                        T.C. Memo. 2012-12



                      UNITED STATES TAX COURT



         DARRELL L. AND VICKY L. TITSWORTH, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20452-09L.                   Filed January 11, 2012.



     Darrell L. Titsworth and Vicky L. Titsworth, pro sese.

     Britton G. Wilson, for respondent.



                        MEMORANDUM OPINION


     LARO, Judge:   This collection case was submitted to the

Court for decision without trial.   See Rule 122.1   Petitioners

Darell L. Titsworth (Mr. Titsworth) and Vicky L. Titsworth (Ms.



     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code, and Rule references are to the Tax Court
Rules of Practice and Procedure. Dollar amounts are rounded.
                                 -2-

Titsworth) petitioned the Court to review the determination of

respondent’s Office of Appeals (Appeals) sustaining a proposed

levy upon their property.    See sec. 6330(d)(1).   Respondent

sought the levy to collect from petitioners approximately $33,652

of unpaid Federal income tax liabilities for 2001, 2002, 2005,

and 2006 (subject years).2   We decide whether Appeals abused its

discretion in rejecting petitioners’ $500 offer to compromise

$33,652 of Federal income tax liabilities.    We hold it did not.

                             Background

     The facts in this background section are obtained from the

parties’ stipulation of facts and the accompanying exhibits.      We

incorporate the stipulated facts and the exhibits herein by this

reference, and we find the stipulated facts accordingly.

I.   Petitioners

     Petitioners are husband and wife who resided in Arkansas

when their petition was filed.    They have at least one son, N.T.

At all relevant times, Mr. Titsworth operated a real estate

rental and appraisal business as a sole proprietor.     He also

served as a member of the board of directors of the Cisero Place

Hunting Club (Cisero).   Petitioners are good friends with Robert

Lawry (Mr. Lawry) and Patricia Lawry (collectively, Lawrys).

Since 1984, petitioners have relied upon the Lawrys for real


     2
      We use the term “approximately” because this amount was
computed before this proceeding and has since increased on
account of interest.
                                -3-

estate financing, principally in the form of purchase money

mortgages (Lawry mortgages).

II.   Nonpayment of Taxes and Final Levy Notices

      Petitioners filed Federal income tax returns late for the

subject years but did not pay the reported tax liabilities.    On

July 28, 2008, respondent issued to each petitioner a separate

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

Hearing (final levy notices).   The final levy notices advised

petitioners that respondent intended to levy upon their property

to collect $33,652 of Federal income tax liabilities for the

subject years.   The final levy notices also informed petitioners

that they could appeal the proposed levy by requesting a

collection due process (CDP) hearing with Appeals.   On August 20,

2008, in response to the final levy notices, petitioners’

representative submitted Form 12153, Request for a Collection Due

Process or Equivalent Hearing, indicating their intention to

submit an offer-in-compromise as a collection alternative to the

proposed levy.

III. Offer-in-Compromise Submission

      On August 27, 2008, petitioners submitted a Form 656, Offer

in Compromise, based on doubt as to collectibility and offered to

pay $500 in a lump sum to compromise their unpaid Federal income

tax liabilities for the subject years and 2003, 2004, and 2007.

In support of their offer, petitioners provided a Form 433-A,
                                     -4-

Collection Information Statement for Wage Earners and Self-

Employed Individuals, a Form 433-B, Collection Information

Statement for Businesses, for Cisero, and supporting documents.

      The Form 433-A reported personal assets including, among

other things, cash of $1,700, two personal bank accounts totaling

$6,746, four automobiles, three “4 wheeler” vehicles (ATVs), one

camper, one tractor, and the following real property:

                 Reported Fair   Reported       Reported          Reported
  Description    Market Value First Mortgage Second Mortgage1      Equity

1162 Hwy 71S        $181,550      $161,221       $56,477         ($36,148)
116 Polk 703          80,000        79,521           -0-               479
141 Carter Creek      23,050            -0-          -0-            23,050
561 Hwy 375           39,150        15,071        43,567           (19,488)
3245 Hwy 71N          68,850        65,099           -0-             3,751
                                    1
Hwy 71 back lot        9,600          29,728         -0-           (20,128)
Harfield property      3,500          5,500          -0-            (2,000)
149 Carter Creek      17,000          9,720       21,711            14,431
                                                                 2
  Total              422,700       365,860       121,755           (65,873)
      1
       All second mortgages and the first mortgage on the property described
as “Hwy 71 back lot” were reportedly held by the Lawrys.
      2
        We observe that the total reported equity does not equal the total
reported fair market value less total reported mortgages.

The Form 433-A also listed two business bank accounts (held in

petitioners’ names) totaling $3,128, accounts/notes receivable

totaling $2,997, and various assets which petitioners claimed to

be valued at $2,600 after encumbrances.           Petitioners reported

monthly net business income from Mr. Titsworth’s business as

$2,894.    Finally, the Form 433-A reported petitioners’ monthly

income as $4,985 and their monthly living expenses as $5,065.

The Form 433-B reported that Cisero had zero assets, zero income,

zero expenses, and zero employees.
                                  -5-

IV.   Exchange of Information

      Petitioners’ hearing request was initially assigned to the

Memphis, Tennessee, Appeals Office.     In a letter dated October

26, 2008, respondent acknowledged receiving petitioners’ offer-

in-compromise but stated that the offer could not be evaluated

until petitioners submitted bank statements for all personal and

business accounts and documents substantiating their business

income.   Petitioners responded to that letter with a collection

of bank and credit card statements, receipts, and invoices.

      Appeals transferred petitioners’ hearing request to its

office in Oklahoma City, Oklahoma, on or about February 4, 2009.

Settlement Officer M. Kathy Howe (SO Howe) was assigned to

conduct that hearing.   In a letter dated March 25, 2009, SO Howe

scheduled a hearing with petitioners by telephone.     That letter

requested that petitioners submit, among other items, (1) copies

of mortgage loan applications tendered to First National Bank

(First National) and the Lawrys, (2) copies of all real estate

closing settlement statements for real estate transactions that

occurred afer December 31, 2007, and (3) details surrounding

petitioners’ relationship to the Lawrys.

      Petitioners responded to SO Howe’s letter with many (but not

all) of the items requested.    Included in their submission was a

letter that sought to explain petitioners’ inability to provide

mortgage loan applications.     With respect to the First National
                                -6-

mortgages, petitioners explained that “a written application is

not a prerequisite to a loan” in many cases.   With respect to the

Lawry mortgages, petitioners explained that they did not provide

a loan application or financial information to the Lawrys because

all business with Mr. Lawry was “sealed on a handshake, although

to protect * * * [Mr. Lawry,] we do follow it with filed

mortgages”.   Petitioners were offered a face-to-face CDP hearing

but declined.

V.   Evaluation of Offer-in-Compromise

     A.   Overview

     Over a 3-month period, SO Howe collected and analyzed

information related to petitioners’ assets and income.   Among the

documents which SO Howe examined were real property records from

the Polk County Assessor’s Office, mortgages between petitioners

and First National or the Lawrys, certain real estate closing

settlement statements, and petitioners’ attempted explanation of

the encumbrances on their real property.   SO Howe also reviewed

reports from third parties detailing petitioners’ real estate

holdings, check registers, and bank records and statements.    By

and large, her research revealed a number of inconsistencies

between what petitioners actually owned and what they claimed to

own on the Form 433-A.

     SO Howe’s analysis was detailed, and she summarized her

findings in an Appeals Case Memorandum (memorandum).   She noted
                                       -7-

that the calculation of petitioners’ reasonable collection

potential (RCP) “likely” contained errors, but stated that an

accurate analysis was not possible because (1) petitioners

failed to provide documents requested or fully disclose assets,

and (2) Mr. Titsworth continued to engage in real estate

transactions.       SO Howe also noted that petitioners failed to

disclose assets for which they claimed depreciation deductions on

the returns for the subject years.            SO Howe observed that,

notwithstanding the errors in the memorandum, she was able to

determine that petitioners had the ability to fully pay their

unpaid Federal income taxes.

     The memorandum served as the analysis for SO Howe’s

determination that petitioners’ offer-in-compromise should be

rejected, and it was incorporated directly into the notice of

determination on which this case is based.            The memorandum

included an “Asset/Equity Table” which calculated petitioners’

RCP on the basis of their available equity in assets and their

future income potential.

     B.      Total Asset Equity

     SO Howe first determined petitioners’ total asset equity as

follows:

                         Fair         Quick
    Assets           Market Value   Sale Value    Encumbrances   Equity

Cash                    $1,700       $1,700            -0-       $1,700
Checking accounts        4,172        4,172            -0-        4,172
Savings accounts            44           44            -0-           44
Mobile home             15,000       12,000            -0-       12,000
                                     -8-
Irrigation system          500         400            -0-            400
Equipment                  500         400            -0-            400
Trailers                 9,600       7,680         $5,873          1,807
Tractors and ATVs       17,275      13,820          6,822          6,998
1999 Buick Century       2,400       1,920          4,198            -0-
2000 Toyota Tundra       2,440       1,920            -0-          1,920
2003 Chevy Tahoe        10,815       8,652            -0-          8,652
2004 GMC Sierra          7,065       5,652          9,343            -0-
2006 dirt bike           3,610       2,888          2,047            841
Household goods          6,000       4,800          4,800            -0-
Business equipment
  and furniture          4,000       3,200          3,200            -0-
Cisero                     -0-         -0-            -0-            -0-
Real estate:
  116 Polk 703          80,000         -0-         79,485         80,000
  116 Polk 41           53,000      42,400            -0-         42,400
  242 Polk 46           75,000      60,000        Unknown         60,000
  104 Oak Forest Lane 148,000      148,000            (1)            -0-
  Pt W 1/2 SE           15,743         -0-            -0-         15,743
  Holiday apartments 207,227       165,782            -0-        165,782
  Residential rental
    (Acorn, AR)         57,600      46,000        Unknown        46,000
  Land Hatfield            500         500            -0-           500
  141 Carter Creek      35,950      28,760            -0-        28,760
  149 Carter Creek         -0-         -0-         31,699           -0-
  1162 Highway 71S    195,000      156,000        215,923           -0-
  Hwy 71 (back lot)      9,600       7,680         29,728         7,680
  3245 Highway 71N      90,000      72,000         65,331         6,669
  561 Hwy 375E          45,600      36,480         15,071        21,409
  1810 Wertz            73,600      58,880        Unknown        58,880
  Wickes land              697         697            -0-           697
    Total asset equity2                                          573,461
      1
       A note within the table stated that petitioners satisfied a first
mortgage of $131,492 and received a 1998 mobile home which was separately
included in the table.
      2
       We observe that the sum of the items does not equal total asset equity.

      Included in the total asset equity were “dissipated equity

funds” of $150,007, which we understand to refer to dissipated

assets.    SO Howe determined that petitioners dissipated assets by

conveying mortgages to the Lawrys on five of their properties to

allegedly borrow $150,007.       SO Howe concluded that the Lawry

mortgages were “sham mortgages” intended to cloud title to

petitioners’ properties.
                                  -9-

     As support for her conclusion, SO Howe noted that proceeds

from the Lawry mortgages were not used to settle prior mortgages

(in the case of a refinancing), or that no money exchanged hands

(in the case of a cashout).    SO Howe also observed that the

Lawrys were not mortgage lenders, that they never issued

petitioners a Form 1098, Mortgage Interest Statement, and that

they received only one $1,500 payment from petitioners over the

course of several months in 2008.3      Thus, SO Howe treated the

proceeds from the Lawry mortgages as dissipated assets and

calculated the available equity in petitioners’ assets without

regard to the Lawry mortgages.

     In particular, SO Howe determined petitioners’ dissipated

assets as follows:

   Description1             Encumbrance          Dissipated Value

1162 Hwy. 71S                 $56,477                $56,447
149 Carter Creek               21,712                 21,712
141 Carter Creek               14,892                 14,892
141 Carter Creek back lot      29,046                 29,046
561 Hwy. 375E                  27,881                 27,881
  Total2                      150,007                150,007
     1
      The memorandum described the properties by a variation of
the metes and bounds description. We compared that description
with other documents in the record to determine a less cumbersome
description of the property.
     2
      The sum of the items does not equal the total because of
rounding.



     3
      We note that petitioners’ bank records establish that they
paid Mr. Lawry $1,500 by check on each of Aug. 12, Sept. 24, and
Oct. 14, 2008.
                               -10-

The record is not clear whether the property described as “141

Carter Creek back lot” is the same property which petitioners

described on the Form 433-A as “Hwy 71 back lot”.

     C.   Future Income Potential

     SO Howe next calculated petitioners’ future income potential

over the 10-year statutory collection period.   See sec. 6502(a).

She first determined petitioners’ monthly disposable income

(i.e., total income less total allowable expenses) as follows:

    Income and Expense            As Claimed    As Determined

  Income:
    Gross wages                     $2,894            -0-
    Rental income                      -0-            -0-
    Interest/rental income             -0-           $305
    Business income                    -0-          2,393
    Pension/Social Security
      benefits                        1,326         1,326
    N.T.’s Social Security
      benefits                          765           765
    Installment sale income             -0-           776
      Total income                    4,985         5,565
  Expenses:
    National standard                 1,151         1,152
    Housing and utilities               879           895
    Automobile payment (Tundra)         489           200
    Automobile payment (Chevy)          489           200
    Automobile operating costs          456           402
    Health insurance                    612           516
    Out of pocket medical
      expenses                          424           240
    Income taxes                        363           465
    Life insurance                      202           202
      Total expenses                  5,065         4,272
  Monthly disposable income             (80)        1,293

SO Howe then bifurcated petitioners’ future income into two

tranches; the first included N.T.’s Social Security benefits, and

the second omitted them.   SO Howe determined that bifurcation was
                                 -11-

necessary because N.T.’s benefits ceased when he turned 19 years

old (he was apparently 17 years old when petitioners submitted

their offer-in-compromise).4    SO Howe computed petitioners’

future income during the 2-year period in which N.T. received

Social Security benefits as $31,032 ($1,293 times 24 months).       SO

Howe determined petitioners’ future income during the remaining

88-month period to be $46,464 (($1,293 less N.T.’s Social

Security benefits of $765) times 88 months).     Finally, SO Howe

calculated petitioners’ future income as $77,496 ($31,032 plus

$46,464).5

     D.      RCP and Rejection of Offer-in-Compromise

     SO Howe determined that petitioners’ RCP was $650,957,

calculated as total asset equity of $573,461 plus future income

of $77,496.     As documented in the memorandum, SO Howe determined

that petitioners did not qualify for an offer-in-compromise for

three reasons.     First, SO Howe stated that petitioners had

sufficient equity to pay their taxes in full.     Second, SO Howe

stated that petitioners had the ability to pay their taxes in

full through an installment agreement.     Third, SO Howe stated

that petitioners failed to provide all documentation necessary


     4
      The record does not specify N.T.’s birthday or the date
that he graduated from high school.
     5
      SO Howe did not determine an increased ability to pay from
the retirement of debt, nor was she required to. See Internal
Revenue Manual (IRM), pt. 5.8.5.6(3) and (4) (Sept. 23, 2008).
We observe that this determination was favorable to petitioners.
                                -12-

for an investigation of the offer-in-compromise.    She recommended

that petitioners’ offer-in-compromise be rejected because the

amount offered ($500) was less than petitioners’ RCP ($650,957).

VI.   Notice of Determination

      On July 30, 2009, Appeals issued to petitioners a notice of

determination sustaining the proposed levy action because Appeals

determined that petitioners could pay their taxes in full through

the liquidation of assets and their future ability to pay.   The

notice of determination documented the steps taken to verify that

legal and administrative requirements had been met and balanced

the need for efficient collection of taxes with petitioners’

concerns of intrusiveness.   The notice of determination also

considered petitioners’ offer-in-compromise and addressed those

issues by, among other things, including the memorandum in

unchanged form.

VII. Other Federal Income Tax Reporting

      Petitioners filed joint Federal income tax returns for 2007

and 2008 reporting their total income as follows:

          Item                   2007          2008

   Taxable interest             $6,094        $5,841
   Business income              49,958        28,711
   Capital gain                  1,133         5,793
   Other gains                  18,844         4,407
   Total rental real
     estate and royalty
     income (loss)              (8,405)       (5,807)
   Farm income (or loss)        (2,501)          -0-
   Taxable Social Security
     benefits1                  13,224         5,980
                               -13-

     Total Income               78,347          44,925
     1
      In 2007 and 2008 petitioners received gross Social Security
benefits of $15,558 and $25,097, respectively. We include that
portion of the benefits which petitioners reported as taxable on
their Federal income tax returns for those years.

Attached to the 2007 and 2008 joint returns were Schedules A,

Itemized Deductions, claiming home mortgage interest deductions

of $7,690 and $6,447, respectively.   Also attached to those

returns for Mr. Titsworth’s sole proprietorship were Schedules C,

Profit or Loss From Business, neither of which claimed a

deduction for mortgage interest paid in connection with Mr.

Titsworth’s business.   The 2007 and 2008 joint returns included

Forms 6252, Installment Sale Income, reporting that petitioners

received installment sale income of $2,038 and $3,487,

respectively.   Finally, attached to the 2007 joint return was a

Form 4797, Sales of Business Property, reporting that petitioners

sold three properties during that year for an aggregate gain

(gross sale price less adjusted basis) of $18,844.

                            Discussion

I.   Overview

     The Commissioner may not levy upon a taxpayer’s property or

property rights unless the taxpayer is notified in writing of his

or her right to a hearing under section 6330.    Sec. 6330(a)(1).

The taxpayer may raise at the hearing any relevant issue relating

to the unpaid tax or the proposed levy including collection

alternatives such as an offer-in-compromise.    Sec. 6330(c)(2)(A).
                               -14-

An Appeals officer is required by statute to consider such

issues, see sec. 6330(c)(3), and Appeals sets forth its findings

and decisions in a notice of determination, see sec. 301.6330-

1(e)(3), Q&A-E8(i), Proced. & Admin. Regs.

      Petitioners assert that Appeals was required to let them pay

$500 to compromise Federal income tax liabilities of $33,652 on

account of doubt as to collectibility.   They do not challenge the

underlying Federal income tax liabilities assessed against them

for the subject years, and we review Appeals’ determination for

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

(2000); see also Robinette v. Commissioner, 439 F.3d 455, 459

(8th Cir. 2006), revg. 123 T.C. 85 (2004).   Abuse of discretion

exists where Appeals rejects an offer-in-compromise “arbitrarily,

capriciously, or without sound basis in fact or law.”    Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).    A taxpayer generally bears

the burden of proving abuse of discretion, see Rule 142(a), and

that general rule applies even where, as here, the parties submit

their case to the Court fully stipulated, see Rule 122(b).

II.   Petitioners’ Offer-in-Compromise

      A.   Overview

      Section 7122(a) authorizes the Commissioner to compromise a

taxpayer’s Federal tax liabilities.   As authorized by section

7122(d), the Commissioner has developed guidelines for evaluating

whether an offer-in-compromise is adequate and should be accepted
                                 -15-

to resolve a dispute.    See also sec. 301.7122-1, Proced. & Admin.

Regs.     Under these guidelines, grounds for compromise include (1)

doubt as to liability, (2) doubt as to collectibility, and (3)

promotion of effective tax administration.     See id.   Petitioners

claim that Appeals was required to accept their offer-in-

compromise on the basis of doubt as to collectibility, and we

understand them to assert “special circumstances” due to health

concerns.

     B.     Doubt as to Collectibility

     The Commissioner may compromise a tax liability based on

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

are less than the full amount of the unpaid tax liability.       Sec.

301.7122-1(b)(2), Proced. & Admin. Regs.    An offer to compromise

based on doubt as to collectibility will generally be considered

acceptable where two conditions are met:    First, where it is

unlikely that the unpaid tax liability can be collected in full;

and second, where the offer reflects the taxpayer’s total RCP.

See Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517.     The

Internal Revenue Service (IRS) may also accept an offer of less

than the total RCP where there are special circumstances such as

economic hardship or compelling public policy or equitable

considerations.    See Murphy v. Commissioner, 125 T.C. 301, 309

(2005), affd. 469 F.3d 27 (1st Cir. 2006); see also sec.

301.7122-1(b)(3)(ii), Proced. & Admin. Regs.
                                -16-

     Petitioners cite four grounds in support of their position

that SO Howe abused her discretion.      First, they assert that SO

Howe mistakenly included in their RCP properties which they did

not own or double-counted other properties.      Second, they contend

that SO Howe erred in treating the Lawry mortgages as dissipated

assets includible in their RCP.   Third, they claim that SO Howe

overestimated their future income potential.      Fourth, they cite

health issues as special circumstances which obliged SO Howe to

accept their offer-in-compromise.      We consider each of these

contentions in turn.

          1.   No Abuse of Discretion as to Property Inclusion

     Petitioners contend that SO Howe abused her discretion by

crediting petitioners with properties that they did not own or by

double-counting properties.   We disagree.    Preliminarily, we note

that with respect to petitioners’ real property, the record is

riddled with inconsistencies.   The Form 433-A reported that

petitioners owned 8 properties, but the notice of determination

determined that petitioners owned 16 properties.     Our review of

the record revealed that petitioners, jointly or individually,

may have owned as many as 21 properties.6     The 2007 and 2008


     6
      The parties submitted a “Custom Comprehensive Report” which
was prepared on Oct. 16, 2008, and an undated list of properties
which the Polk County Assessor’s Office reported petitioners as
owning. We counted the properties listed in each report by
parcel number and conclude that petitioners, either jointly or
individually, owned as many as 21 properties. We do not treat
                                                   (continued...)
                                -17-

joint returns reported that petitioners sold real estate or

earned rental income from properties which may or may not have

been reported on the Form 433-A.7      The values which petitioners

assigned to properties that they did report conflicted with the

market values indicated on the Polk County Tax Assessor’s report.

Petitioners did not submit to the Court an appraisal for any of

the properties in question even though Mr. Titsworth operated a

real estate appraisal business.

     In the light of these inconsistencies, and bearing in mind

that petitioners bear the burden of proof, we decline to conclude

that SO Howe abused her discretion.      Respondent’s reports showed

that petitioners owned more assets than they disclosed to

Appeals.   Petitioners failed to disclose their ownership in

certain properties, and they provided incomplete and inconsistent

information.   The explanations that they provided as to these

contradictions were implausible.    Under these circumstances, we

must weigh heavily against petitioners, who created the

circumstances giving rise to any confusion as to which properties

they owned.    See Schropp v. Commissioner, T.C. Memo. 2010-71


     6
      (...continued)
petitioners as owning properties that were listed more than once
(parcel No. 0000-05111-0120), held in guardianship (parcel No.
0000-6629-0000), or titled in the name of “[Darrell K. and Karen
Titsworth]” (parcel Nos. 0000-06131-0000 and 6000-03152-0213),
whom we understand to be Mr. Titsworth’s son and daughter-in-law.
     7
      We decline to reach a conclusion on this point because the
record is so fragmented.
                               -18-

(taxpayer’s nondisclosure of assets rendered the amount of an

offer-in-compromise based on doubt as to collectibility

“unquantifiable”), affd. without published opinion 405 Fed. Appx.

800 (4th Cir. 2010); Ashlock v. Commissioner, T.C. Memo. 2008-58

(inconsistent and inconclusive evidence supported the Appeals

officer’s determination to include the value of dissipated assets

in an acceptable offer-in-compromise).    We conclude that SO Howe

did not abuse her discretion in crediting them with 16 properties

because petitioners have failed to persuade us otherwise.

          2.   No Abuse of Discretion as to Dissipated Assets

     Petitioners believe that Appeals abused its discretion by

including $150,007 of dissipated assets in their RCP.    We do not.

The IRM specifies that dissipated assets include liquid or

nonliquid assets that “have been sold, gifted, transferred, or

spent on non-priority items or debts and are no longer available

to pay the tax liability.”   Internal Revenue Manual (IRM) pt.

5.8.5.5(1) (Sept. 23, 2008); see also Johnson v. Commissioner,

136 T.C. 475, 487, 492-493 (2011).    Appeals officers are

instructed to consider including the value of dissipated assets

in a taxpayer’s RCP unless the taxpayer shows that the dissipated

funds had been spent to provide for necessary living expenses.

IRM pt. 5.8.5.5(2), (4) (Sept. 23, 2008).    Whether to include

dissipated assets in a taxpayer’s RCP is not an automatic

determination but must be evaluated on the basis of the facts and
                                   -19-

circumstances of each case in the light of certain enumerated

factors.8    Id. pt. 5.8.5.5(6).    Finally, Appeals officers are

counseled to consider including the value of dissipated funds in

an acceptable offer amount where the taxpayer does not provide

information showing the disposition of funds from transferred

assets.     Id. pt. 5.8.5.5(8).

     We conclude that SO Howe did not abuse her discretion when

she included $150,007 of dissipated assets in petitioners’ RCP,

and she was justified in concluding that the Lawry mortgages were

suspect.    As petitioners posit, they mortgaged more than $150,000

of real estate without submitting a mortgage application or

financial record and without executing a settlement statement.

They claimed to have paid sizable amounts of interest in

connection with the Lawry mortgages, but they were not issued

(and apparently did not request) a Form 1098.      Nor did they claim

mortgage interest deductions on the Schedules C attached to their

2007 and 2008 joint returns.

     The Lawry mortgages were not notarized, and they were not

signed by either of the Lawrys.      Most of the Lawry mortgages were



     8
      The factors to be evaluated are (1) when the assets were
dissipated in relation to the offer submission, (2) when the
assets were dissipated in relation to the liability, (3) how the
assets were transferred, (4) whether the taxpayer realized any
funds from the transfer of assets, (5) how any funds realized
from the disposition of assets were used, and (6) the value of
the assets and the taxpayer’s interest in those assets. IRM pt.
5.8.5.5(3) (Sept. 23, 2008).
                               -20-

not recorded until November 2008, more than 10 months after their

execution date on January 1, 2008, and approximately 3 months

after the offer-in-compromise was submitted on August 27, 2008.

Under Arkansas law, the lien of the mortgage did not attach until

recordation.   See 18 Ark. Code Ann. sec. 18-40-102 (2003);

Dempsey v. Merchs. Natl. Bank of Ft. Smith, 729 S.W.2d 150, 151

(Ark. 1987) (“A mortgage becomes a lien at the time it is

recorded and not before.”).   The Lawrys’ security interest in the

underlying properties was therefore not protected against

subsequent purchasers.   See Sims v. McFadden, 233 S.W.2d 375, 378

(Ark. 1950).   Also peculiar is that petitioners, as mortgagors,

would record the Lawry mortgages “to protect” Mr. Lawry.

     As if the form, execution, and reporting associated with the

Lawry mortgages were not bizarre enough, those mortgages were not

necessarily secured.   Many of the Lawry mortgages encumbered the

underlying properties in excess of petitioners’ equity in those

properties; we observe that it is atypical behavior for a

mortgagee to not secure the note with additional collateral or a

guaranty.   Petitioners have not explained why the Lawrys would

accept mortgages of less than petitioners’ equity in the

underlying property, and they did not call the Lawrys to testify

on that point.9   Whereas petitioners cite their “small town rural


     9
      On brief, petitioners direct the Court to exhibits which,
they contend, establish that SO Howe erroneously included or
                                                   (continued...)
                                -21-

setting” and the “relaxed and less rigid” relationships between

bankers and customers as “reasonable explanations” for their lack

of formal documentation, we do not.    When viewed in the light of

petitioners’ close personal relationship with the Lawrys, the

foregoing facts support SO Howe’s conclusion that the Lawry

mortgages were dissipated assets that should be included in

petitioners’ RCP.10   Petitioners have not persuaded us otherwise.

     Even if we agreed with petitioners that their RCP should not

have included the value of the Lawry mortgages, which we do not,

petitioners are still without recourse.   SO Howe reviewed bank

statements and determined that petitioners owned cash and bank

accounts totaling $5,916 ($1,700 of cash plus $4,172 of checking



     9
      (...continued)
double-counted properties in the calculation of their RCP. They
also direct the Court to exhibits which, petitioners maintain,
evidence valid real estate contracts and mortgages with “Lender”.
We have tried to review the exhibits which petitioners cite in
support of their position but have been unable to do so because
those exhibits were identified incorrectly or not included in the
record. We note further that petitioners do not specify whether
“Lender” refers to the Lawrys, First National, or some other
creditor.
     10
      By way of an example added to the IRM on Oct. 22, 2010, an
Appeals officer should consider including the amount of a second
mortgage loan in a taxpayer’s RCP where the taxpayer secures a
second mortgage on his or her residence, uses a portion of that
mortgage to pay unsecured debts, and is unable to account for the
remaining loan proceeds. See IRM pt. 5.8.5.16(7) (Oct. 22,
2010). While we are mindful that SO Howe was unable to consider
a provision of the IRM not yet existing, we believe that this
example bespeaks IRS practice as to when amounts from a second
mortgage should be included in a taxpayer’s RCP as dissipated
assets.
                               -22-

accounts plus $44 of savings accounts).   Neither the petition nor

petitioners’ brief challenges SO Howe’s determination of the cash

that they owned, and we treat that issue as conceded.   See Rule

331(b)(4).   Thus, regardless of whether petitioners’ RCP included

the dissipated assets, the equity component of their RCP exceeded

their offer amount with considerable margin.

     Moreover, petitioners claim on brief that SO Howe overstated

their net worth by approximately $530,459.   That statement is, in

effect, a concession that the RCP from their assets was $43,102

($573,561 of asset equity determined by Appeals minus $530,459

overstatement claimed by petitioners).    By their own admission,

therefore, petitioners possessed sufficient equity ($43,102) to

satisfy their unpaid Federal income tax liabilities for the

subject years ($33,652).

           3.   No Abuse of Discretion as to Future Income

     Petitioners claim in the petition that SO Howe improperly

included installment income of $776 per month and N.T.’s Social

Security benefits of $765 per month and omitted allowable

expenses related to petitioners’ Toyota Tundra truck of $200 per

month.   While we agree with petitioners that SO Howe overstated

their future income, we hold those errors harmless because, even

as corrected, petitioners’ RCP still exceeds their offer.    See

Lindley v. Commissioner, T.C. Memo. 2006-229, affd. sub nom.

Keller v. Commissioner, 568 F.3d 710 (9th Cir. 2009); see also
                                -23-

Keene v. Commissioner, 121 T.C. 8, 21 (2003) (Halpern, J.,

concurring).   We consider petitioners’ assignments of error

seriatim.

     First, we decide whether SO Howe improperly attributed to

petitioners installment income of $776 per month.     Attached to

the 2007 and 2008 joint returns were Forms 6252 reporting that

petitioners received installment sale income of $2,038 and

$3,487, respectively.    We credit petitioners with amounts

reported on their 2008 return as reflective of their current

income and conclude that petitioners’ monthly income includes

installment sale income of $291.

     Second, we decide whether SO Howe overestimated the period

during which N.T. received Social Security benefits.     Petitioners

claim that they submitted proof to Appeals showing that N.T.’s

Social Security benefits were discontinued in May 2009 when N.T.

graduated from high school.    We have parsed the record and, other

than petitioners’ statements on brief and in the petition, find

no evidence as to N.T.’s age or when he graduated from high

school.   Petitioners’ unverified statements are self-serving, and

we need not accept them as truth.      See Tokarski v. Commissioner,

87 T.C. 74, 77 (1986).    We are mindful that although Social

Security benefits are not typically paid to a child past the age

of 18, such benefits may continue until a child is 19 years old

if that child is a full-time elementary or secondary school
                                  -24-

student.   See 42 U.S.C. sec. 402(d)(1)(B) (2006).     Because

petitioners have failed to prove when N.T. stopped being a full-

time secondary school student, we sustain SO Howe’s determination

that petitioners’ monthly income included N.T.’s Social Security

benefits of $765.

     Third, we decide whether SO Howe erred in limiting

petitioners’ automobile expense for the Toyota Tundra vehicle to

$200 per month.    The IRM defines future income as “an estimate of

the taxpayer’s ability to pay based on an analysis of gross

income, less necessary living expenses, for a specific number of

months into the future.”     IRM pt. 5.8.5.6(1) (Sept. 23, 2008).

The number of months for which future income is to be calculated

depends upon the payment terms of the offer-in-compromise.       Id.

pt. 5.8.5.6(1)(A).    Although SO Howe was authorized to project

petitioners’ future income over a period of 48 or 60 months, she

exercised her discretion to calculate petitioners’ monthly income

over 112 months.     Id.   We respect that exercise of discretion

given that the statutory collection period is 112 months and the

offer’s payment terms are unknown.       See sec. 6502(a); Johnson v.

Commissioner, 136 T.C. at 494 n.17.

     In addition to a $402 monthly allowance for automobile

operating costs, SO Howe also allowed petitioners $200 per month

for the duration of the future income period for each of the

Toyota Tundra and the Chevy Tahoe automobiles.      That adjustment
                              -25-

was in accordance with respondent’s administrative guidance.      See

IRM pt. 5.19.1.6.2.5.2 (Apr. 28, 2008); see also id. pt.

5.8.5.6.3(3) (Sept. 23, 2008) (allowing a monthly expense of $200

per vehicle for certain vehicles).    We conclude that SO Howe did

not abuse her discretion in calculating petitioners’ expense

related to the Toyota Tundra as $200 per month.

     On the basis of the foregoing, we calculate petitioners’

disposable monthly income for the first and second years of the

statutory collection period as follows:

                              As Determined       As Determined
    Income and Expense        by Respondent       by the Court1

  Income:
    Gross wages                        -0-             -0-
    Rental income                      -0-             -0-
    Interest/rental income            $305            $305
    Business income                  2,393           2,393
    Pension/Social Security
      benefits                       1,326           1,326
    N.T.’s Social Security
      benefits                         765             765
    Installment sale income            776             291
      Total income                   5,565           5,080
  Expenses:
    National standard                1,152           1,152
    Housing and utilities              895             895
    Automobile payment (Tundra)        200             200
    Automobile payment (Chevy)         200             200
    Automobile operating costs         402             402
    Health insurance                   516             516
    Out of pocket medical
      expenses                         240             240
    Income taxes                       465             465
    Life insurance                     202             202
      Total expenses                 4,272           4,272
  Monthly disposable income          1,293             808
     1
      We do not decide the accuracy of income and expense items
petitioners do not challenge.
                                -26-

We calculate petitioners’ future income for the first 2 years of

the statutory collection period as $19,392 ($808 times 24

months).    We next adjust petitioners’ disposable monthly income

for the remaining 88 months of the statutory collection period

and find that their disposable income for that period is at least

$43 per month ($808 minus $765).11      It follows that petitioners’

future income for the balance of the statutory collection period

is at least $3,784 ($43 times 88 months).      We conclude that

petitioners’ future income for the balance of the statutory

collection period is at least $23,176 ($19,392 plus $3,784).

            4.   Recalculation of RCP

     SO Howe was justified in including the contested properties

in her calculation of petitioners’ RCP and in treating the Lawry

mortgages as dissipated assets.   On our review of the record in

the light of respondent’s administrative guidance, we conclude

that petitioners’ future income potential is at least $23,176.

Petitioners’ RCP was thus at least $596,637 ($573,461 plus

$23,176).   SO Howe was justified in rejecting petitioners’ offer




     11
      We use the phrase “at least” because, although SO Howe
credited petitioners with rental or interest income of $305 per
month, the 2008 joint return indicated that petitioners received
interest income of $487 per month ($5,841 divided by 12 months).
Moreover, the record contains IRS transcripts indicating that
First National paid petitioners interest income of $3,651 from
account No. ending in 7355. Petitioners did not report that
account on their Form 433-A, and they have not proved that they
do not have such an account with First National.
                                -27-

because their RCP ($596,637) exceeded their offer-in-compromise

($500).

      C.   Special Circumstances

      Nor are we persuaded that petitioners’ health concerns

constitute special circumstances that obligated Appeals to accept

an offer of $500 to compromise $33,652 of unpaid Federal income

tax liabilities.   On brief and in an attachment to their Form

433-A, petitioners claim that they suffer from medical conditions

which will affect their future ability to work.    As to Ms.

Titsworth, they claim that she suffers from hypertension, extreme

fatigue, irregular heartbeat, angina (chest pain), and

osteoarthritis.    As to Mr. Titsworth, petitioners contend that he

suffers from joint deterioration, torn retinas, cataracts, and

early-onset dementia. Petitioners have submitted no objective

evidence in support of their claims of medical frailty, and we

reject those statements as self-serving.    See Tokarski v.

Commissioner, 87 T.C. at 77.

IV.   Conclusion

      Petitioners have not shown that Appeals’ rejection of their

$500 offer-in-compromise was arbitrary, capricious, or without

sound basis in fact or law.    We therefore hold that Appeals’

determination was not an abuse of discretion.    In reaching our

decision, we have considered all arguments made, and to the
                                 -28-

extent that we have not specifically addressed them, we conclude

that they are without merit.

     To reflect the foregoing,


                                        Decision will be entered

                                   for respondent.
