                          T.C. Memo. 2010-43



                       UNITED STATES TAX COURT



         GREGG BARTL AND BETH FEINSTEIN-BARTL, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22866-07L.                Filed March 4, 2010.



     John M. Weinberg, for petitioners.

     Christine K. Lane, for respondent.



                          MEMORANDUM OPINION


     LARO, Judge:    Petitioners petitioned the Court under section

6330(d)1 to review the determination of the Internal Revenue

Service’s Office of Appeals (Appeals) sustaining the


     1
      Unless otherwise indicated, section references are to the
applicable version of the Internal Revenue Code. Some dollar
amounts are rounded.
                                  -2-

Commissioner’s filing of a notice of Federal tax lien relating to

$83,755 of Federal income taxes owed by petitioners for 2000

through 2005 (subject years).    Petitioners argue that Appeals was

required to accept their offer of $50,000 to compromise the

$83,755 liability.    We decide whether Appeals abused its

discretion in declining the offer and in sustaining the filing of

the notice of Federal tax lien.    We hold it did not.

                              Background

     The parties’ stipulations of fact and accompanying exhibits

are incorporated herein by this reference.    The stipulated facts

are so found.

I.   Petitioners

     A.   Overview

     Petitioners are husband and wife.     Gregg Bartl (Mr. Bartl)

is a carpenter.    Beth Feinstein-Bartl (Ms. Feinstein-Bartl) is a

freelance reporter and a retail sales associate.    Petitioners

resided in Florida when the petition was filed.

     B.   Petitioners’ Health Issues

          1.      Mr. Bartl

     Mr. Bartl was born in 1961.    He suffers from hypertension

and depression and has had two mild strokes, neither of which was

detected or treated at the time of occurrence.    Mr. Bartl

received medical treatment for those conditions, but he did not
                                    -3-

have health insurance.       He incurred $5,970 in unreimbursed

medical expenses from the treatment.

        Mr. Bartl earned no income from 1999 to 2003.    He earned

$3,436 of income in 2004 and $37,184 of income in 2005.       The 2005

increase in income was attributable to his securing fulltime

employment as a carpenter.

               2.   Ms. Feinstein-Bartl

        Ms. Feinstein-Bartl was born in 1959.    She was diagnosed

with fibroid tumors of the reproductive tract in 2003, which she

fully recovered from in August 2004.       The treatment of the tumors

caused petitioners to incur medical expenses because, even though

Ms. Feinstein-Bartl had health insurance, her insurance company

deemed the tumors to be a preexisting condition not covered by

her policy.2

     Ms. Feinstein-Bartl’s income has gradually decreased over

time.       She earned $34,599 in 1999, $33,376 in 2000, $30,029 in

2001, $29,970 in 2002, $26,545 in 2003, $23,122 in 2004, and

$22,577 in 2005.

               3.   Petitioners’ Psychological Evaluation

        On October 6, 2005, petitioners underwent a joint

psychological evaluation at the advice of their counsel, John M.




        2
      The extent of her medical expenses is not discernible from
the record.
                                 -4-

Weinberg (Mr. Weinberg).    The psychologist opined that

petitioners suffered from stress and depression.

II.   Nonpayment of Tax and Notice of Federal Tax Lien

      Petitioners filed Federal income tax returns for the subject

years but did not pay the resulting tax liabilities.     On December

26, 2006, respondent mailed to petitioners a Notice of Federal

Tax Lien Filing and Your Right to a Hearing.    The notice advised

petitioners (i) that respondent had filed a notice of Federal tax

lien related to their Federal income taxes for the subject years;

and (ii) of their right to a hearing with Appeals to review the

propriety of that action.

III. Offers-in-Compromise

      A.   Overview

      Petitioners submitted two offers seeking to compromise their

tax liabilities.

      B.   First Offer

           1.   Overview

      On June 7, 2006, respondent received petitioners’ Form 656,

Offer in Compromise (first offer), in which petitioners agreed to

pay $17,500 to satisfy their outstanding tax liabilities for the

subject years as well as for 1997 through 1999.    Petitioners

afterwards revised the first offer to assert doubt as to
                                   -5-

collectibility and effective tax administration as the reasons

for the offer.3

            2.    Respondent’s Evaluation of the First Offer

                  a.   Overview

     On November 17, 2006, respondent determined that he could

expect to collect $308,285 from petitioners over a 10-year

period.    The $308,285 was based on $183,800 in net realizable

equity from current assets, $47,445 in retired debt, and $77,040

in future income (i.e., total income less necessary living

expenses, each of which is summarized below).    Respondent’s

determination was derived from information petitioners tendered

on Form 433-A, Collection Information Statement for Wage Earners

and Self-Employed Individuals.

                  b.   Net Realizable Equity

                       i.   Real Property

                            1)    Overview

     Petitioners reported various assets and liabilities on Form

433-A.    Included in the assets were a primary residence and

rental property, each located in Florida.


     3
      The first offer initially asserted doubt as to liability as
the reason for compromise. On June 26, 2006, respondent received
petitioners’ revised offer-in-compromise, which removed doubt as
to liability as the reason for compromise and substituted doubt
as to collectibility and effective tax administration. The
original and revised offers were otherwise unchanged. We refer
collectively to the first offer dated June 11, 2006, and the
revised offer dated June 26, 2006, as the “first offer”.
                                 -6-

                         2)     Primary Residence

     The primary residence is a 1,117-square-foot ranch-style

home built in 1963 that sits on a 6,135-square-foot lot.       The

home has two bedrooms and one bathroom and was appraised by a

third party in connection with this proceeding.     Although

comparable homes ranged in value from $187,000 to $239,000, the

primary residence was valued at $125,000 because of its general

unsuitability as compared to other homes.    Respondent concedes

that the value of the home before encumbrances is no greater than

$125,000.

     Respondent determined petitioners’ net realizable equity in

the primary residence to be $90,396.    In arriving at this amount

respondent discounted the $125,000 value of the primary residence

by 20 percent ($125,000 x 80% = $100,000) and then subtracted a

$9,604 primary mortgage held by Bank of America, N.A. (Bank of

America primary mortgage).    Petitioners contend that the primary

residence also is subject to other encumbrances which respondent

did not take into account.    Petitioners state that these other

encumbrances include a $50,000 mortgage (Reich mortgage) held by

Corine Reich (Ms. Reich), Ms. Feinstein-Bartl’s mother,4 and a


     4
      Petitioners support the Reich mortgage with a mortgage deed
dated Oct. 18, 2006, which was recorded with Broward County on
Oct. 20, 2006. That mortgage calls for monthly payments of
$277.78 and a maturity date of Oct. 18, 2021. The mortgage
states that it does not bear interest, and the total payments
equal $41,667 over the life of the mortgage, which is $8,333 less
                                                   (continued...)
                                  -7-

$55,000 home equity line of credit with Bank of America (Bank of

America home equity line) that was advanced to petitioners in

April 2007.   The Bank of America home equity line was secured by

petitioners’ primary residence.

                           3)   Rental Property

     Petitioners also provided to respondent an independent

appraisal of the rental property.       Built in 1962, the rental

property is a ranch-style home of approximately 1,000 square feet

that sits on a 6,135-square-foot lot.       The rental property has

three bedrooms and 1.5 bathrooms, with comparable homes ranging

in value from $155,000 to $187,000.       The rental property was

appraised at $115,000, and respondent has accepted that appraised

value.   The rental property is not subject to any encumbrances.

Respondent discounted the rental property by 20 percent and

determined net realizable equity to be $92,000 ($115,000 x 80%).

                     ii.   Vehicles

     Petitioners owned three vehicles.       First, petitioners owned

a 1988 Chevrolet S10 pickup truck which respondent determined

would yield $240 in net realizable equity.       Second, petitioners

owned a 1998 Chevrolet Blazer which respondent determined would



     4
      (...continued)
than the face amount of the mortgage. On Jan. 19, 2007, Ms.
Reich drafted a letter to petitioners in which she threatened to
foreclose on petitioners’ primary residence in repayment of the
mortgage. The record does not indicate whether any such
foreclosure action was initiated.
                                 -8-

yield $240 in net realizable equity.    Third, petitioners owned a

2003 Chevrolet S10 pickup truck (2003 Chevrolet) subject to a

$20,907 loan.   Respondent valued the 2003 Chevrolet at $16,000

for quick sale and recognized that net realizable equity would be

zero because the amount realized from the sale ($16,000) would be

less than the car loan ($20,907).

     Petitioners also drove a Kia, the model, year, and value of

which are not clear from the record.    Ms. Feinstein-Bartl sends

monthly payments of $230 to her mother (Ms. Reich) for

petitioners’ use of the Kia.    Respondent did not attribute to

petitioners any realizable equity as to the Kia.

                     iii. Personal Effects

     Petitioners reported $1,250 in other assets, including

furniture, artwork, jewelry, clothing, and tools used in Mr.

Bartl’s carpentry business.    Respondent determined that no

realizable equity would inure from these personal items.

                c.   Retired Debt

     Respondent also determined as to the vehicles that

petitioners would realize $47,445 in future income from “retired

debt”.   Retired debt is debt that was included as a “necessary

living expense” in the calculation of “future income” as if it

would be paid throughout the 10-year period underlying the

calculation, but which will not actually be paid throughout that

period because it will be paid off earlier.    See generally Lloyd
                                  -9-

v. Commissioner, T.C. Memo. 2008-15.      Respondent calculated

future income debt relief as equal to the monthly payment

allowable under the Internal Revenue Manual (IRM) multiplied by

the difference between 120 months (10 years) and the number of

months remaining on the automobile loans.        Respondent determined

total future debt relief to equal $23,550, attributable to the

early retirement of the 2003 Chevrolet and $23,895 attributable

to the early retirement of the Kia.

                  d.   Future Income

                       1)   Income and Expenses for Living Expenses

     On November 17, 2006, respondent performed an analysis of

petitioners’ future income and living expenses as reported on

Form 433-A and adjusted those expenses within respondent’s

guidelines.   Respondent determined that petitioners’ future

income potential was $77,040, calculated as follows:5

         Income                  Amount Claimed     Amount Determined

     Wages and salaries                 $3,099         $3,050
     Net business income                   -0-          1,970
       Total                             3,099          5,020

         Expenses                Amount Claimed      Amount Allowed

     Housing and utilities              $1,182         $1,182
     Food, clothing, and misc.             767            904
     Transportation                      1,666          1,132
     Health care                           492            492
     Taxes                                 668            668
       Total                             4,774          4,377


     5
      The sum of individual expenses does not equal the total
expenses because of rounding.
                                -10-

     The differences between petitioners’ and respondent’s

determinations existed because respondent (i) disallowed a

portion of petitioners’ $1,666 in transportation expenses as

excessive; (ii) adjusted certain items as prescribed by the IRM;

and (iii) determined income to be higher than petitioners

reported.   As to the latter, respondent calculated petitioners’

future income using petitioners’ combined earned income for 2005;

i.e., the income earned by both Mr. Bartl and Ms. Feinstein-

Bartl.   Petitioners, on the other hand, apparently calculated

future income using only Mr. Bartl’s income from 2005 ($37,184

divided by 12 months).    Petitioners apparently ignored Ms.

Feinstein-Bartl’s salary in their income calculation.

Petitioners’ omission of Ms. Feinstein-Bartl’s portion of income

yielded a lower future income than respondent calculated.

     Respondent concluded that petitioners’ monthly gross income

and their monthly living expenses resulted in a monthly surplus

of $642 ($5,020 - $4,377), the proceeds of which respondent

treated as available for petitioners to satisfy their outstanding

tax liabilities.   Respondent calculated that this surplus would

arm petitioners with an additional $77,040 over the 10-year base

period ($642 x 12 months x 10 years).

                     2)    Other Liabilities Proffered by
                           Petitioners

     In the stipulations of fact petitioners present

documentation of additional liabilities which were neither
                                -11-

reported on Form 433-A nor included in respondent’s calculation.

First, Mr. Bartl owes the State of New Jersey $3,226 for past-due

automobile insurance surcharges.    Second, Mr. Bartl owes certain

medical expenses, including:    (i) $4,183 to Memorial Regional

Hospital; (ii) $573 to Inphynet South Broward, Inc.; and (iii)

$607 to an unnamed creditor.6

               e.     Result of First Offer

     On January 4, 2007, respondent rejected the first offer

because the amount offered ($17,500) was less than petitioners’

reasonable collection potential ($308,285).    In the rejection

respondent noted that he considered petitioners’ “special

circumstances” but those circumstances did not warrant acceptance

of the first offer.   Respondent invited petitioners to submit

additional information in support of their position if they

desired.

     Petitioners filed Form 12153, Request for a Collection Due

Process Hearing (hearing), on January 12, 2007.    Through that

form petitioners sought a discharge of tax liens placed on their

primary residence and rental property so that they might

refinance their properties, purportedly to repay their

outstanding tax liabilities.




     6
      Mr. Bartl owed $5,970 in past-due medical expenses, but
apparently $607 of that debt was forgiven.
                                  -12-

        C.   Second Offer

      On January 21, 2007, petitioners tendered to respondent a

second Form 656 (second offer) offering to compromise their

outstanding tax liabilities.   The second offer increased the

settlement amount to $50,000 to satisfy their outstanding tax

liabilities for the subject years as well as for 1997 through

1999.    Petitioners again asserted doubt as to collectibility and

effective tax administration as grounds for a compromise, but

petitioners presented no updated financial information.      On

February 1, 2007, respondent denied the second offer.

IV.   Hearing and Determination

      Petitioners requested a face-to-face hearing to determine

the merits of the rejected offers.       On August 8, 2007, David C.

Varnerin (Mr. Varnerin), a settlement officer for Appeals, held a

hearing with Mr. Weinberg.   Messrs. Varnerin and Weinberg

discussed the rejection of petitioners’ offers-in-compromise, but

no other issues or collection alternatives were raised.      Mr.

Varnerin took the position that petitioners had net equity in

assets of $183,800 and future income of $124,485 ($77,040 in

future income potential + $47,445 in retired debt relief),

resulting in a reasonable collection potential of $308,285.

Appeals was of the view that it was more appropriate to use

petitioners’ total income from 2005 rather than only Mr. Bartl’s

income because Ms. Feinstein-Bartl continued to publish articles
                                   -13-

for two newspapers in Florida.7      Appeals determined that

petitioners did not suffer any economic hardship because they

were both employed and meeting basic living expenses.

     Appeals also focused on petitioners’ ownership of two pieces

of real estate as a reason for rejecting the offers.       In

examining respondent’s calculation of petitioners’ net realizable

equity, Appeals accounted for the existence of additional

encumbrances, but determined that the net realizable equity still

exceeded petitioners’ tax liabilities.       Appeals also recognized

that although the rental property had fallen somewhat into

disarray, there was no need to discount the value of the rental

property further because the current occupant of the house, a

friend of petitioners, was fixing up the house in exchange for

rent.       Appeals indicated that either the proceeds from the sale

of the rental property or the income which could be generated by

renting the property was sufficient to satisfy petitioners’ tax

liabilities.       On September 17, 2007, Appeals sustained the

rejection of petitioners’ offers-in-compromise.

V.   Petition and Underlying Tax Liability

        On October 5, 2007, petitioners petitioned the Court to

determine whether Appeals abused its discretion by not accepting


        7
      Appeals apparently located at least seven articles
published during January and February 2007 in which Ms.
Feinstein-Bartl’s name appeared on the byline, indicating that
despite petitioners’ contrary assertions, Ms. Feinstein-Bartl was
actually working.
                                  -14-

petitioners’ offers-in-compromise.       Petitioners did not contest

the validity of the underlying tax liability at the hearing and

similarly make no objection in the petition.

                               Discussion

I.    Overview

      Petitioners argue that Appeals was required to let them pay

$50,000 to compromise their $83,755 in Federal income tax

liability on the basis of (i) doubt as to collectibility; and

(ii) effective tax administration.       Our review is limited to

those issues petitioners raised at the hearing.       See Giamelli v.

Commissioner, 129 T.C. 107, 114 (2007).       At the hearing,

petitioners raised only the appropriateness of their offers-in-

compromise to be accepted.     Accordingly, we limit our analysis to

the propriety of Appeals’ rejection of petitioners’ $50,000

offer-in-compromise, the higher of their two offers.

II.   Standard of Review

      Where, as here, petitioners’ underlying tax liability is not

at issue, we review the determination solely for abuse of

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

In deciding whether Appeals’ rejection of an offer-in-compromise

was an abuse of discretion, we decide whether the rejection was

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

See Cox v. Commissioner, 126 T.C. 237, 255 (2006), revd. 514 F.3d

1119 (10th Cir. 2008); Murphy v. Commissioner, 125 T.C. 301, 308
                               -15-

(2005), affd. 469 F.3d 27 (1st Cir. 2006); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).     We do not substitute our

judgment for that of Appeals, and we do not prescribe the amount

we believe would be an acceptable offer-in-compromise.      See

Murphy v. Commissioner, supra at 320; see also Fowler v.

Commissioner, T.C. Memo. 2004-163.

III. Petitioners’ Offers-in-Compromise

     A.   Overview

     A taxpayer may offer to compromise a Federal tax liability.

Sec. 7122; see also sec. 6330(c)(2)(A)(iii).      The Commissioner

has specified guidelines for determining when a taxpayer’s offer-

in-compromise should be accepted.     See sec. 301.7122-1(b),

Proced. & Admin Regs.   These guidelines permit the Commissioner

to accept an offer-in-compromise on the following grounds:

“Doubt as to liability”, “Doubt as to collectibility”, and to

“Promote effective tax administration”.     Id.   Petitioners argue

that Appeals was required to accept the compromise of their tax

liability on the latter two grounds.

     B.   Doubt as to Collectibility

          1.   Overview

     Petitioners argue that Appeals abused its discretion in

failing to accept their $50,000 offer-in-compromise on the basis

of doubt as to collectibility because their “limited assets do
                                -16-

not enable them to pay their tax debt.”     We disagree that Appeals

abused its discretion.

            2.   No Abuse of Discretion in Rejecting Petitioners’
                 Doubt as to Collectibility Claim

     The guidelines for evaluating offers-in-compromise on the

basis of doubt as to collectibility are set forth in regulations

under section 7122.   See sec. 301.7122-1(b)(2), (c)(2), Proced. &

Admin. Regs.; see also IRM pt. 5.8.4.4 (Sept. 1, 2005).      Under

this guidance, the Commissioner may generally compromise a tax

liability on the basis of doubt as to collectibility where the

taxpayers’ assets and income are less than the full liability.

See sec. 301.7122-1(b)(2), Proced. & Admin. Regs.    An offer-in-

compromise based on doubt as to collectibility will be acceptable

only if the offer reflects the taxpayer’s reasonable collection

potential (i.e., the amount less than the full liability that the

Commissioner could collect through alternative remedies such as

administrative and judicial proceedings).    See Murphy v.

Commissioner, supra at 309.    A taxpayer’s reasonable collection

potential is determined, in part, using published guidelines that

establish national and local allowances for necessary living

expenses.   Income and assets in excess of those needed for

necessary living expenses are treated as available to satisfy

Federal income tax liabilities.   See IRM exhs. 5.15.1-3, 5.15.1-

8, 5.15.1-9 (Jan. 1, 2005).
                                  -17-

     Before the hearing, petitioners submitted Form 433-A on

which they set forth their income, expenses, assets, and

liabilities.     Appeals reviewed petitioners’ Form 433-A and

adjusted petitioners’ income, expenses, assets, and liabilities

as prescribed by the IRM, determining that $308,285 could

reasonably be collected from petitioners.      On that basis, Appeals

determined that petitioners possessed sufficient assets and

income to satisfy in full the subject tax debts owed to the

Government.     Among the assets included by Appeals in its

determination of petitioners’ reasonable collection potential was

the $92,000 in equity of petitioners’ rental property.      We find

no reason to disturb Appeals’ reliance on the rental property

equity as an asset available to satisfy petitioners’ outstanding

tax liabilities.8

          3.      No Abuse of Discretion in Respect of the
                  Bank of America Home Equity Line or the Reich
                  Mortgage

     Petitioners contend that Appeals failed to adjust their net

realizable equity to include all encumbrances on the primary

residence.     We do not agree.   Appeals noted in its report that

even if petitioners’ encumbrances were recognized, the net

realizable equity ($183,800) less the encumbrances ($91,667)

resulted in $92,133 in equity remaining to satisfy outstanding


     8
      On brief petitioners advance various arguments which were
not raised at the hearing. Since these arguments were not raised
at the hearing, we decline to decide their validity.
                               -18-

tax liabilities.9   Appeals also considered whether the value of

the rental property should be further reduced from its original

$125,000 value to reflect (i) hurricane damage; and (ii) a

generally depressed real estate market in South Florida.   Appeals

determined that no further adjustment was necessary because the

rental property could be either sold or rented and the proceeds

from either of those prospects would be sufficient to satisfy

petitioners’ outstanding tax liabilities.

          4.    Recalculation of Reasonable Collection Potential

     Petitioners ask us to find that respondent should have

adjusted their reasonable collection potential for the following

items:   (1) Bank of America home equity line; (2) Reich mortgage;

(3) $3,226 owed to the State of New Jersey; and (4) $5,363 to

satisfy Mr. Bartl’s unpaid medical expenses.   We note further

that an additional amount for petitioners to satisfy the

outstanding loan of $4,907 on the 2003 Chevrolet should have also

been included in the calculation of petitioners’ reasonable

collection potential.   Even if Appeals took into account each of

the above-mentioned items, however, petitioners still have




     9
      We consider it reasonable for respondent to question
whether the Reich mortgage constituted a bona fide indebtedness.
The note calls for no interest and less than full repayment of
principal, and the parties’ intentions to be bound in a debtor-
creditor relationship are questionable. We further note that
petitioners present no evidence that payments on the mortgage
were made or enforceable.
                                 -19-

$197,198 with which to satisfy their tax liabilities, calculated

as follows:

                                                            Amount

     Net Realizable Equity

          Value of primary residence (discounted)        $100,000
          Value of rental property (discounted)             92,000
          Value of vehicles (for sale)                         480
          Less Bank of America primary mortgage             (9,604)
                                                         1
          Less Reich mortgage                              (41,667)
          Less Bank of America home equity line            (55,000)
            Total                                           86,209

     Retired Debt Relief                                    47,445

     Future Income Potential                                77,040

     Miscellaneous Liabilities

          State of New Jersey liabilities                    3,226
          Medical expenses                                   5,363
          Balance on 2003 Chevrolet after sale               4,907
            Total                                           13,496

     Reasonable Collection Potential

          Net realizable equity                            86,209
          Retired debt relief                              47,445
          Future income potential                          77,040
          Less miscellaneous adjustments                  (13,496)
            Total                                         197,198
    1
     Although petitioners contend that respondent should have
accounted for the Reich mortgage as $50,000, the mortgage deed
only makes petitioners liable for $41,667. We decline to find
that respondent should have accounted for any portion of the
Reich mortgage in excess of the amount petitioners were
personally liable.

Accordingly, even if we treat as fact all of petitioners’

assertions regarding the value of their assets and the
                               -20-

accompanying encumbrances, petitioners will still realize

$197,198 with which to satisfy their tax liabilities.

          5.    Summary of Doubt as to Collectibility

     Appeals’ decision to reject petitioners’ $50,000 offer-in-

compromise was not arbitrary, capricious, or without a sound

basis in fact or law, and it was not abusive or unfair to

petitioners.   The settlement officer’s determination was based on

a reasonable application of the guidelines which we decline to

call into question.   See Speltz v. Commissioner, 124 T.C. 165

(2005), affd. 454 F.3d 782 (8th Cir. 2006); Sullivan v.

Commissioner, T.C. Memo. 2009-4.

     C.   Effective Tax Administration

          1.    Overview

     The Commissioner may compromise a tax liability for

promotion of effective tax administration where:    (i) Collection

in full, while achievable, would cause the taxpayer economic

hardship; or (ii) compelling public policy or equity

considerations provide a basis for compromising the liability.

See Speltz v. Commissioner, supra at 172-173.     Petitioners argue

that their physical and psychological frailties coupled with an

inability to maintain steady employment required Appeals to

compromise their tax liability.    We disagree.
                                 -21-

             2.   Economic Hardship

     Petitioners argue that Mr. Bartl’s stroke and Ms. Feinstein-

Bartl’s tumors require that their $50,000 offer-in-compromise be

accepted or else undue economic hardship will result.    To this

end, petitioners state that Appeals ignored their medical and

psychological issues and that forcing the sale of their rental

property would cause petitioners to be “homeless”, turning them

into “public charges”.      Section 301.6343-1(b)(4)(i), Proced. &

Admin. Regs., states that economic hardship occurs when a

taxpayer is “unable to pay his or her reasonable basic living

expenses.”    Section 301.7122-1(c)(3), Proced. & Admin. Regs.,

sets forth factors to consider in evaluating whether collection

of a tax liability would cause economic hardship, as well as some

illustrative examples.    One example involves a taxpayer who

provides fulltime care to a dependent child with a serious

long-term illness.    A second example involves a retired taxpayer

who would lack adequate means to pay his basic living expenses

were his only asset, a retirement account, to be liquidated.      A

third example involves a disabled taxpayer with a fixed income

and a modest home specially equipped to accommodate his

disability, who is unable to borrow against his home because of

his disability.    See sec. 301.7122-1(c)(3)(iii), Proced. & Admin.

Regs.   Petitioners’ situation is not comparable to that of the

taxpayers described in the regulations--they own two homes, four
                                -22-

cars, and are easily meeting their basic living expenses.       See

Speltz v. Commissioner, 454 F.3d at 786.      The record is clear

that Appeals’ settlement officer, in making his determination,

took into account petitioners’ claims of mental and employment

difficulties.    We find those claims to be speculative such that

Appeals was not required to arbitrarily decrease petitioners’

income potential to reflect them.      See, e.g., Fargo v.

Commissioner, 447 F.3d 706, 710 (9th Cir. 2006), affg. T.C. Memo.

2004-13.

     As to petitioners’ claim that sustaining the lien action

against them would turn them into public charges, we note that

even after the payment of their tax liabilities, petitioners will

have a surplus of approximately $113,443 ($197,198 - $83,755)

with which to continue to develop their funds for retirement.

     Appeals’ analysis took into account, inter alia,

petitioners’ $83,755 uncontested liability and petitioners’ net

realizable equity in the rental property of $92,000, an amount

that exceeds by a considerable margin petitioners’ offer of

$50,000.   Appeals also examined articles published in South

Florida newspapers in determining that Ms. Feinstein-Bartl

continued to generate business income despite her contrary

contentions.    We do not consider Appeals to have abused its

discretion by rejecting petitioners’ claim that they will suffer
                                  -23-

economic hardship if required to pay more than their $50,000

offer.

            3.     Compelling Policy or Equity Considerations

      Petitioners argue that their physical and mental illnesses

entitle them to forgiveness of their tax liabilities as a matter

of equity.    However, petitioners present no convincing argument

that requiring them to pay more than $50,000 would undermine

public confidence that tax laws are being administered fairly.10

To the contrary, if Appeals accepted petitioners’ proposal that

they pay less than all of their tax liabilities and of their

reasonable collection potential under the facts of this case,

then taxpayers in similar situations who lose a job or suffer

health issues, but dutifully pay their taxes, might lose

confidence in a system that excuses others when they fail to

comply.    See Sullivan v. Commissioner, supra.

IV.   Conclusion

      Petitioners have not shown that Appeals’ rejection of their

$50,000 offer-in-compromise was arbitrary, capricious, or without

sound basis in fact or law.     Accordingly, we hold that Appeals’

determination was not an abuse of discretion.     In so holding, we



      10
      Petitioners contend that requiring them to pay taxes while
the Government provided assistance to businesses under the
American Recovery and Reinvestment Act of 2009, Pub. L. 111-5,
123 Stat. 115, would undermine public confidence that U.S. tax
law is being administered fairly. We find no legal or factual
basis which supports petitioners’ argument.
                               -24-

express no opinion as to the amount of any compromise that

petitioners could or should be required to pay, or that Appeals

is required to accept.   The only issue before us is whether

Appeals abused its discretion in refusing to accept petitioners'

specific offer-in-compromise of $50,000.   See Speltz v.

Commissioner, 124 T.C. at 179-180.

     In reaching our decision, we have considered all arguments

made, and to the 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.
