                        T.C. Memo. 2017-45



                  UNITED STATES TAX COURT



       ESTATE OF CHARLES KONKUS, DECEASED,
      LINDA COLLINS, ADMINISTRATOR, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 5783-13L.                     Filed March 16, 2017.



Alvin S. Brown, for petitioner.

Shawna A. Early, for respondent.
                                         -2-

[*2]        MEMORANDUM FINDINGS OF FACT AND OPINION


       GALE, Judge: Pursuant to section 6330(d),1 the estate2 seeks review of

respondent’s determination to sustain the filing of a Notice of Federal Tax Lien

(NFTL) and a notice of intent to levy to collect assessed section 6700 tax shelter

promotion penalties for Mr. Konkus’ taxable years 2002 and 2003 of $3,411,577

and $3,252,130, respectively. The issue for decision is whether the Internal

Revenue Service (IRS) Appeals officer abused his discretion by rejecting

Mr. Konkus’ offer-in-compromise and sustaining the proposed collection actions.

                               FINDINGS OF FACT

       Some of the facts are stipulated and are so found. The stipulation of facts

and the attached exhibits are incorporated herein by this reference.




       1
        Unless otherwise indicated, all section references are to the Internal
Revenue Code as in effect at all relevant times, and all Rule references are to the
Tax Court Rules of Practice and Procedure. All dollar amounts have been rounded
to the nearest dollar. (Figures may differ because of rounding.)
       2
        Charles M. Konkus resided in Illinois when the petition was filed. He died
intestate after trial. Linda Collins was thereafter appointed administrator of
Mr. Konkus’ estate, and by subsequent order of this Court the estate was
substituted as petitioner.
                                          -3-

[*3] I.     Assessment of Section 6700 Penalties and Refund Claim

          During the years in question Mr. Konkus was the president and controlling

officer of Partners In Charity, Inc. (PIC), which held itself out as a section

501(c)(3) organization. At that time PIC operated a downpayment assistance

program through which it provided downpayments to home purchasers who (PIC

claimed) were of modest means contingent on the seller’s reimbursement of the

downpayment and remission to PIC of an administrative fee. On April 17, 2006,

in response to a complaint filed by the United States, the U.S. District Court for

the Northern District of Illinois entered a permanent injunction barring Mr.

Konkus and PIC from characterizing, in any way, the payments from sellers to PIC

as tax-deductible charitable contributions, United States v. Partners In Charity,

Inc., No. 05-cv-6374 (N.D. Ill. Apr. 17, 2006) (order granting permanent

injunction), and this Court ultimately upheld the IRS’ retroactive revocation of

PIC’s tax-exempt status, Partners In Charity, Inc. v. Commissioner, 141 T.C. 151

(2014).

          In relation to Mr. Konkus’ involvement with PIC, on June 16, 2008,

respondent issued to him a CP15, Notice of Penalty Charge, advising of the

assessment of section 6700 penalties against him, for the promotion of an abusive

tax shelter, of $3,411,577 and $3,252,130 for 2002 and 2003, respectively. On
                                        -4-

[*4] July 15, 2008, Mr. Konkus submitted a Form 6118, Claim for Refund of

Income Tax Return Preparer and Promoter Penalties, contesting the assessment of

the section 6700 penalties (refund claim) but did not remit 15% of each penalty as

required by section 6703(c)(1).3

II.   Collection Actions and Hearing Requests

      Also on July 15, 2008, respondent filed an NFTL and subsequently issued

to Mr. Konkus a Notice of Federal Tax Lien Filing and Your Right to a Hearing

Under IRC 6320 (lien notice). On July 24, 2008, respondent issued to Mr. Konkus

a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a

Hearing (levy notice), informing him of respondent’s intent to levy on his property

to collect the unpaid section 6700 penalty assessments for 2002 and 2003.

Mr. Konkus timely requested a hearing with respect to both the lien notice and the

levy notice.

      Appeals acknowledged Mr. Konkus’ hearing requests on September 19,

2008, and approximately one month later, an Appeals officer held an initial


      3
       Mr. Konkus also submitted on July 28, 2008, a Form 656-L, Offer in
Compromise (Doubt as to Liability) (OIC-DATL), wherein he disputed the sec.
6700 penalties as “contrary to the clear language of section 6700.” Appeals
rejected the OIC-DATL on the grounds that sec. 6700 penalties “are not subject to
compromise based upon doubt as to liability.” The estate concedes that the OIC-
DATL is not at issue.
                                        -5-

[*5] telephone conference with Mr. Konkus and his counsel. However, on

February 10, 2009, the section 6330 hearing was suspended pending disposition of

Mr. Konkus’ refund claim.

III.   Denial of Refund Claim

       The refund claim was denied on February 10, 2010, in a letter advising

Mr. Konkus that he could appeal to Appeals within 30 days. Mr. Konkus did so,

and his appeal was considered by an Appeals officer not associated with

Mr. Konkus’ section 6330 hearing.4 On April 23, 2012, Mr. Konkus’ appeal of his

rejected refund claim was denied.

IV.    Resumption of Section 6330 Hearing

       A.    Proposed Conference

       On the same day the appeal of Mr. Konkus’ refund claim was denied, the

Appeals officer who had been assigned to Mr. Konkus’ section 6330 hearing while


       4
        Although the parties stipulated that Appeals Officer Curtis Megyesi (AO
Megyesi), who issued the notice of determination after Mr. Konkus’ sec. 6330
hearing, also issued the Appeals memorandum rejecting the appeal of Mr. Konkus’
refund claim, this stipulation is contradicted by the administrative record. AO
Megyesi’s case notes record that on April 23, 2012, he received an Appeals
officer’s memorandum rejecting the appeal of Mr. Konkus’ refund claim. We
therefore disregard the stipulation and find that the Appeals memorandum
rejecting the appeal of Mr. Konkus’ refund claim was prepared not by AO
Megyesi but instead by a different Appeals officer. See Rule 91(e); Jasionowski
v. Commissioner, 66 T.C. 312, 318 (1976).
                                        -6-

[*6] his refund claim was pending, AO Megyesi, took the hearing out of

suspension and sent Mr. Konkus a letter proposing a telephone conference. AO

Megyesi further explained in the letter that Mr. Konkus was entitled to a hearing

with an Appeals employee who had had no prior involvement with the years in

question, stated that he could not recall having had any prior involvement with the

years in question, and requested that Mr. Konkus notify him if he believed

otherwise. There is no evidence that Mr. Konkus notified AO Megyesi of any

concern regarding prior involvement with respect to the section 6700 penalties for

2002 and 2003.

      B.    Mr. Konkus’ Offer-in-Compromise and Financial Information
            Submitted

      On June 11, 2012, Mr. Konkus submitted as a collection alternative, on a

Form 656, Offer in Compromise, an offer to pay $2,215 to compromise his

combined $6,663,707 section 6700 penalty liabilities based on doubt as to

collectibility (OIC-DATC). Mr. Konkus supplemented his offer with a Form 433-

A, Collection Information Statement for Wage Earners and Self-Employed

Individuals, covering himself and a Form 433-B, Collection Information Statement

for Businesses, covering PIC. The Form 433-B included PIC’s 2011 Form 990,

Return of Organization Exempt From Income Tax, a balance sheet reflecting PIC’s
                                          -7-

[*7] financial condition as of December 27, 2012, and a profit and loss statement

covering PIC’s operations from January 1 through December 27, 2012. The OIC-

DATC and supporting materials were forwarded to AO Megyesi on July 3, 2012,

for review.

      The Form 433-A reported that Mr. Konkus owned assets with a total current

value of $8,163, comprising the following:

                            Asset                  Current value
                                                         1
                  Life insurance policy                      $3,683
                                                             2
                  1974 Nissan 280Z                               4,480
                    Total                                     8,163

      1
         Mr. Konkus reported the life insurance policy’s fair market value as $7,353
and its outstanding loan balance of $2,774, yet reported total available cash as
$3,683. The record is silent regarding this apparent discrepancy.
       2
         Mr. Konkus reported the Nissan’s fair market value as $5,600 but reported
total equity of $4,480.

      The Form 433-A reported the following monthly items of income and

expense:

                            Income          Amount
                            Wages               $1,372
                            Total                1,372
                                          -8-

[*8]

                              Expense                     Amount
                Food, clothing, and miscellaneous          $565
                Housing and utilities                        314
                Vehicle operating costs                      262
                Out-of-pocket healthcare costs                60
                Taxes                                        125
                 Total                                     1,326

PIC’s balance sheet appended to the Form 433-B reported that as of December 27,

2012, it had total cash of $206,500 and total other assets of $1,420,005. The same

balance sheet reported $146,881 in “Loans from Stockholders” as a current

liability. Mr. Konkus’ Form 433-A did not report this loan as an asset. PIC’s

profit and loss statement for 2012 listed a health insurance expense and legal fees

of $3,489 and $33,292, respectively.

       C.    The Telephone Conference

       On January 15, 2013, AO Megyesi held a telephone conference with

Mr. Konkus and his counsel. AO Megyesi’s notes of the telephone conference

record that Mr. Konkus claimed he had no rent or mortgage expenses because he

lived in foreclosed properties. The notes further record that Mr. Konkus claimed

he paid utility expenses in the names of the properties’ former owners. In
                                         -9-

[*9] addition, the notes record that Mr. Konkus explained that although he owned

a car he drove PIC’s company vehicle. As his notes reflect, after discussing

Mr. Konkus’ and PIC’s credit card statements that Mr. Konkus had submitted, AO

Megyesi concluded that Mr. Konkus’ and PIC’s expenses were largely

commingled and that in several instances PIC had paid Mr. Konkus’ personal

expenses and vice versa.

      During the telephone conference AO Megyesi inquired as to the nature of

the outstanding $146,881 “stockholder” loan reflected on PIC’s balance sheet. As

recorded in AO Megyesi’s notes, Mr. Konkus explained that he had made this loan

to PIC when it had initiated its operations but that the loan no longer had any

value as PIC was unable to repay it. Mr. Konkus therefore argued that it should

not be considered a collectible asset. AO Megyesi additionally reviewed

Mr. Konkus’ 2009 and 2010 Federal income tax returns (which Mr. Konkus had

submitted) during the telephone conference. Mr. Konkus’ 2009 return reported

that he had made a $19,100 donation, at “thrift store value”, to another not-for-

profit entity of which he was the president, Restoration America.

      During the telephone conference AO Megyesi informed Mr. Konkus and his

counsel that the OIC-DATC would likely be rejected because, inter alia, AO

Megyesi believed that Mr. Konkus’ reasonable collection potential was much
                                         -10-

[*10] higher than the $2,215 offered. AO Megyesi’s notes record that Mr. Konkus

agreed to increase his offer to $50,000 but indicated that he would not pay more.

      D.     AO Megyesi’s Calculation of Mr. Konkus’ Reasonable Collection
             Potential

      On the basis of the telephone conference and financial information which

Mr. Konkus had submitted, AO Megyesi calculated his reasonable collection

potential in an internal supplemental OIC Appeals case memorandum (case

memorandum). AO Megyesi determined that Mr. Konkus’ net realizable equity in

his personal vehicle was $1,030 after reducing Mr. Konkus’ reported fair market

value of $5,600 by 20% to reflect quick sale value5 and by a further $3,450

reduction from the quick sale value. As to Mr. Konkus’ life insurance policy, AO

Megyesi accepted Mr. Konkus’ reported fair market value of $7,353 but reduced it

by its outstanding loan balance of $2,774 for a net realizable equity of $4,579.

      AO Megyesi also determined that the $146,881 loan from Mr. Konkus listed

as a current liability on PIC’s balance sheet should be included as an asset of

Mr. Konkus, as PIC’s balance sheet from the previous month demonstrated that it

had sufficient cash to pay the balance in full. AO Megyesi’s notes reflect that, in

      5
       Quick sale value is an estimate of the price a seller could get for an asset if
sold quickly, usually in 90 days or less. Quick sale value is generally calculated at
80% of the fair market value. See Internal Revenue Manual (IRM) pt.
5.15.1.20(4) (Oct. 2, 2012).
                                        -11-

[*11] reaching this position, he concluded that Mr. Konkus controlled PIC to such

an extent that he could have caused PIC to repay the loan at any time. In drawing

this conclusion, he relied on items he unearthed from PIC’s profit and loss

statement for 2012 (and discussed with Mr. Konkus) which demonstrated that PIC

had paid significant personal expenses of Mr. Konkus in that year, including

$33,000 in legal fees paid to Mr. Konkus’ counsel representing him in connection

with his liability for the section 6700 penalties, $3,489 in health insurance for Mr.

Konkus, as well as the payment of Mr. Konkus’ personal expenses with PIC’s

credit card previously noted.

      Finally, AO Megyesi included $19,000 (of the $19,100 Mr. Konkus donated

to Restoration America in 2009) as a dissipated asset of Mr. Konkus, reasoning

that Mr. Konkus was aware of his section 6700 penalty liabilities at the time of

donation.

      AO Megyesi’s determination of Mr. Konkus’ net realizable equity in assets

is summarized as follows:
                                        -12-

[*12]

                       Asset                        Net realizable equity
         1974 Nissan 280Z                                  $1,030
         Life insurance policy                               4,580
         Loan to PIC                                      146,881
         Contribution to Restoration America               19,000
          Total                                           171,491

        In determining Mr. Konkus’ reasonable collection potential AO Megyesi

also calculated Mr. Konkus’ monthly income and expenses. In so doing, AO

Megyesi accepted Mr. Konkus’ reported monthly income of $1,372; food,

clothing, and miscellaneous expenses of $565; out-of-pocket healthcare expenses

of $60; and tax expenses of $125. However, AO Megyesi did not accept

Mr. Konkus’ reported housing and utilities and transportation operating costs, as

Mr. Konkus had informed AO Megyesi that he lived rent free in foreclosed

properties and drove PIC’s company car. AO Megyesi’s case memorandum stated

that Mr. Konkus had failed to provide evidence that he in fact paid any utility

expenses, nor had he proven that he paid for gas when driving PIC’s company car.

According to AO Megyesi’s calculations this resulted in monthly disposable

income of $622; on the basis of an estimate that Mr. Konkus could pay for a

period of 12 months AO Megyesi determined that he had future income of $7,466.
                                         -13-

[*13] AO Megyesi therefore calculated Mr. Konkus’ reasonable collection

potential to be no less than $178,956 (comprising $171,491 of net equity in assets

and $7,466 in future income).

      AO Megyesi concluded in the case memorandum that Mr. Konkus’ OIC-

DATC should be rejected on two grounds. First, he determined that it should be

rejected on public policy grounds under IRM pt. 5.8.7.7.2 (May 10, 2011) because

Mr. Konkus and PIC had financially benefited from falsely advising sellers that

their contributions to PIC were tax deductible. AO Megyesi believed, given that

Mr. Konkus’ operation of a not-for-profit entity had resulted in section 6700

penalty liabilities totaling over $6 million, that to accept his much lower offer

could incentivize similarly situated taxpayers to abuse not-for-profit entities,

knowing that any negative consequences would be slight. Alternatively, AO

Megyesi concluded that Mr. Konkus’ OIC-DATC should be rejected because his

reasonable collection potential was significantly higher than his offer.

V.    Notice of Determination

      Appeals issued a notice of determination to Mr. Konkus on February 8,

2013, denying his OIC-DATC and sustaining the proposed collection actions. The

notice of determination stated that Mr. Konkus’ OIC-DATC had been rejected on

the basis of public policy provisions of the IRM because acceptance of his offer
                                          -14-

[*14] would cause public reaction to be so negative as to diminish future voluntary

compliance by the general public. It further reasoned that if Mr. Konkus’ offer

were accepted, “[e]veryone would weigh complying with federal tax laws against

the potential for financial gain if there is little or no consequence to their actions.”

Alternatively, the notice of determination stated that Mr. Konkus’ offer--either the

$2,215 original amount or his increased offer of $50,000 during the telephone

conference--was rejected because it was determined that he could pay a higher

amount. The notice further stated that, on the basis of the financial information

Mr. Konkus had provided, it was determined that an acceptable offer should be “in

the range of $180,000.00 or higher” and that Mr. Konkus had refused to consider

amending his offer to reflect that amount. The notice made specific reference to

Mr. Konkus’ $146,881 outstanding loan to PIC and concluded that Mr. Konkus

“h[ad] not provided sufficient financial information for * * * [PIC] to establish

that * * * [PIC] do[es] not have the ability to repay the loan.”

      Mr. Konkus timely filed a petition for review of the determination.

                                       OPINION

I.    Statutory Framework and the Estate’s Arguments

      Section 6321 imposes a lien in favor of the United States on all property and

rights to property of a taxpayer after a demand for the taxes has been made and the
                                         -15-

[*15] taxpayer fails to pay those taxes. The lien arises when an assessment is

made. See sec. 6322. The Secretary generally must file a notice of lien with

certain State or local authorities where a taxpayer’s property is situated for the lien

to be valid against certain categories of third parties. Sec. 6323(a), (f); Behling v.

Commissioner, 118 T.C. 572, 575 (2002). Section 6320 provides that the

Secretary shall furnish the taxpayer with written notice of the filing of an NFTL

and of the taxpayer’s right to a hearing with Appeals concerning the lien. Sec.

6320(a)(1), (3).

      Section 6331(a) authorizes the Secretary to levy upon property and property

rights of a person liable for any tax (taxpayer) if the taxpayer fails to pay the tax

within 10 days after notice and demand for payment is made. Such a levy,

however, generally requires that the Secretary first notify the taxpayer in writing

of his or her right to a prelevy hearing with Appeals on the issue of whether the

levy is appropriate. Sec. 6330(a)(1), (b)(1).

      If the taxpayer timely requests a hearing, an Appeals officer must at the

hearing verify that the requirements of any applicable law or administrative

procedure have been met. Secs. 6320(c), 6330(c)(1). In addition, the taxpayer

may generally raise at the hearing “any relevant issue”, including appropriate

spousal defenses, challenges to the appropriateness of the collection action, and
                                         -16-

[*16] possible collection alternatives. Secs. 6320(c), 6330(c)(2)(A). The taxpayer

may challenge the existence or amount of the underlying tax liability, but only if

he did not receive a notice of deficiency with respect to the liability or otherwise

have an opportunity to dispute it. Secs. 6320(c), 6330(c)(2)(B).

      At the conclusion of the section 6330 hearing the Appeals officer must

determine whether to sustain the collection action and shall take into account:

(1) the verification that the requirements of applicable law and administrative

procedure have been met, (2) the relevant issues raised by the taxpayer, and

(3) whether the proposed lien or levy action appropriately balances the need for

efficient collection of taxes with the taxpayer’s legitimate concern that the

proposed collection action be no more intrusive than necessary. Sec. 6330(c)(3).

      Section 6330(d)(1) grants this Court jurisdiction to review an Appeals

officer’s determination in connection with a section 6330 hearing. Where the

underlying tax liability is properly at issue, we review the taxpayer’s liability de

novo. See Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). The parties

agree that the underlying tax liability is not at issue, and the estate does not contest

respondent’s rejection of the OIC-DATL. Accordingly, we review the Appeals

officer’s rejection of Mr. Konkus’ OIC-DATC and determination to sustain the

proposed collection actions for abuse of discretion. See Lunsford v.
                                         -17-

[*17] Commissioner, 117 T.C. 183, 185 (2001); Sego v. Commissioner, 114 T.C.

604, 610 (2000); Goza v. Commissioner, 114 T.C. at 182. The Appeals officer

abuses his discretion if he acts “arbitrarily, capriciously, or without sound basis in

fact or law.” Woodral v. Commissioner, 112 T.C. 19, 23 (1999). In deciding the

propriety of an Appeals officer’s rejection of an offer-in-compromise we do not

substitute our judgment for that of the Appeals officer, and we do not decide

independently the amount that we believe would be an acceptable offer-in-

compromise. See Murphy v. Commissioner, 125 T.C. 301, 315 (2005), aff’d, 469

F.3d 27 (1st Cir. 2006).

      Section 7122(a) authorizes the Secretary to compromise any civil or

criminal case arising under the internal revenue laws; section 7122(c) authorizes

the Commissioner to prescribe guidelines to determine when a taxpayer’s offer-in-

compromise should be accepted. The applicable regulations set forth three

grounds for compromising a tax liability: (1) doubt as to liability, (2) doubt as to

collectibility, and (3) promotion of effective tax administration. Sec. 301.7122-

1(b), Proced. & Admin. Regs. “Doubt as to collectibility exists in any case where

the taxpayer’s assets and income are less than the full amount of the liability.” Id.

subpara. (2). However, the decision to accept or reject an offer-in-compromise is

left to the Secretary’s discretion. Id. para. (c)(1). “The determination whether to
                                       -18-

[*18] accept or reject an offer to compromise will be based upon consideration of

all the facts and circumstances, including whether the circumstances of a particular

case warrant acceptance of an amount that might not otherwise be acceptable

under the Secretary’s policies and procedures.” Id.

      The estate contends that AO Megyesi abused his discretion in rejecting the

OIC-DATC in two major respects. First, the estate argues that AO Megyesi

misapplied the IRM standards for denying Mr. Konkus’ offer on public policy

grounds. Second, the estate alleges that AO Megyesi failed to properly calculate

Mr. Konkus’ reasonable collection potential in rejecting the offer.6 However,

because we find that AO Megyesi properly calculated Mr. Konkus’ reasonable

collection potential and appropriately sustained the rejection of his OIC-DATC on

that ground, we need not address the first argument.




      6
        The estate also contends, for the first time on brief, that AO Megyesi was
not an impartial officer as required by sec. 6330(b)(3) because he engaged in
prohibited ex parte communications. The estate offers no specifics regarding this
allegation nor any evidence to support it. As the record is closed, respondent
would be prejudiced if we considered this issue, as he would be deprived of any
opportunity to proffer evidence to rebut the allegation. We conclude that the
estate’s claim is untimely and decline to consider it.
                                         -19-

[*19] II.    Whether AO Megyesi Abused His Discretion in Calculating Mr.
             Konkus’ Reasonable Collection Potential

      Generally, under the IRS’ administrative guidance an offer to compromise

based on doubt as to collectibility will be acceptable only if the offer exceeds the

taxpayer’s reasonable collection potential (i.e., that amount, less than the full

liability, that the IRS could collect through means such as administrative and

judicial collection remedies). Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517,

517. A taxpayer’s reasonable collection potential is determined, in part, using

published guidelines for certain national and local allowances for basic living

expenses and essentially treating income and assets in excess of those needed for

basic living expenses as available to satisfy Federal tax liabilities. See Lemann v.

Commissioner, T.C. Memo. 2006-37.7

      The IRM provides procedures for analyzing a taxpayer’s financial condition

to determine reasonable collection potential. See IRM pt. 5.8.5.1 (Sept. 23, 2008).

A taxpayer’s reasonable collection potential is calculated by determining, then


      7
        In certain cases the Secretary will accept an offer of less than the
reasonable collection potential upon a showing by the taxpayer of special
circumstances. See sec. 301.7122-1(c)(3), Proced. & Admin. Regs.; Rev. Proc.
2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517. However, the estate has neither
identified nor argued that any special circumstances exist which would compel the
Secretary to accept an offer of less than Mr. Konkus’ reasonable collection
potential.
                                        -20-

[*20] adding together: (1) the taxpayer’s “net realizable equity”, i.e., the quick

sale value of the taxpayer’s assets less amounts owed to secure lien holders with

priority over Federal tax liens, and (2) his “future income”, i.e., the amount

collectible from the taxpayer’s expected future gross income after allowing for

necessary living expenses. See IRM pt. 5.8.5.4.1 (Oct. 22, 2010); id. pt. 5.8.5.18;

see also Johnson v. Commissioner, 136 T.C. 475, 485 (2011), aff’d, 502 F. App’x

1 (D.C. Cir. 2013); Lemann v. Commissioner, T.C. Memo. 2006-37. When an

Appeals officer has followed the IRS’ guidelines to ascertain a taxpayer’s

reasonable collection potential and rejected the taxpayer’s proposed collection

alternative on that basis, we have found no abuse of discretion. See Murphy v.

Commissioner, 125 T.C. at 321; Lemann v. Commissioner, T.C. Memo. 2006-37.

      The estate chiefly contends that AO Megyesi did not calculate Mr. Konkus’

reasonable collection potential as required by the IRS’ guidelines but instead used

an unsubstantiated estimate, citing the statement in the notice of determination that

Mr. Konkus could pay an amount “in the range of $180,000.00 or higher”. The

estate alternatively contends that AO Megyesi improperly calculated Mr. Konkus’

reasonable collection potential. However, it is clear from the case memorandum

that AO Megyesi considered the financial information Mr. Konkus submitted for
                                         -21-

[*21] himself and PIC and followed the IRS’ published guidelines to ascertain Mr.

Konkus’ reasonable collection potential.

      AO Megyesi calculated the net realizable equity in Mr. Konkus’ car by

accepting its fair market value as Mr. Konkus reported it on the Form 433-A,

$5,600, reducing it to a quick sale value of $4,480 and further reducing it by

$3,450. See IRM pt. 5.8.5.4.1.8 AO Megyesi calculated the net realizable equity

in Mr. Konkus’ life insurance policy by accepting its value as Mr. Konkus

reported it on Form 433-A, $7,353, and subtracting the policy’s outstanding loan

balance, $2,774. See IRM pt. 5.8.5.8 (Oct. 22, 2010). AO Megyesi also included

$19,000 that Mr. Konkus donated to American Restoration during 2009 as a

dissipated asset, reasoning that at that time Mr. Konkus was aware of his large

section 6700 penalty liabilities. See id. pt. 5.8.5.16 (allowing the value of

dissipated assets, including gifts, to be included in the calculation of reasonable

collection potential). AO Megyesi determined that the “thrift store value” of the


      8
       IRM pt. 5.8.5.12 (Sept. 30, 2013) allows for the exclusion of $3,450 from
the quick sale value of vehicles owned by a taxpayer and used for work, the
production of income, or the welfare of the taxpayer’s family. However, this
provision of the IRM was added after AO Megyesi had issued the notice of
determination. We therefore treat this reduction in the net realizable equity of
Mr. Konkus’ personal vehicle as a concession by respondent. We note that
Mr. Konkus’ reasonable collection potential exceeds his offer despite this
concession.
                                         -22-

[*22] items as listed on Mr. Konkus’ 2009 return already reflected the items’

quick sale value.

      Finally, AO Megyesi included the $146,881 loan that Mr. Konkus had made

to PIC as a collectible asset in calculating his net realizable equity. See id.

pt. 5.8.5.13 (notes receivable are considered assets and should be valued in part by

what is collectible from the borrower). The estate argues that this amount should

not have been included as a collectible asset because Mr. Konkus testified at trial

that the amount at issue was provided to PIC as a capital contribution and not a

loan. However, an Appeals officer is required to consider only the information

presented by the taxpayer during a section 6330 hearing, and in reviewing the

Appeals officer’s determination we are likewise limited to reviewing the

information presented. See Chandler v. Commissioner, T.C. Memo. 2004-7.

There is no evidence in the administrative record to suggest that Mr. Konkus

contended during the section 6330 hearing that the amount characterized as a loan

on PIC’s balance sheet actually constituted a capital contribution. To the contrary,

AO Megyesi’s notes of the telephone conference record that Mr. Konkus

specifically referred to the $146,881 as a loan and argued that this amount was not

a collectible asset because PIC could not repay it. Noting that PIC’s balance

sheets demonstrated that it had sufficient assets and cash to pay the outstanding
                                       -23-

[*23] balance in full, AO Megyesi determined that the $146,881 should be

included as a collectible asset. Given AO Megyesi’s other findings concerning

PIC’s payment of Mr. Konkus’ personal expenses during 2012, we do not believe

it was an abuse of discretion for him to conclude that Mr. Konkus could cause PIC

to repay the loan. AO Megyesi’s inclusion of the $146,881 as an asset of Mr.

Konkus was reasonable.

      AO Megyesi likewise followed the IRS’ published guidelines in computing

Mr. Konkus’ future income. AO Megyesi accepted the amount of monthly income

Mr. Konkus reported on his Form 433-A, $1,372, and reduced it by the national

standards for food, clothing, and miscellaneous and those for out-of-pocket

healthcare costs Mr. Konkus claimed on Form 433-A, as well as the expense for

taxes he claimed. See IRM pt. 5.15.1.8(1), (5) (Oct. 2, 2012). However, given

that Mr. Konkus had advised AO Megyesi that he lived in foreclosed properties

and thus had no rent expenses and drove a company car, AO Megyesi did not

allow Mr. Konkus’ claimed housing and utilities and transportation expenses,

relying on IRM guidelines that allow the lesser of the local standard or the amount

actually paid for such expenses, see id. pt. 5.15.1.7(4). AO Megyesi further

concluded in the case memorandum that Mr. Konkus had provided no evidence
                                         -24-

[*24] that he personally paid either utility or gas expenses, and our review of the

administrative record discloses none.

      AO Megyesi’s determination to reject Mr. Konkus’ OIC-DATC on the

grounds that his offer fell below his reasonable collection potential was not

arbitrary, capricious, or without a sound basis in fact or law; it was based on a

reasonable application of the IRS’ published guidelines, which we decline to

second-guess. See Speltz v. Commissioner, 124 T.C. 165 (2005), aff’d, 454 F.3d

782 (8th Cir. 2006). Finding no abuse of discretion, we will sustain the proposed

collection actions.

      To reflect the foregoing,


                                                Decision will be entered for

                                        respondent.
