does not contain the “amended Form 656” re-
ferred to in the first settlement officer’s September 6, 2004
letter.
     13
      The record does not indicate why the “last amended F656”
referred to in the first offer specialist’s September 6, 2004
letter could have been signed by petitioner and dated Sept. 29,
2004, which was after the date of that letter. See infra note
15.
                                - 14 -

     Your timely response and receipt of this information
     are requested by September 29, 2004 or this offer may
     be returned[.]

     If you have any questions or need more information,
     please contact me at the address or the telephone
     numbers listed below * * *

     On September 17, 2004, Mr. Silverberg and the first offer

specialist had a telephonic discussion with respect to the first

offer specialist’s September 15, 2004 letter (September 17, 2004

telephonic discussion).     During that discussion, the first offer

specialist requested certain information from Mr. Silverberg.

Thereafter, on October 1, 2004, the first offer specialist left

Mr. Silverberg a voice mail message (first offer specialist’s

October 1, 2004 voice mail) requesting certain additional infor-

mation.

     On October 1, 2004, in response to, inter alia, at least

certain of the requests made by the first offer specialist during

the September 17, 2004 telephonic discussion and the first offer

specialist’s October 1, 2004 voice mail,14 Mr. Silverberg sent a

letter (Mr. Silverberg’s October 1, 2004 letter) to the first

offer specialist via facsimile.    In that letter, Mr. Silverberg

stated in pertinent part:

          This responds to your voice mail message received
     this morning.


     14
      The record does not indicate whether Mr. Silverberg re-
sponded to all of the requests made by the first offer specialist
during the September 17, 2004 telephonic discussion and the first
offer specialist’s October 1, 2004 voice mail.
                               - 15 -

          You asked that I fax to you today a copy of the
     personal Form 656 Offer In Compromise which has been
     reformatted to reflect the amount of $139,797, payable
     over the 84 month period in equal installments. That
     is attached to this fax, and the signed original will
     be hand-delivered to your office on Monday. Please let
     me know if there are any questions.

          In response to your other questions, Mr. Lloyd’s
     accountant informs me that Mr. Lloyd is neither under-
     paid nor under-withheld for 2003 and 2004. For 2003,
     the tax which has been withheld via the amended 941’s
     ($68,655) exceeds 100% of Mr. Lloyd’s 2002 liability
     ($36,389). His 2003 return is extended until October
     15, and if there is any balance due for 2003 we under-
     stand he is “in compliance” by paying in full on that
     date. For the P.C., he has filed 941’s and made appro-
     priate payments for the first two quarters of 2004.
     The third quarter payment is not due until October 15.

          The following items are attached to substantiate
     his compliance.

          1.   Approval of the extension of the 2003 form
               1040.
          2.   Copy of form 941 for the first quarter of
               2004.
          3.   Copy of cancelled check for payment with the
               first quarter of 2004.
          4.   Copy of form 941 for the second quarter of
               2004.
          5.   Copy of bank receipt for deposit with the
               second quarter of 2004.

          Please let me know if you have any questions.

Mr. Silverberg enclosed with Mr. Silverberg’s October 1, 2004

letter, inter alia, completed Form 656, that petitioner signed

and that was dated September 29, 2004 (petitioner’s September 29,

2004 offer-in-compromise).15   In item 5 of petitioner’s September


     15
      The first offer specialist’s September 6, 2004 letter
referred to a “last amended F656”, that petitioner signed and
                                                   (continued...)
                                  - 16 -

29, 2004 offer-in-compromise, petitioner provided the responses

indicated to the following questions:

    Item 5 — To:        Commissioner of Internal Revenue Service

    I/We * * * submit this offer to compromise the tax
    liabilities plus any interest, penalties, additions to
    tax, and additional amounts required by law (tax
    liability) for the tax type and period marked below:
    * * *
    :   1040/1120 Income Tax — Year(s) 1990, 1991, 1992,
        1994, 1996, 1997, 2002

          *         *       *       *       *       *       *

    :         Trust Fund Recovery Penalty as a responsible
              person of (enter corporate name) Henry M. Lloyd
              PC, for failure to pay withholding and Federal
              Insurance Contributions Act Taxes (Social Security
              taxes), for period(s) ending 9703.
    9         Other Federal Tax(es) [specify type(s) and
              period(s)]

     In items 6 and 7 of petitioner’s September 29, 2004 offer-

in-compromise, petitioner provided the responses indicated to the

following questions:




     15
      (...continued)
that was dated Sept. 29, 2004. We do not know whether Form 656
that petitioner signed and that was dated Sept. 29, 2004, and
that Mr. Silverberg enclosed with Mr. Silverberg’s October 1,
2004 letter was the “last amended F656” referred to in the first
offer specialist’s September 6, 2004 letter. See supra note 13
and accompanying text.
                             - 17 -

     Item 6 — I/We submit this offer for the reason(s)
     checked below:
     9 Doubt as to Liability — “I do not believe I owe
        this tax.” * * *
     : Doubt as to Collectibility — “I have insufficient
        assets and income to pay the full amount.” You
        must include a complete Collection Information
        Statement, Form 433-A and/or Form 433-B.
     9 Effective Tax Administration — “I owe this amount
        and have sufficient assets to pay the full amount,
        but due to my exceptional circumstances, requiring
        full payment would cause an economic hardship or
        would be unfair and inequitable.” You must
        include a complete Collection Information
        Statement, Form 433-A and/or Form 433B * * *.


     Item 7
     I/We offer to pay $139,707.00 (must be more than
     zero). * * *

     Check only one of the following:

         *      *       *       *       *       *         *

     9   Short-Term Deferred Payment Offer (Offered amount
         paid in MORE than 90 days but within 24 months
         from written notice of acceptance of the offer.)

         *      *       *       *       *       *         *

     :   Deferred Payment Offer (Offered amount will be
         paid over the remaining life of the collection
         statute.)

     $1,664 within 90 days * * * from written notice of
     acceptance of the offer; and

     beginning in the first month after written notice of
     acceptance of the offer $1,664 on the 1st day of each
     month for a total of 83 months.

     On November 3, 2004, respondent’s collection division sent a

letter to petitioner (respondent’s November 3, 2004 letter) and
                             - 18 -

sent a copy of that letter to Mr. Silverberg.   That letter stated

in pertinent part:

          We are returning your Form 656, Offer in Compro-
     mise for the following reason(s):

          All tax periods with a balance due must be in-
     cluded in your Offer in Compromise. Our records indi-
     cate the following period(s) was/were not included:
     Excise tax for 1991 and 1992 tax periods.

          If a deposit was made with the offer, we will mail
     the refund separately in four to six weeks.

          If you believe the return of your offer was made
     in error, or your failure to provide the information/
     substantiation we requested was due to circumstances
     beyond your control (your serious illness, death or
     serious illness of your immediate family member, or
     disaster)[,] within 30 days from the date of this
     letter you may contact * * * [the first settlement
     officer] to request reconsideration of our decision to
     close your offer. You should be prepared to discuss
     specifics, provide verification of the circumstances
     beyond your control and provide the information previ-
     ously requested.

Enclosed with respondent’s November 3, 2004 letter was peti-

tioner’s September 29, 2004 offer-in-compromise.16   At no time

did respondent accept petitioner’s September 29, 2004 offer-in-

compromise by issuing a written notice of acceptance to peti-

tioner as required by section 301.7122-1(e)(1), Proced. & Admin.

Regs.

     Around December 7, 2004, respondent issued to petitioner a

notice of Federal tax lien filing and your right to a hearing



     16
      The record does not establish that petitioner responded to
respondent’s November 3, 2004 letter.
                               - 19 -

(notice of tax lien) with respect to petitioner’s taxable years

1990 through 1992, 1994, 1996, and 2002.17   Petitioner did not

file Form 12153, Request for a Collection Due Process Hearing

(Form 12153), with respect to that notice of tax lien.   See infra

note 18.

     On February 7, 2005, respondent issued to petitioner a

notice of intent to levy and notice of your right to a hearing

with respect to each of petitioner’s taxable years 1990 through

1992, 1994, 1996, 1997, and 2002.    (We shall refer collectively

to those notices of intent to levy as the notices of intent to

levy.)

     On March 7, 2005, respondent received Form 12153 that Mr.

Silverberg submitted on behalf of petitioner (petitioner’s Form

12153).    In that form, Mr. Silverberg indicated petitioner’s

disagreement with the notices of intent to levy and requested a

hearing with respondent’s Appeals Office (Appeals Office).18      Mr.

Silverberg attached a letter to petitioner’s Form 12153.    In that



     17
      The record does not indicate why respondent did not issue
to petitioner a notice of tax lien with respect to petitioner’s
taxable year 1997. As discussed below, the notice of determina-
tion concerning collection action(s) under section 6320 and/or
6330 (notice of determination) made no determination with respect
to the notice of tax lien with respect to petitioner’s taxable
years 1990 through 1992, 1994, 1996, and 2002.
     18
      In petitioner’s Form 12153, Mr. Silverberg did not indi-
cate disagreement with the notice of tax lien filed with respect
to petitioner’s taxable years 1990 through 1992, 1994, 1996, and
2002. See supra note 17 and accompanying text.
                             - 20 -

letter, Mr. Silverberg stated in pertinent part:

          Mr. Lloyd has been dealing, through me as his
     representative, with the Collections Division in
     Fairfax, Virginia, and with your [first] Offer Special-
     ist * * *. Mr. Lloyd has submitted Form 656 proposing
     Offers in Compromise to settle these liabilities due to
     doubt as to collectibility. Throughout a period ex-
     ceeding one year, * * * [the first offer specialist]
     has evaluated Mr. Lloyd’s Reasonable Collection Poten-
     tial (RCP) and has performed an extensive investigation
     of his assets, his income potential and his costs of
     living.

          After conducting his investigation, * * * [the
     first offer specialist] and Mr. Lloyd reached an agree-
     ment in principle, whereby Mr. Lloyd submitted an
     Amended Form 656 in October, 2004, offering to pay
     $139,707 over an installment period of 84 months. This
     amount is 100 per cent of the RCP finally determined by
     * * * [the first offer specialist]. For reasons which
     Mr. Lloyd and I do not understand, this OIC was treated
     by the Service as withdrawn at the last minute, rather
     than accepted. We were given the explanation that some
     out-of-compliance situation had been identified, and
     that the OIC could not be considered until Mr. Lloyd
     was back in compliance. Upon investigation, it was
     determined he was not out-of-compliance. However, no
     action was taken on his OIC. Instead, you have issued
     notices indicating you intend to levy.

          Mr. Lloyd is still willing to agree to the October
     2004 OIC which is 100 per cent of his RCP. He believes
     that he and the IRS have an agreement. However, for
     reasons unknown to us the Collections Division was
     unwilling to indicate its acceptance by signing off on
     the OIC.

          Too much time has been invested by Mr. Lloyd and
     by the Service to waste it by treating the OIC as
     withdrawn. The agreement should be signed and Mr.
     Lloyd should begin making the monthly installments
     which will put this matter to rest.

          Mr. Lloyd and I hereby request an opportunity to
     appear in person to discuss this matter at a CDP hear-
     ing. Our hope is that an agreed OIC will result from
     that hearing. * * *
                                 - 21 -

     On May 24, 2005, a settlement officer with the Appeals

Office (settlement officer) sent a letter (settlement officer’s

May 24, 2005 letter) to petitioner with respect to petitioner’s

Form 12153.   In that letter, the settlement officer stated in

pertinent part:

     I have received your Collection Due Process hearing
     request. The objective of a Collection Due process
     hearing is to determine whether an acceptance alterna-
     tive to the levy/lien exists, while balancing the
     Government’s need to efficiently collect this tax
     liability. Options available to you for resolution of
     your lien/levy issue may include the following:

          •       Full payment

          •       Installment agreement

          •       Offer in Compromise

          •       Surety bond

     On your hearing request you indicated your offer was
     rejected because of non-compliance. A check of our
     records indicated you had an outstanding balance on
     your tax return for period ending 12/31/2003. The
     outstanding balance was paid after the offer was re-
     jected. You cannot accumulate new liabilities. Our
     records also indicate you have an outstanding liability
     for period ending 12/31/2004. I have attached a tran-
     script for period ending 12/31/2003.[19] If you wish to
     submit an offer, you must start the process again.

     If you feel that one of the above resolutions are
     possible, please respond back with your proposal by no
     later than June 15th 2005. If your proposal is any-
     thing other than full payment, then I will need you to
     complete and return the enclosed Forms 433-A & B. If
     you do not own a business, then please disregard the


     19
      The record does not contain the “transcript for period
ending 12/31/2003” referred to in the settlement officer’s May
24, 2005 letter.
                              - 22 -

     Form 433-B.

        *         *     *       *       *        *      *

     If you do not provide the information requested, I
     cannot consider certain collection alternatives. If I
     do not have a detailed response by June 15th 2005 I
     will make a determination based upon the evidence that
     I have in the case file. If I do that[,] I will sus-
     tain the District’s position and issue a determination
     letter.

     On June 7, 2005, Mr. Silverberg and the settlement officer

had a telephonic discussion (June 7, 2005 telephonic discussion).

The settlement officer made the following pertinent entries in

her “Case Activity Records” with respect to that discussion:

     Received a call from POA [Mr. Silverberg] and he wanted
     to know what did his client [petitioner] has to do to
     have the offer [petitioner’s September 29, 2004 offer-
     in-compromise] accepted. I explained his client wasn’t
     in full compliance and the offer [petitioner’s Septem-
     ber 29, 2004 offer-in-compromise] was rejected. He
     must submit a new offer and fee of $150.00. He was
     also made aware the new offer will be investigated as a
     new offer and the rejected offer [petitioner’s Septem-
     ber 29, 2004 offer-in-compromise] is not considered.
     [Reproduced literally.]

     On June 21, 2005, the settlement officer sent a letter to

petitioner.   In that letter, the settlement officer stated in

pertinent part:

     I have reviewed your appeal and additional information
     was requested. The information was due in the office
     on or before June 15th 2005 and as of today we haven’t
     received the information. If you wish to bring this
     information to the office and have a conference, please
     call to arrange an appointment.

     Please submit the requested information or contact me
     to arrange a telephone conference on or before July 6th
     2005.
                               - 23 -

     If you do not submit   the information or call to sched-
     ule an appointment I   will make a determination based
     upon the information   in the case file. If I do that I
     will sustain the IRS   position and issue a determination
     letter.

     If you have any questions, please contact me at the
     address or telephone number shown above.

     On July 7, 2005, Mr. Silverberg sent a letter to the settle-

ment officer (Mr. Silverberg’s July 7, 2005 letter).    Mr.

Silverberg enclosed with that letter (1) completed Form 656, that

petitioner signed and that was dated June 24, 2005 (petitioner’s

June 24, 2005 offer-in-compromise), (2) completed Form 433-A,

that petitioner signed and that was dated June 24, 2005 (peti-

tioner’s June 24, 2005 Form 433-A), and (3) various documents

with respect to those forms.

     In item 5 of petitioner’s June 24, 2005 offer-in-compromise,

petitioner provided the responses indicated to the following

questions:
                              - 24 -

     Item 5 — To:   Commissioner of Internal Revenue Service

     I/We * * * submit this offer to compromise the tax
     liabilities plus any interest, penalties, additions to
     tax, and additional amounts required by law (tax
     liability) for the tax type and period marked below:
     * * *
     :   1040/1120 Income Tax — Year(s) 1990, 1991, 1992,
         1994, 1996, 1997, 2002

         *      *       *       *       *       *       *

     :   Trust Fund Recovery Penalty as a responsible
         person of (enter corporate name) Henry M. Lloyd
         PC, for failure to pay withholding and Federal
         Insurance Contributions Act Taxes (Social Security
         taxes), for period(s) ending 9703.
     :   Other Federal Tax(es) [specify type(s) and
         period(s)] excise taxes (all) 1991 & 1992

     In items 6 and 7 of petitioner’s June 24, 2005 offer-in-

compromise, petitioner provided the responses indicated to the

following questions:

     Item 6 — I/We submit this offer for the reason(s)
     checked below:
     9 Doubt as to Liability — “I do not believe I owe
        this tax.” You must include a detailed
        explanation of the reason(s) why you believe you
        do not owe the tax in Item 9.
     : Doubt as to Collectibility — “I have insufficient
        assets and income to pay the full amount.” You
        must include a complete Collection Information
        Statement, Form 433-A and/or Form 433-B.
     9 Effective Tax Administration — “I owe this amount
        and have sufficient assets to pay the full amount,
        but due to my exceptional circumstances, requiring
        full payment would cause an economic hardship or
        would be unfair and inequitable.” You must
        include a complete Collection Information
        Statement, Form 433-A and/or Form 433B and
        complete Item 9.
                             - 25 -

     Item 7
     I/We offer to pay $139,776 (must be more than zero).
     Complete item 10 to explain where you will obtain the
     funds to make this offer.

     Check only one of the following:

     9   Cash Offer (Offered amount will be paid in 90 days
         or less.)

         *      *       *       *       *       *         *

     9   Short-Term Deferred Payment Offer (Offered amount
         paid in MORE than 90 days but within 24 months
         from written notice of acceptance of the offer.)

         *      *       *       *       *       *         *

     :   Deferred Payment Offer (Offered amount will be
         paid over the remaining life of the collection
         statute.)

     $1,664 within 90 days * * * from written notice of
     acceptance of the offer; and

     beginning in the first month after written notice of
     acceptance of the offer $1,664 on the 1st day of each
     month for a total of 83 months.

     In items 9 and 10 of petitioner’s June 24, 2005 offer-in-

compromise, petitioner provided the responses indicated to the

following questions:
                             - 26 -

      Item 9 — Explanation of Circumstances

      I am requesting an offer in compromise for the
      reason(s) listed below:

      Note:     If you are requesting compromise based on
                doubt as to liability, explain why you
                don’t believe you owe the tax. If you
                believe you have special circumstances
                affecting your ability to fully pay the
                amount due, explain your situation. You
                may attach additional sheets if necessary.
                * * *

      Doubt as to collectibility. Taxpayer is a 70-year-
      old sole practitioner with significant tax debts and
      a declining law practice. This OIC accompanies
      another OIC being made by Mr. Lloyd’s professional
      corporation for its tax debts.[20] Based on a
      detailed investigation just completed by the IRS,
      this offer is 100% of the Reasonable Collection
      Potential of Mr. Lloyd, and the P.C.’s offer is 100%
      of its Reasonable Collection Potential.


      Item 10 — Source of Funds

      I/We shall obtain the funds to make this offer from
      the following source(s):

      Liquidation of assets and borrowing.

     Petitioner’s June 24, 2005 Form 433-A contained several

sections identified as sections 1 through 9.   In sections 1 and 2

of that form, petitioner provided the responses indicated to the

following questions:

     6.   List the dependents you can claim on your tax
          return: * * *


     20
      Mr. Silverberg did not enclose with Mr. Silverberg’s July
7, 2005 letter Form 656 with respect to petitioner’s professional
corporation.
                                  - 27 -

             First Name     Relationship    Age       Does this person
                                                      live with you?
             Victoria       Daughter        24        : No   9 Yes
             Hunter         Son             18        9 No   : Yes

         *          *        *         *          *          *       *

    7.       Are you or your spouse self-employed or operate a
             business? (Check “Yes” if either applies)

             9 No   : Yes
                      If yes, provide the following
                      information:
    7a. Name of Business Henry M. Lloyd P.C.

         *          *        *         *          *          *       *

    7e. Do you have accounts/notes receivable? : No 9 Yes
         If yes, please complete Section 8 on page 5.

     In section 3 of petitioner’s June 24, 2005 Form 433-A,

petitioner indicated that he did not have an employer other than

Henry M. Lloyd, P.C.

     In section 4 of petitioner’s June 24, 2005 Form 433-A,

petitioner provided the response indicated to the following

question:

     10.     Do you receive income from sources other than your
             own business or your employer? (Check all that
             apply.)

     : Pension      : Social Security      : Other (specify, i.e.
                                             child support, alimony,
                                             rental) Rental

     In section 5 of petitioner’s June 24, 2005 Form 433-A,

petitioner indicated that he (1) maintained a checking account

that had a balance of $15,000, (2) owned a brokerage account with

no current account balance, (3) had two credit cards with unspec-
                                  - 28 -

ified balances, and (4) had $16,300 of credit available to him.

     In sections 5 and 6 of petitioner’s June 24, 2005 Form 433-

A, petitioner provided the responses indicated to the following

questions:

     16.       LIFE INSURANCE. Do you have life insurance with a
               cash value? : No 9 Yes

        *           *       *       *       *       *       *

     17a. Are there any garnishments against your wages?
          : No 9 Yes

        *           *       *       *       *       *       *

     17b. Are there any judgments against you?      : No 9 Yes

           *        *       *       *       *       *       *

     17e. In the past 10 years did you transfer any assets
          out of your name for less than their actual value?
          : No 9 Yes

           *        *       *       *       *       *       *

     17f. Do you anticipate any increase in household income
          in the next two years? : No 9 Yes

           *        *       *       *       *       *       *

     17g. Are you a beneficiary of a trust or an estate?
          : No 9 Yes

           *        *       *       *       *       *       *

     17h. Are you a participant in a profit sharing plan?
          : No 9 Yes

     In section 7 of petitioner’s June 24, 2005 Form 433-A,

petitioner indicated that he owned real estate in Washington,

D.C., the current value of that real estate was $741,330, there

were two outstanding mortgage loans totaling $625,000 with
                               - 29 -

respect to that real estate, and he was required to make monthly

payments totaling $3,929.59 with respect to those loans.

     In section 7 of petitioner’s June 24, 2005 Form 433-A,

petitioner indicated that he did not own or lease any automobiles

and did not respond to the question asking whether he owned any

personal assets (e.g., furniture/personal effects) or business

assets.

     In section 9 of petitioner’s June 24, 2005 Form 433-A,

petitioner listed various income items and various living expense

items.    With respect to the income items listed in that section,

petitioner indicated that he had total monthly income of

$4,342.33 consisting of $2,708.33 of monthly income from wages

and $1,634 of monthly income from his pension and/or Social

Security benefits.   With respect to the monthly expense items

listed in section 9 of petitioner’s June 24, 2005 Form 433-A,

petitioner indicated that he had total monthly living expenses of

$5,658.94 consisting of $3,463.94 of monthly expenses for housing

and utilities and $2,195 of monthly expenses for court-ordered

payments.

     On August 2, 2005, the settlement officer sent a letter to

petitioner.   In that letter, the settlement officer stated in

pertinent part:

     I recently received the offer in compromise file to be
     associated with the CDP case file. I am making an
     Appeals Referral Investigation request to have the
     offer analyzed along with the supporting documentation
                             - 30 -

     that you provided. You will be contacted by an offer
     specialist in the near future. I will maintain juris-
     diction of the case and all final decisions regarding
     this matter will be rendered by appeals. If you have
     any further questions regarding this correspondence, do
     not hesitate to call me.

     On August 2, 2005, the settlement officer forwarded peti-

tioner’s June 24, 2005 offer-in-compromise and petitioner’s June

24, 2005 Form 433-A to the IRS offer-in-compromise unit.

     Around August 4, 2005, respondent assigned an offer-in-

compromise specialist other than the first offer specialist to

investigate petitioner’s June 24, 2005 offer-in-compromise and

petitioner’s June 24, 2005 Form 433-A.

     On September 1, 2005, the offer-in-compromise specialist

(second offer specialist) with the IRS offer-in-compromise unit

assigned to investigate petitioner’s June 24, 2005 offer-in-

compromise and petitioner’s June 24, 2005 Form 433-A made the

following pertinent entries in the “integrated collection system

history transcript”:

          Initial Review: TP is making a DPO of $139,777 at
     $1,664 in 84 payments to compromise approx $264,457
     sole liability, on the basis of DATC.

        *       *       *       *        *      *       *

     - Special Circumstances: doubt as to collectibility,
     because TP is 70-yr-old and his law practice is declin-
     ing.
     - Funding for the offer: Liquidation of assets and
     borrowing.

        *       *       *       *       *       *       *
          TP is unmarried 70-yr old practicing attorney,
     with no health issues and a household of 2 (18-yr old
                               - 31 -

     son) in Wash D.C. * * * Claims income of 4342 vs 5659
     living expenses. However, TP reported AGI of 87,163 in
     ‘04; 345,165 in ‘03; 216,074 in ‘02.
          CONCLUSION: Does not appear to be a valid offer
     on the basis of DATC: not everything is on the table,
     and his income and residence seem extravagant. Next
     step: do preliminary investigation and if RCP exceed
     liability of 264,457, conclude investigation and report
     findings to Appeals.

        *         *      *          *     *        *        *

     * * * Claims declining income, but no evidence provided
     and research indicates “fluctuating” income. [Repro-
     duced literally.]

     On September 6, 2005, the second offer specialist sent

petitioner a letter (second offer specialist’s September 6, 2005

letter).    In that letter, the second offer specialist stated in

pertinent part:

     I have been assigned to investigate your offer in
     compromise dated 06/24/2005. I have completed a pre-
     liminary analysis of your offer, after reviewing the
     information you provided. My analysis shows that you
     have the ability to pay your liability in full within
     the time provided by law, based on the following compu-
     tations:

            Total net equity in assets:       $372,231.00
            Total future income value:        $607,296.00
            Total ability to pay:             $979,527.00
            Balance due (as of 08/15/2005)    $264,457.49
            Amount you offered:               $139,776.00

     Copies of my worksheets are enclosed for you[r] review.
     If you disagree, you may provide additional documenta-
     tion showing that the figures are incorrect. You may
     also provide any other information you believe I should
     consider in making my recommendation as to whether to
     accept your offer.
                                                     - 32 -

     Please respond by September 19, 2005, or I will proceed
     with my recommendation that your offer not be accepted.

     If you have any questions or need more information,
     please contact me at the address or the telephone
     number listed below:

              *              *             *               *          *              *       *

     A copy of this letter with all enclosures is being
     provided to your Power of Attorney, Mr. Silverberg, and
     to the Appeals Officer controlling your case.

     The second offer specialist enclosed with the second offer

specialist’s September 6, 2005 letter the following so-called

Asset/Equity Table:

                                          ASSET/EQUITY TABLE (AET)
                                               (Rev. 10-2002)
                                                   Quick Sale                 Encumbrances       Net
                                 Fair Market                    Quick Sale
             ASSETS                                 Reduction                      or        Realizable
                                    Value                          Value
                                                   Percentage                  Exemptions      Equity

     1. Cash/Bank Accounts         $1,517.00                                                  $1,517.00


                             *       *         *           *     *        *      *
                      ***
     5. Real Estate              $995,714.00           0        $995,714.00    $625,000.00   $370,714.00
     6. Furniture/Personal          ???
       Effects
     7. Vehicles

     8. Accounts                    ???
       Receivable

                             *       *         *           *     *        *      *
     Business Interest              ???

                             *       *         *           *     *        *      *
     Future Income Value (see Income and Expense Table (IET) attached)                       $607,296.00
             TOTAL MINIMUM VALUE                                                             $979,527.00


                             *       *         *           *     *        *      *

     REMARKS: *** Encumbrances not documented -- subject to further valuation.
              ??? Information not disclosed -- subject to further valuation


The second offer specialist also enclosed with the second offer

specialist’s September 6, 2005 letter the following so-called

Income/Expense Table:
                                                 - 33 -

                                    INCOME/EXPENSE TABLE (IET)
                                          (Rev. 1-2001)

The Internal Revenue Service uses established National and Local standards for necessary living
expenses when considering Offers in Compromise. Only necessary living expenses will be
allowed. Other expenses, such as charitable contributions, education, credit cards, and
voluntary retirement allotments are generally not considered as necessary living expenses.

               Total Income                                    Necessary Living Expenses

          Source                Gross                                             Claimed      Allowed

31. Wages/Salaries (T/P)      $16,903.00         42. National Standard               $0.00    $1,280.00
                                                 Expenses

32. Wages/Salaries                   $0.00       43. Housing and Utilities        $3,464.00   $1,318.00
(Spouse)

33. Interest                         $0.00       44. Transportation                  $0.00        $0.00

34. Net Business Income              $0.00       45. Health care                     $0.00        $0.00
(from Form 433-B)

35. Rental Income               $296.00          46. Taxes                           $0.00    $1,450.00

36. Pension (Taxpayer)          $145.00          47. Court ordered payments       $2,195.00   $2,195.00

37 Pension (Spouse)                  $0.00       48. Child/dependent care            $0.00        $0.00

38. Child Support                    $0.00       49. Life Insurance                  $0.00        $0.00

39. Alimony                          $0.00       50. Secured or legally-             $0.00        $0.00
                                                 perfected debts (specify)

40. Other - Social            $1,551.00          51. Other -                         $0.00        $0.00
Security

                          *     *            *        *        *         *    *

41. Total Income              $18,895.00         52. Total Expenses               $5,659.00   $6,243.00

                                                   (Line 41 minus Line 52) NET DIFFERENCE     $12,652.00

53.   Net difference times (a,b or c) = Amount that could be paid from future income:

Net difference = $12,652.00     Months           Amount that could be paid = $607,296.00
                                  48

a) If taxpayer is making a cash offer (offering to pay in 90 days or less) multiply the amount
in line 53 times 48 or the number of months remaining in the statute.
b) If the taxpayer is making a short term deferred payment offer (offering to pay within 2
years) multiply the amount in line 53 times 60 months or times the number of months remaining
in the statute, whichever is shorter.
c) If the taxpayer is making a deferred payment offer (offering to pay over the life of the
statute), use the Deferred Payment Chart to determine the number of months.

The total offer must equal the sum of the equity in assets and the amount that could be paid
from future income unless special circumstance considerations have been approved.

NOTES:
Line 42 National Standard expenses: Maximum allowable by IRS National Expense Standard for
food, housekeeping supplies, apparel and services, and personal care products, based upon gross
monthly income and number of persons in the household.

Line 43 Housing & Utilities expenses: Housing and utility expenses are limited to standards
established for the county of residence and the number of household members.

Line 44 Transportation expenses: Transportation expenses are limited to the standards
established for zero, one or two vehicles, and to a maximum allowable amount for lease or
purchase of one or two vehicles.

Line 31 Wages based on 3-yr average.
Line 35 Rental income, after adjusting for depreciation expense claimed on Schedule E
Line 46 Taxes based on last record of Fed, State, FICA, Medicare paid or withheld.
Line 47 Court ordered payments tentatively allowed, subject to itemization and proof of
payments.
                               - 34 -

       Petitioner did not respond by September 19, 2005, to the

second offer specialist’s September 6, 2005 letter.    On September

20, 2005, the second offer specialist returned petitioner’s June

24, 2005 offer-in-compromise to the settlement officer and

recommended that it not be accepted.

       On September 23, 2005, Mr. Silverberg sent a note by facsim-

ile to the settlement officer and the second offer specialist.

In that note, Mr. Silverberg stated in pertinent part:

       I am writing to request an extension of time until
       October 14 for Mr. Lloyd to respond to * * * [the
       second offer specialist’s] letter of 9/6/05. My sched-
       ule has been full and I have until now been unable to
       confer with him about providing additional information
       for you to consider. Thank you in advance for your
       consideration.

       On September 27, 2005, Mr. Silverberg sent another note by

facsimile to the settlement officer and the second offer special-

ist.    In that note, Mr. Silverberg stated in pertinent part:

       Please grant Mr. Lloyd additional time to get back to
       you through * * *, his accountant. * * * [petitioner’s
       accountant] will be sending you a new Power of Attorney
       to discuss both Henry M. Lloyd PC and Mr. Lloyd’s
       individual accounts. If you have any questions before
       receiving the new Power, please contact me.

       On November 9, 2005, the settlement officer sent a letter to

petitioner.    In that letter, the settlement officer stated in

pertinent part:

       I have scheduled a telephone conference call for you on
       December 6, 2005 at 10:00AM. This call will be your
       CDP hearing.
                              - 35 -

     Please call me at * * * the date and time indicated
     above.

     Your offer in compromise will not be recommended for
     acceptance and we need to discuss other alternatives
     [sic] means for payment such as full payment or an
     installment agreement.

     On November 14, 2005, at 1:02 p.m., Stephen P. Kauffman (Mr.

Kauffman) sent a letter by facsimile to the settlement officer

(Mr. Kauffman’s first November 14, 2005 letter).       In that letter,

Mr. Kauffman stated in pertinent part:

                    Re:   Henry M. Lloyd * * *
                          Henry M. Lloyd, P.C. * * *

          *     *         *      *       *         *         *

          I have been retained to represent the above-refer-
     enced taxpayers in matters pending before the Internal
     Revenue Service. Enclosed you will find two (2) powers
     -of-attorney, form 2848, pursuant to which these tax-
     payers have authorized me to represent them.[21] I
     understand that a Collection Due Process Hearing is
     currently scheduled for December 6, 2005 at 10:00 a.m.
     to review levies that have been issued to Mr. Lloyd
     personally, and that offers-in-compromise are pending
     for both taxpayers. Earlier today, I sent you a copy
     of a CDP request I filed in connection with levies
     issued to Henry M. Lloyd, PC.

          * * * I am planning to contact * * * the [second]
     Offer Specialist assigned to determine the RCP of these
     matters to discuss his calculations. * * *




     21
      Only Form 2848, Power of Attorney and Declaration of
Representative (Form 2848), appointing Mr. Kauffman as the
attorney-in-fact for petitioner is attached to the copy of Mr.
Kauffman’s first November 14, 2005 letter that is in the record.
Form 2848 appointing Mr. Kauffman as the attorney-in-fact for
Henry M. Lloyd, P.C., is not attached to the copy of Mr.
Kauffman’s first November 14, 2005 letter that is in the record.
                                  - 36 -

          Because I have just been retained, I have an open
     mind about this case, and will be happy to discuss with
     you any and all resolutions which you might consider
     appropriate, giving due consideration, of course, to
     Mr. Lloyd’s advanced age and what I consider to be
     limited earning ability.

     On November 14, 2005, at 4:51 p.m., Mr. Kauffman sent

another letter by facsimile to the settlement officer.     In that

letter, Mr. Kauffman stated in pertinent part:

                    Re:       Henry M. Lloyd * * *
                              Henry M. Lloyd, P.C. * * *

        *       *         *         *       *       *      *

          I want to thank you for your prompt reply to the
     letter I sent you earlier this morning. This letter is
     written to confirm our conversations this afternoon.
     Because I have just been retained, let me summarize my
     understanding of the status of the above-referenced
     matters in the remainder of this letter. Please re-
     spond to this letter only if my summary is incorrect.

          I understand that offers-in-compromise were sub-
     mitted for Henry M. Lloyd (“Mr. Lloyd”) and Henry M.
     Lloyd, P.C. (the “PC”). After the PC’s offer was
     formally rejected, it filed an appeal. Sometime in
     August of this year, the PC’s appeal was rejected, and
     the PC’s delinquency is now back in collection.

          In contrast, Mr. Lloyd’s offer has not yet been
     formally rejected; however, I understand that you do
     intend to reject it, but not until after we speak on
     December 6th. When you reject Mr. Lloyd’s offer, you
     will send a formal written notice of rejection and
     appeal rights. I also understand that * * * [the
     second offer specialist] is no longer working the case
     at this time.

          On December 6th, we will discuss Mr. Lloyd’s
     pending request for due process hearing, and potential
     alternative approaches to resolving the PC’s and Mr.
     Lloyd’s tax delinquencies.
                              - 37 -

     On December 6, 2005, the settlement officer held a tele-

phonic conference with Mr. Kauffman.   The settlement officer made

the following pertinent entries in her “Case Activity Records”

with respect to that conference:

     Telephone conference with POA Mr.Kauffman. We dis-
     cussed the OIC and I explained taxpayer RCP is close to
     1 million dollars. He wanted to know if the taxpayer
     obtain the equity in his real property would I recom-
     mend acceptance of the offer. This request was denied
     because it appears taxpayer can enter into an install-
     ment agreement at a rate of $12,000.00 a month. he
     stated that the taxpayer is elder and his business is
     no longer at a high point. I explained he is still
     working and in good health. We average his last three
     years to determine his monthly income. We discussed
     the one-year rule in allowing expenses. He requested a
     copy of the 433A and the O/S worksheet computation. He
     requested time to discuss with client and telephone
     conference scheduled for 12/16/2005 @ 10:00AM. Infor-
     mation faxed to POA. [Reproduced literally.]

     On December 15, 2005, Mr. Kauffman sent a letter to the

settlement officer via facsimile (Mr. Kauffman’s December 15,

2005 letter).   In that letter, Mr. Kauffman stated in pertinent

part:

          This letter is written as a follow-up to our
     several telephone conversations, and in anticipation of
     our telephone conference tentatively scheduled for
     Friday afternoon. Up to this time, the focus of our
     discussions has been on Mr. Lloyd’s income, and specif-
     ically how to calculate his average monthly income in a
     fair fashion. Enclosed with this letter are the in-
     come/expense table which you were kind enough to fax me
     last week, and a spreadsheet analysis of Mr. Lloyd’s
     income which I have prepared. Before addressing the
     enclosed spreadsheet analysis, a few observations about
     Mr. Lloyd’s income are in order.

          Mr. Lloyd, who is an attorney engaged in the
     private practice of law, will be 71 this March. The
                          - 38 -

cases handles are virtually all contingent fee cases.
This means he doesn’t make a cent unless and until his
client recovers, at which time he receives a percentage
of the recovery. A contingent fee practice is very
risky for an attorney, for a variety of reasons.
Sometimes you lose, in which case you recover nothing.
Sometimes you win, but much less than what you hoped
for. Sometimes you win a big judgment against a defen-
dant who doesn’t have any money, in which case you
recover nothing. Sometimes you win, but only after
year and years of hard work, during which time you are
spending your own money to advance your client’s case.

     In Mr. Lloyd’s case, he is the only employee of
Henry M. Lloyd, P.C., a professional corporation which
he owns. Each year the corporation pays all of its net
income before salary to Mr. Lloyd as his salary.
Consequently, each year, the corporation has no net
income and all of the net income from Mr. Lloyd’s law
practice is reported by Mr. Lloyd on his personal
income tax return.

     The income/expense table was prepared on September
2, 2005, which means that it probably covered the
three-year period September 1, 2002 through August 31,
2005. These were the three best years Mr. Lloyd has
had in the past twelve years. In contrast and as
discussed below, my enclosed analysis looks at Mr.
Lloyd’s income for the previous 7 and 12 year periods.

     As you can see, for the past 7 years, Mr. Lloyd
earned nothing from his law practice for the years
1998, 1999, 2000, and 2001. If his average income had
been computed for that four year period, it would have
been zero. As it stands, his average monthly income
for the seven year period is only $2,548.[22]

     Mr. Lloyd’s income for the past 12 years is
better, but only marginally so, and certainly nowhere
near as good as the income reflected on the income/
expense table. In fact, for the 12 year period ending
in 2004, Mr. Lloyd’s average monthly is only $5,435,[22]
which is less than 1/3 of the average monthly income
reflected on the income/expense table.



22
     See infra note 32.
                             - 39 -

          As this analysis demonstrates, this is the type of
     case where it would be unfair and misleading to calcu-
     late average monthly income over only 3 years, because
     income which is essentially earned over a much longer
     period is bunched into one or two tax years. Further-
     more, nowhere in the Code, the Regulations, or the
     Internal Revenue Manual is a Revenue Officer such as
     yourself constrained to average income over only three
     years. IRM 5.8.5.5 identifies a number of situations
     which “may warrant placing a different value on future
     income than current or past income indicates.” One
     such situation is where “a taxpayer has a sporadic
     employment history or fluctuating income,” in which
     case the revenue officer is directed to “average earn-
     ings over several prior years.” Although the IRM does
     indicate this is “usually . . . the prior 3 years,” it
     does not and should not indicate that this is always
     the case, particularly in a situation such as this one
     where blind adherence to that rule would be patently
     unfair.

     Mr. Kaufmann enclosed with Mr. Kauffman’s December 15, 2005

letter a copy of the Income/Expense Table that the second offer

specialist enclosed with the second offer specialist’s September

6, 2005 letter and the following “Analysis of Gross Income” of

petitioner:
                             - 40 -

                 12 year analysis
                   Gross    Cum. Tax.    Average    Cum. Avg.
          Year    Income      Income     Monthly     Monthly
     1    1993      55,000      55,000      4,583       4,583
     2    1994      52,000     107,000      4,333       4,458
     3    1995     110,100     217,100      9,175       6,031
     4    1996      85,000     302,100      7,083       6,294
     5    1997      98,000     400,100      8,167       6,668
     6    1998         -       400,100        -         5,557
     7    1999         -      400,100        -           4,763
     8    2000         -      400,100        -           4,168
  9       2001         -      400,100        -           3,705
 10       2002     200,000    600,100     16,667         5,001
 11       2003     329,151    929,251     27,429         7,040
 12       2004      71,842 1,001,093       5,987          6,952
                                                     [23]
         12 Year average monthly                          5,435


                 7 year analysis
                   Gross    Cum. Tax.    Average    Cum. Avg.
          Year    Income      Income     Monthly     Monthly
     1    1998         -           -          -           -
     2    1999         -           -          -           -
     3    2000         -           -          -           -
     4    2001         -           -          -           -
     5    2002     200,000    200,000     16,667         3,333
     6    2003     329,151    529,151     27,429         7,349
     7    2004      71,842    600,993      5,987         7,155
                                                     [23]
         7 year average monthly                          2,548




23
     See infra note 32.
                                 - 41 -

                     3 year analysis
                       Gross    Cum. Tax.      Average    Cum. Avg.
              Year    Income      Income       Monthly     Monthly
         1    2002     200,000     200,000       16,667      16,667
         2    2003     329,151    529,151       27,429        22,048
         3    2004      71,842    600,993        5,987        16,694
                                                          [24]
             3 year average monthly                            18,470

     On December 16, 2005, the settlement officer held a tele-

phonic conference with Mr. Kauffman.         The settlement officer made

the following pertinent entries in her “Case Activity Records”

with respect to that conference:

     POA had faxed a chart requesting that we use the last
     seven years to compute the income of the taxpayer. I
     explained I would use the last three years because
     these years truly reflect the high and low end of his
     client’s income. He stated he will talk to his client
     and request the case be returned to compliance. A
     determination letter will be issued * * *

     On February 8, 2006, the Appeals Office issued to petitioner

a notice of determination with respect to petitioner’s unpaid

liabilities for 1990, 1991, 1992, 1994, 1996, 1997, and 2002.

That notice stated in pertinent part:

    Summary of Determination
    Your offer in compromise was not recommended for accep-
    tance because our computation indicates you have the
    ability to full[y] pay. We discussed the possibility
    of an installment agreement and you disagree with the
    monthly payment amount. We did not discuss any other
    alternatives for payment. Based on the evidence in the
    case file the District’s decision to issue the Final
    Notice-Notice of Intent to Levy and Notice of your
    Right to a hearing is sustained.



    24
         See infra note 32.
                                  - 42 -

An attachment to the notice of determination stated in pertinent

part:

     I.    Verification of Legal and Procedural Requirements

     With the best information available, the requirements
     of various applicable law or administrative procedures
     have been met.

     IRC Section 6331(d) requires the taxpayer be notified
     at least 30 days before a notice of levy can be issued.
     The 30-day letter was sent on tax years ending
     12/31/1990, 12/31/1991, 12/31/1992, 12/31/1994,
     12/31/1996, 12/31/1997 and 12/31/2002 on February 7th
     2005.

          *        *        *       *       *       *      *

     IRC 6330(c) allows the taxpayer to raise any relevant
     issues relating to the unpaid tax or the proposed levy
     at the hearing.

     This Settlement Officer has had no prior involvement
     with respect to these liabilities.


                   II.   Issues Raised by the Taxpayer

               Challenges to the Amount of the Liability

     You did not challenge the amount of the liability.

        III.   Balancing Efficient Collection and Intrusiveness

     IRC section 6330 require[s] that the Settlement Officer
     consider [whether] the collection action balances the
     need for efficient collection of taxes with the tax-
     payer’s legitimate concern that any collection action
     be no more intrusive than necessary.

     Collection alternatives include full payment, install-
     ment agreement, offer in compromise and temporary
     suspension of collection based on financial hardship.
     You submitted an offer in compromise and it was deter-
     mined you had the ability to pay the taxes and your
     offer was recommended for rejection. We also discussed
     an installment agreement but you were not in agreement
                               - 43 -

     with the monthly payment amount.   No further alterna-
     tives were discussed.

     The rejection of your offer was based on the following:

     Monthly income:
      Wages:             $16,903.00- Based on 3 year average
      Rental Income:         296.00
      Pension:               145.00
      Social Security:     1,551.00
     Total Monthly Income:           $18,895.00


     Allowable Monthly Expenses:
     National Standards:     $1280.00
     Housing/utilities:       1318.00
     Taxes:                   1450.00
     Court-ordered payments: 2195.00
     Total Expenses:                    $6243.00

     Excess Monthly:                               $12,652.00

     Assets:

     Bank Accounts:                                  $   1517.00
     Real Estate:
     Fair Market Value: $995,714.00
     Quick Sale Value:   796,571.20-80%
     Encumbrances: Not documented
     Equity:                                         796,571.20

     Total Net Realizable Equity:                   $798,088.20

     Future Income:    (12,652 x 48)                 607,296.00

     Reasonable Collection Potential:           $1,405,384.20

     Based on the evidence in the case file the District’s
     decision to issue the Final Notice-Notice of Intent to
     Levy and Notice of your Right to a Hearing is sus-
     tained.

The notice of determination made no determination with respect to

the notice of Federal tax lien filed with respect to petitioner’s

taxable years 1990 through 1992, 1994, 1996, and 2002.      See supra
                              - 44 -

note 17 and accompanying text and note 18.

                            Discussion

     The Court may grant summary judgment where there is no

genuine issue of material fact and a decision may be rendered as

a matter of law.   Rule 121(b); Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).    We

conclude that there are no genuine issues of material fact

regarding the questions raised in respondent’s motion.

     A taxpayer may raise challenges to the existence or the

amount of the taxpayer’s underlying tax liability if the taxpayer

did not receive a notice of deficiency or did not otherwise have

an opportunity to dispute such liability.    Sec. 6330(c)(2)(B).

     In petitioner’s response, petitioner does not dispute the

existence or the amount of petitioner’s unpaid liabilities for

1990, 1991, 1992, 1994, 1996, 1997, and 2002.25   Where, as is the

case here, the validity of the underlying tax liability is not

properly placed at issue, the Court will review the determination

of the Commissioner of Internal Revenue (Commissioner) for abuse



     25
      In fact, petitioner does not advance in petitioner’s
response any arguments with respect to the existence or the
amount of petitioner’s unpaid liabilities for 1990, 1991, 1992,
1994, 1996, 1997, and 2002. Assuming arguendo that petitioner
were disputing in petitioner’s response the existence or the
amount of petitioner’s unpaid liabilities for those years, on the
record before us, we find that petitioner may not challenge the
existence or the amount of those liabilities. That is because
petitioner did not do so at the Appeals Office hearing. See
Washington v. Commissioner, 120 T.C. 114, 123-124 (2003).
                               - 45 -

of discretion.   See Sego v. Commissioner, 114 T.C. 604, 610

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

     In petitioner’s response, petitioner advances three princi-

pal arguments in support of his position that respondent abused

respondent’s discretion in making the determinations in the

notice of determination.   We turn to petitioner’s first principal

argument.    In petitioner’s response, petitioner argues in perti-

nent part:

          On September 6, 2004, an IRS Offer Specialist
     [first offer specialist] determined that the Peti-
     tioner’s Reasonable Collection Potential (“RCP”) was
     only $139,707,[26] and the Petitioner promptly submitted
     an offer to compromise for this amount.

          Thereafter, in violation of applicable provisions
     of the Code, Regulations, and its own Manual, the


     26
      In the first offer specialist’s September 6, 2004 letter,
the first offer specialist indicated that he had adjusted peti-
tioner’s offer figure to $139,766 to reflect, inter alia, as-
sessed Federal excise tax for the tax periods ended Dec. 31,
1991, and Dec. 31, 1992. See Internal Revenue Manual (IRM) pt.
5.8.1.7(1); 5.8.2.3.1(2) (May 15, 2004). Petitioner’s September
29, 2004 offer-in-compromise, which was investigated by the first
offer specialist, did not include such excise tax in the liabili-
ties with respect to which petitioner submitted that offer and
offered $139,707, and not $139,766, to compromise the liabilities
that that offer was submitted to compromise. After the settle-
ment officer indicated during the June 7, 2005 telephonic discus-
sion that petitioner was required to submit a new offer-in-
compromise, petitioner submitted petitioner’s June 24, 2005
offer-in-compromise. Petitioner’s June 24, 2005 offer-in-compro-
mise offered $139,776 to compromise the liabilities that that
offer was submitted to compromise and included Federal excise tax
for the tax periods Dec. 31, 1991, and Dec. 31, 1992, in the
liabilities with respect to which petitioner submitted that
offer. With the exception of those differences, the September
29, 2004 offer-in-compromise and the June 24, 2005 offer-in-
compromise are identical.
                              - 46 -

     Service returned the offer in error (for an alleged
     underpayment of a small estimated tax penalty which the
     Petitioner disputed) and issued levies. The Petitioner
     then filed a CDP hearing request.

          Upon receipt of the CDP hearing request, the
     Settlement Officer abused her discretion by requiring
     the Petitioner to submit a new offer, instead of rein-
     stating the existing offer as required by Regulation
     §301.6330-1(e)(1). On September 6, 2005, exactly one
     year after the first RCP determination * * * a second
     IRS Offer Specialist looking at the same financial
     information determined that the Petitioner’s RCP was
     $979,527.

     Although not altogether clear, it appears that petitioner is

arguing that the settlement officer abused the settlement offi-

cer’s discretion by (1) not accepting as petitioner’s reasonable

collection potential (RCP) the amount calculated by the first

offer specialist in connection with petitioner’s September 29,

2004 offer-in-compromise and (2)(a) instead requiring petitioner

to submit a new, updated offer-in-compromise (i.e., petitioner’s

June 24, 2005 offer-in-compromise) accompanied by a new, updated

Form 433-A (i.e., petitioner’s June 24, 2005 Form 433-A) and

(b) determining as petitioner’s RCP an amount different from the

amount of petitioner’s RCP that the first offer specialist

determined.

     In support of the foregoing argument, petitioner relies on

section 301.6330-1(e)(1), Proced. & Admin. Regs., as in effect

with respect to requests for Appeals Office hearings made before

November 16, 2006.   That regulation provided:
                              - 47 -

          (e) Matters considered at CDP hearing.--(1) In
     general.--Appeals has the authority to determine the
     validity, sufficiency, and timeliness of any CDP Notice
     given by the IRS and of any request for a CDP hearing
     that is made by a taxpayer. Prior to issuance of a
     determination, the hearing officer is required to
     obtain verification from the IRS office collecting the
     tax that the requirements of any applicable law or
     administrative procedure have been met. The taxpayer
     may raise any relevant issue relating to the unpaid tax
     at the hearing, including appropriate spousal defenses,
     challenges to the appropriateness of the proposed
     collection action, and offers of collection alterna-
     tives. The taxpayer also may raise challenges to the
     existence or amount of the tax liability specified on
     the CDP Notice for any tax period shown on the CDP
     Notice if the taxpayer did not receive a statutory
     notice of deficiency for that tax liability or did not
     otherwise have an opportunity to dispute that tax
     liability. Finally, the taxpayer may not raise an
     issue that was raised and considered at a previous CDP
     hearing under section 6320 or in any other previous
     administrative or judicial proceeding if the taxpayer
     participated meaningfully in such hearing or proceed-
     ing. Taxpayers will be expected to provide all rele-
     vant information requested by Appeals, including finan-
     cial statements, for its consideration of the facts and
     issues involved in the hearing.

     Petitioner’s reliance on the above-quoted regulation is

misplaced.   We find (1) no requirement in that regulation that

the Appeals Office use as a taxpayer’s RCP an amount of RCP

previously determined by respondent’s collection division and

(2) no prohibition in that regulation on the Appeals Office’s

requiring a taxpayer to submit a new, updated offer-in-compromise

accompanied by a new, updated Form 433-A.27


     27
      Part 5.8.5.2.2 of the IRM (Nov. 15, 2004) requires any
agent of the Commissioner who investigates an offer-in-compromise
to request updated financial information from the taxpayer if the
                                                   (continued...)
                              - 48 -

     In advancing his first principal argument, petitioner makes

a related argument that respondent should not have returned to

petitioner petitioner’s September 29, 2004 offer-in-compromise.

In support of that related argument, petitioner relies on section

301.7122-1(d)(2), Proced. & Admin. Regs.28   In the first offer


     27
      (...continued)
information submitted with such an offer is older than 12 months
or if there is any reason to believe the taxpayer’s situation may
have significantly changed. That part 5.8.5.2.2 of the IRM
provides:

     (1)   Collection Information Statements (CIS) submitted
           with an offer in compromise should reflect infor-
           mation no older than the prior six months. If
           during the processing of the offer, the financial
           information becomes older than 12 months, contact
           should be made with the taxpayer to update the
           information. However, in certain situations in-
           formation may become outdated due to significant
           processing delays caused by the Service, through
           no fault of the taxpayer. In those cases, it may
           be appropriate to rely on the outdated information
           if there is no indication the taxpayer’s overall
           situation has significantly changed. Judgment
           should be exercised to determine whether, and to
           what extent, updated information is necessary. If
           there is any reason to believe the taxpayer’s
           situation may have significantly changed, secure a
           new CIS.

When petitioner submitted petitioner’s September 29, 2004 offer-
in-compromise in early October 2004, his 2003 return and his 2004
return were not due to have been filed. When the settlement
officer sent a letter to petitioner on May 24, 2005, with respect
to petitioner’s Form 12153, in which the settlement officer,
inter alia, requested updated financial information from peti-
tioner to be presented in a new Form 433-A, petitioner’s 2003
return and his 2004 return were due to have been filed.
     28
      Sec. 301.7122-1(d)(2), Proced. & Admin. Regs., provides in
pertinent part:
                                                   (continued...)
                             - 49 -

specialist’s September 6, 2004 letter, the first offer specialist

informed petitioner that his offer-in-compromise had to be

perfected to reflect Federal excise tax assessed for the tax

periods ended December 31, 1991, and December 31, 1992.   In the

first offer specialist’s September 15, 2004 letter, the first

offer specialist informed petitioner (1) that an offer-in-

compromise may be returned where there is insufficient Federal

income tax withheld or paid and (2) that respondent’s records

indicated that insufficient Federal income tax had been withheld

with respect to petitioner’s taxable year 2003.

     The first offer specialist and Mr. Silverberg had a tele-

phonic discussion on September 17, 2004.   On October 1, 2004, the

first offer specialist left a voice mail for Mr. Silverberg.

Thereafter, Mr. Silverberg sent Mr. Silverberg’s October 1, 2004

letter to the first offer specialist and enclosed with that



     28
      (...continued)
     If an offer accepted for processing does not contain
     sufficient information to permit the IRS to evaluate
     whether the offer should be accepted, the IRS will
     request that the taxpayer provide the needed additional
     information. If the taxpayer does not submit the
     additional information that the IRS has requested
     within a reasonable time period after such a request,
     the IRS may return the offer to the taxpayer. The IRS
     may also return an offer to compromise a tax liability
     if it determines that the offer was submitted solely to
     delay collection or was otherwise nonprocessable. An
     offer returned following acceptance for processing is
     deemed pending only for the period between the date the
     offer is accepted for processing and the date the IRS
     returns the offer to the taxpayer. * * *
                                 - 50 -

letter petitioner’s September 29, 2004 offer-in-compromise.29

That offer-in-compromise did not offer to compromise the Federal

excise tax with respect to the tax periods ended December 31,

1991, and December 31, 1992, to which the first offer specialist

referred in the first offer specialist’s September 6, 2004

letter.30     On November 3, 2004, respondent’s collection division

sent a letter to petitioner in which respondent stated:     “Our

records indicate the following period(s) was/were not included:

Excise tax for 1991 and 1992 tax periods.”31     On the record


     29
      The record does not indicate whether Mr. Silverberg re-
sponded in Mr. Silverberg’s October 1, 2004 letter to all of the
requests that the first offer specialist made to Mr. Silverberg.
     30
      In contrast, petitioner’s June 24, 2005 offer-in-
compromise offered to compromise not only petitioner’s unpaid
liabilities for 1990, 1991, 1992, 1994, 1996, 1997, and 2002 but
also the Federal excise tax for the tax periods ended Dec. 31,
1991, and Dec. 31, 1992.
     31
          Respondent’s November 3, 2004 letter further stated:

          We are returning your Form 656, Offer in Compro-
     mise for the following reasons(s):

          All tax periods with a balance due must be in-
     cluded in your Offer in Compromise. Our records indi-
     cate the following period(s) was/were not included:
     Excise tax for 1991 and 1992 tax periods.

          If a deposit was made with the offer, we will mail
     the refund separately in four to six weeks.

          If you believe the return of your offer was made
     in error, or your failure to provide the information/
     substantiation we requested was due to circumstances
     beyond your control (your serious illness, death or
     serious illness of your immediate family member, or
                                                   (continued...)
                             - 51 -

before us, we conclude that respondent complied with section

301.7122-1(d)(2), Proced. & Admin. Regs., when respondent re-

turned to petitioner petitioner’s September 29, 2004 offer-in-

compromise.

     On the record before us, we find that the settlement officer

did not abuse the settlement officer’s discretion by (1) not

accepting as petitioner’s RCP the amount calculated by the first

offer specialist in connection with petitioner’s September 29,

2004 offer-in-compromise and (2)(a) instead requiring petitioner

to submit a new, updated offer-in-compromise (i.e., petitioner’s

June 24, 2005 offer-in-compromise) accompanied by a new, updated

Form 433-A (i.e., petitioner’s June 24, 2005 Form 433-A) and

(b) determining as petitioner’s RCP an amount different from

petitioner’s RCP that the first offer specialist determined.

     We address next petitioner’s second principal argument.    In

petitioner’s response, petitioner argues that the settlement

officer abused the settlement officer’s discretion in calculating

petitioner’s RCP by using as the “future income” component of

that calculation an average of petitioner’s wage income for the


     31
      (...continued)
     disaster)[,] within 30 days from the date of this
     letter you may contact * * * [the first settlement
     officer] to request reconsideration of our decision to
     close your offer. You should be prepared to discuss
     specifics, provide verification of the circumstances
     beyond your control and provide the information previ-
     ously requested.
                             - 52 -

three-year period 2002 through 2004, instead of using an average

of petitioner’s wage income for the seven-year period 1998

through 2004 or the twelve-year period 1993 through 2004.32   In


     32
      In support of that argument, petitioner contends, and
respondent does not dispute, that petitioner had the following
wage income from his law practice for 1993 through 2004:

                           Year   Wage Income
                           1993      $55,000
                           1994       52,000
                           1995      110,100
                           1996       85,000
                           1997       98,000
                           1998        -
                           1999        -
                           2000         -
                           2001         -
                           2002       200,000
                           2003       329,151
                           2004        71,842

     Petitioner further contends that his average monthly wage
income for the seven-year period 1998 through 2004 was $2,548 and
that his average monthly wage income for the twelve-year period
1993 through 2004 was $5,435. We disagree. On the instant
record, we find that petitioner incorrectly calculated his
average monthly wage income for each of those periods. The
respective average monthly wage income amounts that petitioner
claims for the period 1998 through 2004 and the period 1993
through 2004 (as well as for the three-year period 2002 through
2004) are averages of cumulative averages of petitioner’s monthly
wage income for each of the years included in calculating those
respective average monthly wage income amounts. See supra text
accompanying notes 23 and 24. The use of those averages of
cumulative averages for the seven-year period 1998 through 2004
and for the twelve-year period 1993 through 2004, which places
significant emphasis on the years before 2002 that are included
in the respective calculations, is improper. The correct amount
of petitioner’s average monthly wage income for 1998 through 2004
is $7,154.68. The correct amount of petitioner’s average monthly
                                                   (continued...)
                               - 53 -

calculating the “future income” component of petitioner’s RCP on

the basis of the three-year period 2002 through 2004, the second

offer specialist first determined petitioner’s average monthly

income to be $18,895, consisting of (1) $16,903 of average

monthly wage income calculated by using an average of peti-

tioner’s wage income for the years 2002 through 200433 and

(2) other monthly income totaling $1,992.   The second offer

specialist then calculated petitioner’s “excess” monthly income

(i.e., $12,652) by subtracting allowed monthly necessary living

expenses (i.e., $6,243) from petitioner’s average monthly income

(i.e., $18,895).    Finally, the second offer specialist multiplied

petitioner’s “excess” monthly income ($12,652) by 48 months to

determine the “future income” component of petitioner’s RCP

(i.e., $607,296).

     The settlement officer reviewed the second offer special-

ist’s determination of petitioner’s RCP and agreed with, inter



     32
      (...continued)
wage income for 1993 through 2004 is $6,952.03.
     33
      The record does not disclose the basis for the second
offer specialist’s calculation of petitioner’s average monthly
wage income for 2002 through 2004 (i.e., $16,903). The monthly
average of the wage income that petitioner claims for 2002
through 2004 is $16,694.25. The Court is unable to reconcile the
difference between the monthly average of petitioner’s wage
income for 2002 through 2004 as calculated by the second offer
specialist and the monthly average of the wage income that
petitioner claims for 2002 through 2004. However, it is not
necessary to reconcile that difference in order to dispose of
respondent’s motion.
                                 - 54 -

alia, that specialist’s use of the three-year period 2002 through

2004 on which to calculate the “future income” component of such

RCP.    We believe that the second offer specialist’s calculation

of the “future income” component of petitioner’s RCP on the basis

of the three-year period 2002 through 2004, with which the

settlement officer agreed, is supported by part 5.8.5.5 of the

IRM (Sept. 1, 2005), which provides:

       5.8.5.5 * * * Future Income

       (1)    Future income is defined as an estimate of the
              taxpayers [sic] ability to pay based on an analy-
              sis of gross income, less necessary living ex-
              penses, for a specific number of months into the
              future. The number of months used depends on the
              payment terms of the offer.

              a.   For cash offers -- project for   the next 48
                   months.
              b.   For short term deferred offers   -- project for
                   the next 60 months.
              c.   For deferred payment offers --   project for
                   the number of months remaining   on the statu-
                   tory period for collection.

          *        *       *        *       *        *       *

       (3)    Consider the taxpayers [sic] overall general situ-
              ation including such facts as age, health, marital
              status, number and age of dependents, highest
              education or occupational training, and work expe-
              rience.

       (4)    Retired Debts -- A taxpayers [sic] ability to pay
              in the future may change during the period it is
              being considered because necessary expenses may
              increase or decrease. Adjust the amount or number
              of payments to be included in the future income
              calculation, based on the expected change in nec-
              essary expenses.
                         - 55 -

Example:   The taxpayer may pay off an auto loan 24
           months from the date the offer is accepted.
           This would increase the monthly future income
           by the amount of the loan payment. Child
           support payments may stop before the future
           income period is complete because the child
           turns a certain age. It is expected that
           these retired payments would increase the
           taxpayers [sic] ability to pay.

Note:      Inclusion of retired debt should not be added
           automatically in the calculation of the rea-
           sonable collection potential (RCP). The
           Offer Investigator should use judgment in
           determining whether inclusion of the retired
           debt is appropriate based on the facts of the
           case; such as special circumstance or Effec-
           tive Tax Administration (ETA) situations. In
           all instances, the case histories should be
           documented to support the inclusion and/or
           exclusion of the retired debt.

(5)   Some situations may warrant placing a different
      value on future income than current or past income
      indicates:
                                  - 56 -

      If...                              Then...

           *         *       *       *         *       *       *

      A taxpayer has a sporadic          Average earnings over
      employment history or              several prior years.
      fluctuating income                 Usually this is the prior
                                         3 years.
                                         Note: This practice does
                                         not apply to wage
                                         earners.
      A taxpayer is elderly, in          Adjust the amount or
      poor health, or both and           number of payments to the
      the ability to continue            expected earnings during
      working is questionable            the appropriate number of
                                         months. Consider special
                                         circumstance situations
                                         when making any
                                         adjustments.

           *         *       *       *         *       *       *


     (6)       Below are some examples on when it is and is not
               appropriate to income average. Judgment should be
               used in determining the appropriate time to apply
               income averaging on a case by case basis. All
               circumstances of the taxpayer should be considered
               when determining the appropriate application of
               income averaging, including special circumstance
               and Effective Tax Administration considerations.

      a.       The examples below are instances when income
               averaging may or may not be appropriate.

     Example:       A taxpayer is a commissioned sales person and
                    the income varies year to year. It would be
                    appropriate to income average in this case.
                    * * *

     Even if it were arbitrary for the settlement officer to have

agreed with and accepted the second offer specialist’s calcula-

tion of the “future income” component of petitioner’s RCP by

using petitioner’s average monthly wage income for the three-year
                              - 57 -

period 2002 through 2004, the settlement officer did not abuse

the settlement officer’s discretion in agreeing with the second

offer specialist that petitioner’s June 24, 2005 offer-in-

compromise should be rejected and in rejecting that offer.   That

is because part 5.8.1.1.3(3) of the IRM (Sept. 1, 2005) requires

that generally “a Doubt as to Collectibility * * * offer amount

must equal or exceed a taxpayers [sic] reasonable collection

potential (RCP) in order to be considered for acceptance.”   As

explained below, even if the period 1998 through 2004 or the

period 1993 through 2004 were used to determine petitioner’s

average monthly wage income and the “future income” component of

petitioner’s RCP, petitioner’s RCP nonetheless would exceed the

amount (i.e., $139,776) that petitioner offered in petitioner’s

June 24, 2005 offer-in-compromise to compromise, inter alia,

petitioner’s unpaid liabilities for 1990, 1991, 1992, 1994, 1996,

1997, and 2002.

     Part 5.8.1.1.3 of the IRM (Sept. 1, 2005) provides:

     5.8.1.1.3 * * * Policy

     (1)   Policy Statement P-5-100 states:

           The Service will accept an offer in compromise
           when it is unlikely that the tax liability can be
           collected in full and the amount offered reason-
           ably reflects collection potential. An offer in
           compromise is a legitimate alternative to declar-
           ing a case currently not collectible or to a pro-
           tracted installment agreement. The goal is to
           achieve collection of what is potentially collect-
           ible at the earliest possible time and at the
           least cost to the Government.
                              - 58 -


           In cases where an offer in compromise appears to
           be a viable solution to a tax delinquency, the
           Service employee assigned the case will discuss
           the compromise alternative with the taxpayer and,
           when necessary, assist in preparing the required
           forms. The taxpayer will be responsible for ini-
           tiating the first specific proposal for compro-
           mise.

           The success of the offer in compromise program
           will be assured only if taxpayers make adequate
           compromise proposals consistent with their ability
           to pay and the Service makes prompt and reasonable
           decisions. Taxpayers are expected to provide
           reasonable documentation to verify their ability
           to pay. The ultimate goal is a compromise which
           is in the best interest of both the taxpayer and
           the government. Acceptance of an adequate offer
           will also result in creating for the taxpayer an
           expectation of a fresh start toward compliance
           with all future filing and payment requirements.

     (2)   Offers will not be accepted if it is believed that
           the liability can be paid in full as a lump sum or
           through installment payments extending through the
           remaining statutory period for collection (CSED),
           unless special circumstances exist. See IRM 5.14,
           Installment Agreements.

     (3)   Absent special circumstances, a Doubt as to
           Collectibility (DATC) offer amount must equal or
           exceed a taxpayers [sic] reasonable collection
           potential (RCP) in order to be considered for
           acceptance.[34] The exception is that if special

     34
      The only reason that petitioner gave in petitioner’s June
24, 2005 offer-in-compromise for the IRS to accept petitioner’s
offer was “Doubt as to Collectibility”. Petitioner did not give
as a reason “Doubt as to Collectibility with Special Circum-
stance” or “Effective Tax Administration”. Consistent with the
general rule of part 5.8.1.1.3(3) of the IRM (Nov. 15, 2004) for
an offer-in-compromise based on “Doubt as to Collectibility”,
petitioner offered in petitioner’s June 24, 2005 offer-in-compro-
mise an amount ($139,776) that was greater than the amount of
petitioner’s RCP ($139,707) that petitioner claims the first
offer specialist determined in September 2004. Assuming arguendo
                                                   (continued...)
                             - 59 -

          circumstances exist as defined in IRM 5.8.4.3,
          Effective Tax Administration and Doubt as to
          Collectibility with Special Circumstance, or IRM
          5.8.11, Effective Tax Administration, the offer
          may be accepted on the basis of hardship or Effec-
          tive Tax Administration (ETA).[35]

     Assuming arguendo, as petitioner argues, that the “future

income” component of petitioner’s RCP should have been calculated

by using his average monthly wage income for the seven-year



     34
      (...continued)
that petitioner had based petitioner’s June 24, 2005 offer-in-
compromise on “Doubt as to Collectibility with Special Circum-
stance” or “Effective Tax Administration”, on the record before
us, we find that the settlement officer did not abuse the settle-
ment officer’s discretion in concluding that that offer-in-
compromise should be rejected on those grounds. Although peti-
tioner was 70 years old in September 2005 when the settlement
officer (and the second offer specialist) was considering peti-
tioner’s June 24, 2005 offer-in-compromise, petitioner was still
practicing law and did not claim that he had any health issues.
     35
      See Murphy v. Commissioner, 125 T.C. 301, 309 (2005),
affd. 469 F.3d 27 (1st Cir. 2006), where we stated:

     Special circumstances are (1) circumstances demonstrat-
     ing that the taxpayer would suffer economic hardship if
     the IRS were to collect from him an amount equal to the
     reasonable collection potential of the case or (2) if
     no demonstration of such suffering can be made, circum-
     stances justifying acceptance of an amount less than
     the reasonable collection potential of the case based
     on public policy or equity considerations. IRM pt.
     5.8.4.3.4 (Sept. 1, 2005) (Effective Tax Administration
     and Doubt as to Collectibility with Special Circum-
     stances). To demonstrate that compelling public policy
     or equity considerations justify a compromise, the
     taxpayer must be able to demonstrate that, due to
     exceptional circumstances, collection of the full
     liability would undermine public confidence that the
     tax laws are being administered in a fair and equitable
     manner. Sec. 301.7122-1(b)(3)(ii), Proced. & Admin.
     Regs.
                             - 60 -

period 1998 through 2004 (i.e., $7,154.68), rather than his

average monthly wage income for the three-year period 2002

through 2004, petitioner’s RCP would be $937,464.84.36   Peti-

tioner’s RCP as so calculated exceeds the amount (i.e., $139,776)

in petitioner’s June 24, 2005 offer-in-compromise that petitioner

offered to compromise, inter alia, petitioner’s unpaid liabili-

ties for 1990, 1991, 1992, 1994, 1996, 1997, and 2002.   See IRM

pt. 5.8.1.1.3(3) (Sept. 1, 2005).


     36
      The monthly average of petitioner’s wage income for 1998
through 2004 is $7,154.68. See supra note 32. Adding to that
amount petitioner’s other monthly income (i.e., $1,992) and
subtracting petitioner’s allowed monthly necessary living ex-
penses (i.e., $6,243) results in “excess” monthly income of
$2,903.68. That amount of “excess” monthly income multiplied by
48 months results in “future income” of $139,376.64. That amount
of “future income” plus the amount that the settlement officer
calculated as the “net realizable equity” component of peti-
tioner’s RCP (i.e., $798,088.20), which “net realizable equity”
component petitioner does not dispute in petitioner’s response,
results in a reasonable collection potential for petitioner of
$937,464.84. In this connection, we note that on Sept. 6, 2005,
the second offer specialist sent petitioner a letter and enclosed
with that letter a so-called Asset/Equity Table which showed a
fair market value of real estate owned by petitioner of $995,714,
a quick sale value of that real estate of the same amount,
encumbrances on that real estate of $625,000, and “net realizable
equity” with respect to that real estate of $370,714. However,
in a footnote next to those amounts the second offer specialist
indicated: “Encumbrances not documented - subject to further
valuation.” The notice of determination that the Appeals Office
issued to petitioner on Feb. 8, 2006, indicated, inter alia, that
petitioner had real estate with a fair market value of $995,714,
that that real estate had a quick sale value of $796,571.20 (or
80 percent of that fair market value), that any encumbrances with
respect to that real estate were “Not documented”, and that
petitioner’s total “net realizable equity” was $798,088.20. In
petitioner’s response, petitioner does not dispute the determina-
tion in the notice of determination of petitioner’s “net realiz-
able equity” of $798,088.20.
                              - 61 -

     Assuming arguendo, as petitioner argues alternatively, that

the “future income” component of petitioner’s RCP should have

been calculated by using his average monthly wage income for the

twelve-year period 1993 through 2004, rather than his average

monthly wage income for the three-year period 2002 through 2004,

petitioner’s RCP would be $927,737.64.37   Petitioner’s RCP as so

calculated exceeds the amount ($139,776) in petitioner’s June 24,

2005 offer-in-compromise that petitioner offered to compromise,

inter alia, petitioner’s unpaid liabilities for 1990, 1991, 1992,

1994, 1996, 1997, and 2002.   See IRM pt. 5.8.1.1.3(3) (Sept. 1,

2005).

     On the record before us, we find that the settlement officer

did not abuse the settlement officer’s discretion in rejecting

the offer of $139,776 in petitioner’s June 24, 2005 offer-in-

compromise.




     37
      The monthly average of petitioner’s wage income for 1993
through 2004 is $6,952.03. See supra note 32. Adding to that
amount petitioner’s other monthly income (i.e., $1,992) and
subtracting petitioner’s allowed monthly necessary living ex-
penses (i.e., $6,243) results in “excess” monthly income of
$2,701.03. That amount of “excess” monthly income multiplied by
48 months results in “future income” of $129,649.44. That amount
of “future income” plus the amount that the settlement officer
calculated as the “net realizable equity” component of peti-
tioner’s reasonable collection potential (i.e., $798,088.20),
which “net realizable equity” component petitioner does not
dispute in petitioner’s response, results in a reasonable collec-
tion potential for petitioner of $927,737.64. See supra note 36.
                               - 62 -

     We turn finally to petitioner’s third principal argument.

In petitioner’s response, petitioner argues that the settlement

officer “made no effort to balance the Service’s needs for

efficient collection of taxes against the taxpayers’ legitimate

concern that collection action be no more intrusive than neces-

sary.”

      We have found that, assuming arguendo that the settlement

officer had calculated the “future income” component of peti-

tioner’s RCP by using petitioner’s average monthly wage income

for the seven-year period 1998 through 2004 or his average

monthly wage income for the twelve-year period 1993 through 2004,

petitioner’s RCP nonetheless would have exceeded the amount

(i.e., $139,776) that petitioner offered in petitioner’s June 24,

2005 offer-in-compromise.   In the case of the use of such seven-

year period, petitioner’s RCP would have exceeded petitioner’s

offer by $797,688.84.   In the case of the use of such twelve-year

period, petitioner’s RCP would have exceeded petitioner’s offer

by $787,961.64.   As discussed above, in order to be considered

for acceptance, an offer based on “Doubt as to Collectibility”,

the basis on which petitioner submitted petitioner’s June 24,

2005 offer-in-compromise, generally must equal or exceed the

taxpayer’s RCP.   Id.   Regardless of whether the “future income”

component of petitioner’s RCP is calculated on one of the two

bases urged by petitioner or on the basis used by the settlement
                              - 63 -

officer, petitioner’s offer of $139,776 in petitioner’s June 24,

2005 offer-in-compromise did not equal or exceed that RCP.

     On the record before us, we find that the settlement officer

took into consideration whether the proposed collection action

with respect to petitioner’s unpaid liabilities for 1990, 1991,

1992, 1994, 1996, 1997, and 2002 balanced the need for the

efficient collection of those liabilities with the legitimate

concern of petitioner that that collection action be no more

intrusive than necessary.   See sec. 6330(c)(3)(C).

     Based upon our examination of the entire record before us,

we find that respondent did not abuse respondent’s discretion in

making the determinations in the notice of determination with

respect to petitioner’s unpaid liabilities for 1990, 1991, 1992,

1994, 1996, 1997, and 2002.   On that record, we sustain those

determinations.

     We have considered all of the contentions and arguments of

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

without merit, irrelevant, and/or moot.

     On the record before us, we shall grant respondent’s motion.

     To reflect the foregoing,

                                      An order granting respondent’s

                                 motion and decision for respondent

                                 will be entered.
