                          T.C. Memo. 2010-130



                        UNITED STATES TAX COURT



   RONALD F. MARASCALCO AND REBECCA MARASCALCO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5631-08L.              Filed June 15, 2010.



     James G. McGee, Jr., for petitioners.

     Horace Crump, for respondent.



                          MEMORANDUM OPINION


     JACOBS, Judge:     In this matter petitioners seek review of

respondent’s determination to proceed with the filing of a tax

lien to collect petitioners’ unpaid income taxes, additions to

tax, and interest.    The case was submitted fully stipulated

pursuant to Rule 122.
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     The issue for determination is whether respondent’s

settlement officer (the settlement officer) abused her discretion

in rejecting petitioners’ proposed installment agreement as a

collection alternative.

     All Rule references are to the Tax Court Rules of Practice

and Procedure, and all section references are to the Internal

Revenue Code (Code) as amended.

                             Background

     The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    At the time they filed

their petition, petitioners resided in Mississippi.

     Petitioner husband, a dermatologist, owns 100 percent of

Ronald F. Marascalco, MPAS, PAC, PLLC, a clinic offering

dermatology services.   The record does not reveal the employment

status of petitioner wife.

     The unpaid liabilities that give rise to this matter

resulted from Federal income taxes, additions to tax for failure

to file, additions to tax for failure to pay tax, additions to

tax for failure to make timely estimated payments relating to tax

returns filed by petitioners, and statutory interest for years

2003 to 2006.   In addition to tax liabilities for the years at

issue, petitioners had unpaid tax liabilities for 2001 and 2002.

     On September 4, 2007, respondent sent petitioners Letter

3172, Notice of Federal Tax Lien Filing and Your Right to a
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Hearing Under IRC 6320, with respect to their unpaid Federal tax

liabilities for years 2003 to 2006.      In response, on October 1,

2007, petitioners requested a collection due process (CDP)

hearing and proposed entering into an installment agreement as a

collection alternative.

     While waiting for a reply from the settlement officer,

petitioners purchased a house on October 19, 2007.     The house was

subject to a 30-year mortgage that extended until 2037.

     Petitioners submitted Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals, dated

January 2, 2008, and an undated Form 433-B, Collection

Information Statement for Businesses, with attachments, detailing

petitioners’ personal and business finances.     On Form 433-A,

petitioners reported a monthly gross income of $22,433 from

petitioner husband’s business and the following living expenses:

     Food, clothing, and misc.              $1,123
     Housing and utilities                   1,175
     Transportation                          1,318
     Health care                               685
     Taxes (income and FICA)                 5,666
       Total living expenses                 9,967

Hence, petitioners calculated their disposable monthly income to

be $12,466 ($22,433 - $9,967).

     The settlement officer reviewed petitioners’ financial

information and calculated petitioners’ gross monthly income to

be $20,356 and, pursuant to the Internal Revenue Manual (IRM),

calculated their living expenses to be as follows:
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     Food, clothing, and misc.              $925
     Housing and utilities                 1,115
     Transportation                        1,318
     Health care                             108
     Taxes (income and FICA)               4,263
       Total living expenses               7,729

Hence, the settlement officer calculated petitioners’ disposable

monthly income to be $12,627 ($20,356 - $7,729).1

     On January 22, 2008, a telephone CDP hearing was held;

petitioners were represented by counsel.    During the hearing the

settlement officer proposed that petitioners pay the Internal

Revenue Service (IRS) $7,700 per month over 4 years, producing

total payments of $369,466.    Petitioners’ counsel made a

counteroffer pursuant to which petitioners would make monthly

payments to the IRS of $4,429 over 10 years, producing total

payments of $531,480.   As part of the counteroffer, petitioners

agreed to sign a waiver extending the period of limitations as

provided in section 6502.    The settlement officer refused

petitioners’ counteroffer.

     The settlement officer’s proposal was based on national and

local standards issued by the Secretary; petitioners’

counteroffer was based on their actual living expenses.




     1
      It is unclear how the settlement officer determined
petitioners’ income. However, the settlement officer’s reduction
in petitioners’ income combined with her reduction in
petitioners’ expenses resulted in a monthly disposable income
approximately equal to that determined by petitioners.
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     On February 4, 2008, a manager in respondent’s Appeals

Office sent petitioners a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 regarding

liens for 2003-2006.   Attached to that notice was a copy of the

settlement officer’s determination letter, which stated that (1)

the settlement officer verified that all legal and procedural

requirements with respect to the lien were met, (2) petitioners’

proposed collection alternative (i.e., petitioners’ counteroffer)

was rejected, and (3) the settlement officer determined that the

Federal tax lien balanced the Government’s need for efficient tax

collection with petitioners’ expectation that the collection

action be no more intrusive than necessary.   In rejecting

petitioners’ counteroffer, the settlement officer stated:

     Your * * * [representative] indicated that you were willing
     to pay $4,429.00 a month for the next ten years with a
     signed waiver extending the collection statue [sic]. The
     Settlement Officer advised your * * * [representative] that
     in accordance with IRM guidelines and the amount of your
     disposable income, securing a waiver to extend the statue
     [sic] is not warranted. The Settlement Officer advised your
     * * * [representative] that the proposed monthly amount for
     an installment agreement determined by the Appeals office
     would be the monthly amount recommended for an installment
     agreement.

     On March 6, 2008, petitioners filed a petition requesting

this Court to review respondent’s collection determination.
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                              Discussion

A.   Standard of Review

      This case involves a review of respondent’s determination to

proceed with collection of petitioners’ unpaid tax liabilities

for 2003 through 2006.     CDP hearings under section 6320

(regarding liens) are conducted in accordance with section

6330(c).   Sec. 6320(c).    After respondent issues his notice of

determination following an administrative hearing, a taxpayer has

the right to petition this Court for judicial review of the

determination.   Secs. 6320(c), 6330(d)(1).    Our review of

respondent’s determination is subject to the provisions of

section 6330.

      The judicial review that we are required to conduct in

section 6320/6330 cases focuses on the determination made by

respondent.   Because petitioners do not dispute the underlying

tax liabilities for the years at issue, we review respondent’s

determination for abuse of discretion.     See Sego

v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner,

114 T.C. 176 (2000).

      An abuse of discretion is defined as any action that is

unreasonable, arbitrary or capricious, clearly unlawful, or

lacking sound basis in fact or law.      Thor Power Tool Co. v.

Commissioner, 439 U.S. 522, 532-533 (1979); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).
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      The Code authorizes respondent to enter into installment

agreements with taxpayers.

      SEC. 6159.   AGREEMENTS FOR PAYMENT OF TAX LIABILITY IN
                   INSTALLMENTS.

           (a) Authorization of Agreements.--The Secretary is
      authorized to enter into written agreements with any
      taxpayer under which such taxpayer is allowed to make
      payment on any tax in installment payments if the Secretary
      determines that such agreement will facilitate full or
      partial collection of such liability.

Section 301.6159-1(b)(1)(I), Proced. & Admin. Regs., provides

that “The director [a district director or director of a service

or compliance center] has the discretion to accept or reject any

proposed installment agreement.”    Because respondent’s acceptance

or rejection of an installment agreement is discretionary, we

give due deference to respondent’s determination and do not

decide whether in our opinion petitioners’ proposed installment

agreement should be accepted.    See Woodral v. Commissioner, supra

at 23; Keller v. Commissioner, T.C. Memo. 2006-166, affd. in part

and vacated in part 568 F.3d 710 (9th Cir. 2009).

B.   The Settlement Officer’s Use of the Collection Financial
     Standards

      Petitioners first argue that the settlement officer abused

her discretion by relying on collection financial standards to

calculate petitioners’ monthly expenses instead of using the

actual expenses petitioners reported on Form 433-A.    We are

mindful that, (1) in general, respondent may rely on national and

local collection financial standards published by the Secretary,
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and (2) to deviate from these standards, the taxpayer is required

to demonstrate he would not have adequate means to provide for

his basic living expenses.    See McDonough v. Commissioner, T.C.

Memo. 2006-234.   The taxpayer is required to provide reasonable

substantiation and documentation with respect to such an

assertion.   IRM pt. 5.8.11.2.1(4) (Sept. 23, 2008), 5.15.1.7(5)

(May 1, 2004).

     The settlement officer’s calculation of petitioners’

disposable monthly income ($12,627), using the collection

financial standards, is but $161 per month greater than

petitioners’ calculation, using their actual monthly income and

expenses.    Because the amounts of petitioners’ disposable monthly

income as calculated by petitioners and the settlement officer

are so nearly identical, we fail to understand why petitioners

are quarreling with the settlement officer’s use of the

collection financial standards.   Moreover, even using

petitioners’ calculations of expenses, payment of $7,700 monthly

to the IRS, as the settlement officer advocates, would still

enable petitioners to provide for their basic living expenses.

We therefore cannot say that the settlement officer’s use of

national and local collection financial standards as published by

the Secretary is unreasonable, arbitrary, capricious, or without

sound basis in fact or law.
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C.   Respondent’s Rejection of Petitioners’ Counteroffer

      Petitioners next argue that their counteroffer was superior

to the settlement officer’s proposal in that petitioners would

pay more under their counteroffer than they would under the

settlement officer’s proposal.    Consequently, petitioners assert

that their counteroffer better balances the need for the

efficient collection of taxes with their legitimate concern that

any collection action be no more intrusive than necessary, as

provided in section 6330(c)(3)(C).       We disagree.

      In his posttrial brief, respondent advances several cogent

reasons for rejecting petitioners’ proposed 10-year installment

plan (e.g., it was not in the best interest of the Government to

prolong the payoff period in view of petitioners’ history of

failing to pay their Federal taxes, and the settlement officer’s

4-year installment agreement proposal would significantly reduce

the amount of additional accruals should petitioners’ pattern of

failing to pay taxes continue).    Hence, we hold that the

settlement officer did not act arbitrarily or capriciously in

rejecting the proposed 10-year installment plan.        In sum we (1)

find that the settlement officer acted reasonably in insisting on

a shorter collection payment period, and (2) hold that respondent

did not abuse his discretion in rejecting petitioners’

counteroffer.
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D.   Other Matters Considered at the CDP Hearing

      Section 6330(c)(1) and (3) provides that the settlement

officer must verify that the requirements of applicable law and

administrative procedure have been met and consider whether any

proposed collection action balances the need for the efficient

collection of taxes with the legitimate concern of the taxpayer

that any collection be no more intrusive than necessary.    The

notice of determination states that the settlement officer

verified that the requirements of all applicable law and

administrative procedure were met and determined that the filing

of the lien appropriately balanced the need for efficient

collection of taxes with petitioners’ concern that the collection

action be no more intrusive than necessary.   We are satisfied

that the mandates of section 6330(c)(1) and (3) have been met.

      We have considered all of petitioners’ arguments, and to the

extent not discussed herein, we find them to be without merit

and/or irrelevant.

      To reflect the foregoing,


                                         Decision will be entered

                                    for respondent.
