                        T.C. Memo. 2008-161



                      UNITED STATES TAX COURT



               LARRY D. MCCLANAHAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19287-05L.             Filed June 26, 2008.



     Gary R. Dettloff, for petitioner.

     John R. Bampfield, for respondent.



                        MEMORANDUM OPINION


     GALE, Judge:   Pursuant to section 6330(d)(1),1 petitioner

seeks review of respondent’s determination to maintain a lien

filing with respect to petitioner’s unpaid income tax for 2000,



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
                                 - 2 -

2001, and 2002.   This case is before us on respondent’s motion

for summary judgment (motion).    Petitioner was afforded an

opportunity to respond and timely did so (response).    For the

reasons set forth below, we shall grant respondent’s motion.

                            Background2

     At the time of filing the petition, petitioner resided in

Tennessee.

     The petition was filed in response to a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 concerning petitioner’s income tax liability for

2000, 2001, and 2002.   Thereafter, the Court granted respondent’s

motion to remand the case to the Internal Revenue Service Office

of Appeals for the purpose of considering petitioner’s proposed

collection alternatives (second hearing).    At the conclusion of

the second hearing respondent issued a Supplemental Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 (supplemental notice of determination).

     Petitioner’s underlying tax liabilities for 2000, 2001, and

2002 are based on assessments of unpaid amounts reported on

petitioner’s income tax returns for those years as due.

Petitioner’s filing status on those returns was married, filing

separately.   Petitioner has not disputed the underlying



     2
       The following findings are established in the record
and/or are undisputed.
                               - 3 -

liabilities.   As of the time respondent issued petitioner a

Letter 3172, Notice of Federal Tax Lien Filing and Your Right to

a Hearing Under IRC 6320, the amounts of petitioner’s unpaid

liabilities were $21,485.62, $22,237.96, and $22,198.39 for 2000,

2001, and 2002, respectively, or a total of $65,921.97.

     Respondent contends, and petitioner does not dispute, that

the only issues petitioner raised during the second hearing were

collection alternatives.   Petitioner made two offers-in-

compromise on the basis of “Doubt as to Collectibility” during

the second hearing, the first in the amount of $15,000 and the

second in the amount of $29,030, to settle all of his outstanding

liabilities for 2000, 2001, and 2002.    Petitioner also proposed a

partial payment installment agreement during the second hearing

to pay $294 per month for an unspecified number of months.

                            Discussion

     “Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.”     Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).     Summary judgment may be

granted where there is no genuine issue as to any material fact

and a decision may be rendered as a matter of law.    Rule 121(a)

and (b).   Factual inferences are viewed in a light most favorable

to the nonmoving party, and the moving party bears the burden of

proving that there is no genuine issue of material fact.     Craig

v. Commissioner, 119 T.C. 252, 260 (2002); Dahlstrom v.
                                - 4 -

Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner,

79 T.C. 340, 344 (1982).    The party opposing summary judgment

must set forth specific facts which show that a genuine question

of material fact exists and may not merely rely on allegations or

denials in the pleadings.    Grant Creek Water Works, Ltd. v.

Commissioner, 91 T.C. 322, 325 (1988); Casanova Co. v.

Commissioner, 87 T.C. 214, 217 (1986).

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

all property and rights to property of a person liable for taxes

(taxpayer) when a demand for the payment of the taxpayer’s

liability for the taxes has been made and the taxpayer fails to

pay those taxes.   Such a lien arises when an assessment is made.

Sec. 6322.   Section 6323(a) requires the Secretary to file a

notice of Federal tax lien if such lien is to be valid against

any purchaser, holder of a security interest, mechanic’s lienor,

or judgment lien creditor.    Lindsay v. Commissioner, T.C. Memo.

2001-285, affd. 56 Fed. Appx. 800 (9th Cir. 2003).

     Section 6320 provides that the Secretary shall furnish the

taxpayer with written notice of the filing of a notice of lien

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

Sec. 6320(a)(1), (3).   If a hearing is timely requested, the

taxpayer may raise at the hearing “any relevant issue” relating

to the unpaid tax or the proposed lien, including offers of
                                 - 5 -

collection alternatives such as an offer-in-compromise or an

installment agreement.     Sec. 6330(c)(2)(A).

     At the conclusion of the hearing, the Appeals employee must

determine whether and how to proceed with collection and shall

take into account (i) the verification that the requirements of

any applicable law or administrative procedure have been met;

(ii) the relevant issues raised by the taxpayer, including

spousal defenses, challenges to the appropriateness of collection

actions, and offers of collection alternatives; and (iii) whether

any proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the

taxpayer that the collection action be no more intrusive than

necessary.    Sec. 6330(c)(3).

     Where the underlying tax liability is properly at issue, we

review the determination de novo.     E.g., Goza v. Commissioner,

114 T.C. 176, 181-182 (2000).     Where the underlying tax liability

is not at issue, we review the determination for abuse of

discretion.    Id.   at 182.

     In his motion, respondent contends that he is entitled to

judgment as a matter of law because the settlement officer

conducting the second hearing evaluated, and rejected,

petitioner’s offers-in-compromise and proposed installment

agreement “in accordance with the provisions of the Internal

Revenue Manual.”     Petitioner argues that the settlement officer
                                - 6 -

abused her discretion in rejecting his collection alternatives

and sustaining the lien.

       As discussed below, upon review of the motion and response,

we find that no genuine issues of material fact remain and that

respondent is entitled to judgment in his favor as a matter of

law.

       Section 7122 authorizes the Secretary to compromise any

civil case arising under the internal revenue laws and requires

him to prescribe guidelines for officers and employees of the

Internal Revenue Service to determine whether an offer-in-

compromise is adequate and should be accepted to resolve a

dispute.    Sec. 7122(a), (d)(1).   A compromise based on “doubt as

to collectibility” (which petitioner seeks) may be accepted

“where the taxpayer’s assets and income are less than the full

amount of the liability.”    Sec. 301.7122-1(b)(2), Proced. &

Admin. Regs.    With respect to offers-in-compromise on this basis,

we observed in Murphy v. Commissioner, 125 T.C. 301, 309 (2005),

affd. 469 F.3d 27 (1st Cir. 2006):

       Generally, under * * * [the Commissioner’s]
       administrative pronouncements, an offer to compromise
       based on doubt as to collectibility will be acceptable
       only if the offer reflects the reasonable collection
       potential of the case (i.e., that amount, less than the
       full liability, that the IRS could collect through
       means such as administrative and judicial collection
       remedies). Rev. Proc. 2003-71, sec. 4.02(2), 2003-2
       C.B. 517. * * *
                               - 7 -

See also 1 Administration, Internal Revenue Manual (IRM) (CCH),

pt. 5.8.1.1.3(3), at 16,253-16,254 (Sept. 1, 2005) (“Absent

special circumstances, a Doubt as to Collectibility (DATC) offer

amount must equal or exceed a taxpayers [sic] reasonable

collection potential (RCP) in order to be considered for

acceptance.”).   The taxpayer’s reasonable collection potential

includes realizable equity in assets owned by the taxpayer as

well as amounts collectible from the taxpayer’s future income

after allowing for payment of necessary living expenses.    1

Administration, IRM (CCH), pt. 5.8.4.4.1, at 16,307 (Sept. 1,

2005).

     The Commissioner’s published guidelines provide the basis

for (i) calculation of a taxpayer’s reasonable collection

potential using national and local allowances and other

standards, and (ii) a determination, based on the facts and

circumstances of each taxpayer, that use of the published

schedules will not result in the taxpayer’s lacking adequate

means to provide for basic living expenses.   See sec. 7122(d)(2);

sec. 301.7122-1(c)(2), Proced. & Admin. Regs.; 1 Administration,

IRM (CCH), pt. 5.8.4.4, at 16,306 (Sept. 1, 2005); see also

Lemann v. Commissioner, T.C. Memo. 2006-37.

     Exceptions to the general rule that an offer-in-compromise

based on doubt as to collectibility must equal or exceed the

taxpayer’s reasonable collection potential are made where there
                                - 8 -

are “special circumstances”.   See 1 Administration, IRM (CCH),

pt. 5.8.4.3, at 16,306 (Sept. 1, 2005).    Special circumstances

include “circumstances demonstrating that the taxpayer would

suffer economic hardship if the IRS were to collect from him an

amount equal to the reasonable collection potential”.     Murphy v.

Commissioner, supra at 309.    Special circumstances that may cause

an offer to be accepted notwithstanding that it is for less than

the taxpayer’s reasonable collection potential include, but are

not limited to, advanced age, poor health, history of

unemployment, disability, dependents with special needs, and

medical catastrophe.   Lemann v. Commissioner, supra; see also

Murphy v. Commissioner, supra at 309; sec. 301.7122-1(c)(3),

Proced. & Admin. Regs.; 1 Administration, IRM (CCH), pt. 5.8.4.3,

pt. 5.8.11, at 16,373 through 16,383-7 (Sept. 1, 2005).

     “The decision to entertain, accept or reject an offer in

compromise is squarely within the discretion of the appeals

officer and the IRS in general.”    Kindred v. Commissioner, 454

F.3d 688, 696 (7th Cir. 2006) (affirming an order granting the

Commissioner summary judgment).    Generally, where an Appeals

employee has followed the Commissioner’s guidelines to ascertain

a taxpayer’s reasonable collection potential and rejected the

taxpayer’s collection alternative on that basis, we have found no

abuse of discretion.   Lemann v. Commissioner, supra; see also

Schulman v. Commissioner, T.C. Memo. 2002-129.
                                - 9 -

     With regard to installment agreements entered into on or

after October 22, 2004, section 6159(a) authorizes the Secretary

to enter into installment agreements to satisfy tax liabilities

where he determines that doing so will facilitate full or partial

collection.    Generally, we have held that it is not an abuse of

discretion for purposes of sections 6320 and 6330 when an Appeals

employee relies on guidelines published in the IRM to evaluate a

proposed installment agreement.    See, e.g., Orum v. Commissioner,

123 T.C. 1, 13 (2004), affd. 412 F.3d 819 (7th Cir. 2005); Etkin

v. Commissioner, T.C. Memo. 2005-245.

     We first consider whether the settlement officer abused her

discretion in rejecting petitioner’s offers-in-compromise.

Petitioner has not disputed respondent’s contention that

petitioner had three whole life insurance policies with a net

cash surrender value of $32,976.50.     As noted, under the

Commissioner’s published guidelines a doubt as to collectibility

offer must reflect the taxpayer’s reasonable collection

potential.    In order to calculate reasonable collection

potential, the IRM divides a taxpayer’s resources into

“components of collectibility” including, inter alia, assets and

future income, and defines “Assets” as “The amount collectible

from the taxpayers [sic] net realizable equity in assets.”      1

Administration, IRM (CCH), pt. 5.8.4.4.1.     The IRM further

provides methods for valuing a taxpayer’s components of
                                - 10 -

collectibility.    See 1 Administration, IRM (CCH), pt. 5.8.4.4,

pt. 5.8.5, at 16,333 through 16,339-17 (Sept. 1, 2005).

       According to the “Financial Analysis” provisions of the IRM

applicable to evaluating offers-in-compromise when the taxpayer

owns a (whole) life insurance policy, if “The taxpayer will

retain or sell the policy to help fund the offer” (rather than

borrow against it), then “Equity is the cash surrender value.”      1

Administration, IRM (CCH), pt. 5.8.5.3.7(2), at 16,339-2 (Sept.

1, 2005).    Petitioner admits that during the second hearing he

“agreed in principle to liquidate life insurance in support of an

offer on his part.”    In view of the published guidelines, we do

not believe that it was an abuse of discretion for the settlement

officer to conclude, as she did, that the $32,976.50 cash

surrender value constituted the realizable equity in petitioner’s

whole life insurance policies.

       Petitioner argues that because he and his spouse “are in

their older years”, only $16,500 of the $32,976.50 cash surrender

value should be considered realizable equity (“essentially

splitting the difference”) in order to preserve the remaining

funds for petitioner’s spouse in the event petitioner predeceases

her.    We disagree.   Petitioner provides no authority, and we are

not aware of any provision in the published guidelines, that

requires that the Commissioner adjust the realizable equity in a
                             - 11 -

taxpayer’s life insurance policies for this reason.3    Under the

IRM, whole life insurance policies are treated as discretionary

investments that create an asset which may be liquidated, or

against which the taxpayer may borrow, for purposes of computing

his or her reasonable collection potential.   See 1

Administration, IRM (CCH), pt. 5.8.5.5.3(3), at 16,339-11 (Sept.

1, 2005); 2 Administration, IRM (CCH), pt. 5.15.1.10, at 17,664

(May 1, 2004), pt. 5.15.1.22, at 17,667-10 (May 1, 2004).

     In addition to petitioner’s whole life insurance policies,

the settlement officer determined, and petitioner has not

disputed, that petitioner had realizable equity of $50 in cash.

     Petitioner takes issue with the settlement officer’s further

determination that petitioner had realizable equity of $3,623 in

retirement accounts and $40,700 in his residence, as well as the

officer’s determination that petitioner’s future income would

leave $452 available per month for 48 months, totaling $21,696,

to pay towards his Federal income tax liabilities.     We find it

unnecessary to decide whether the settlement officer’s

determination of these amounts was appropriate because, even if

all of the foregoing sources were disregarded, petitioner’s

reasonable collection potential would be $33,026.50; that is, the



     3
       As to whether petitioner’s argument concerning retention
of some of his interest in the life insurance policies might be
construed as a claim of “special circumstances”, see infra note
5.
                               - 12 -

net realizable equity in his whole life insurance policies and

cash.    Petitioner’s highest offer-in-compromise was $29,030, an

amount less than his reasonable collection potential computed

without regard to his future income4 or any other assets.5   On




     4
       Because we conclude that petitioner’s realizable equity in
his life insurance policies alone justified the settlement
officer’s rejection of his offers-in-compromise, we need not
consider other arguments petitioner advanced that pertain to the
proper measurement of the realizable equity in the residence
jointly held with his spouse or to his future income potential
(such as the appropriate geographical index for his living
expenses or local taxes).
     5
       Petitioner, who was represented by counsel, has not argued
that he made a “Doubt as to Collectibility with Special
Circumstances” offer-in-compromise that would “warrant acceptance
for less than the amount of the calculated reasonable collection
potential”. See 1 Administration, IRM (CCH), pt. 5.8.4.3, at
16,306 (Sept. 1, 2005). However, we note that petitioner has
alluded in his submissions to various factors that might be
construed as “special circumstances” under the IRM, including
“hardship” if the equity in his residence were used in the offer,
the improper inclusion among available assets of a vehicle
necessary to the conduct of petitioner’s business, and the
advanced age of petitioner and his spouse. Nonetheless, these
factors are generally irrelevant to the realizable equity in his
life insurance policies, which we have concluded provided a
sufficient basis for the settlement officer’s rejection of
petitioner’s offered collection alternatives.
     As for any “special circumstances” surrounding the life
insurance policies, petitioner’s argument that he should be
allowed to retain one-half of the realizable equity in the
policies in view of his advanced age, to provide for his spouse
in the event he predeceases her, might be construed as a claim of
hardship and/or advanced age giving rise to “special
circumstances”. However, while admitting that his spouse was
employed, petitioner did not disclose his spouse’s income or
assets to the settlement officer. Consequently, any failure or
refusal by the settlement officer to find “special circumstances”
based on the alleged necessity of the life insurance to avoid
                                                   (continued...)
                               - 13 -

the basis of these undisputed facts, we are satisfied that it was

not an abuse of discretion for the settlement officer to reject

petitioner’s offers-in-compromise.      We do not conduct an

independent review of what would be an acceptable offer-in-

compromise or substitute our judgment for that of the Appeals

Office.   Rather, the Appeals employee’s decision to reject the

offers-in-compromise will not be disturbed unless it is

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

See, e.g., Murphy v. Commissioner, 125 T.C. at 320; Hansen v.

Commissioner, T.C. Memo. 2007-56; Catlow v. Commissioner, T.C.

Memo. 2007-47.

     We next consider whether the settlement officer abused her

discretion in rejecting petitioner’s proposed installment

agreement of $294 per month.   In his motion respondent asserts,

and petitioner has not denied, that the settlement officer

required that petitioner agree to pay the cash surrender value of

his whole life insurance policies, namely $32,976.50, in the

first payment of any partial payment installment agreement.

Respondent asserts that petitioner refused this condition; and as

we have discussed above, petitioner’s position during the second

hearing and in his submissions to this Court has been that he was



     5
      (...continued)
economic hardship for the surviving spouse was not an abuse of
discretion, as the settlement officer was not provided sufficient
information on which to base such a finding.
                               - 14 -

willing to pay only $16,500 of the cash surrender value of his

whole life insurance policies towards his tax liabilities.

       The IRM addresses these circumstances, stating that “Before

a PPIA [partial payment installment agreement] may be granted,

equity in assets must be addressed and * * * In most cases

taxpayers will be required to use equity in assets to pay

liabilities.”    2 Administration, IRM (CCH), pt. 5.14.2.2(2), at

17,529 (July 12, 2005).    The published guidelines further state:

       If the taxpayer does not comply with the requirement of
       making a good faith attempt to use equity in
       assets * * * the taxpayer will be considered a “won’t
       pay” and seizure/levy action may be appropriate. If
       enforcement action is appropriate, a PPIA will not be
       granted. * * * [2 Administration, IRM (CCH), pt.
       5.14.2.2.2(4), at 17,531 (July 12, 2005).]


We have previously held that it was not an abuse of discretion

for the Commissioner to rely on guidelines which required “that

taxpayers borrow upon or liquidate current assets” as a condition

of entering into an installment agreement.     See Willis v.

Commissioner, T.C. Memo. 2003-302.      Accordingly, we find that it

was not an abuse of discretion for the settlement officer to

reject petitioner’s proposed partial payment installment

agreement when he refused to make an initial payment

corresponding to the realizable equity in his whole life

insurance policies.    See Murphy v. Commissioner, supra at 320-

321.
                              - 15 -

     In his response petitioner further contends (i) that the

settlement officer abused her discretion in failing to balance

the need for the efficient collection of taxes with petitioner’s

legitimate concern that collection action be no more intrusive

than necessary, (ii) that the settlement officer failed to

consider challenges to the appropriateness of collection actions,

and (iii) that the settlement officer failed to consider “spousal

defenses”.6

     We first address petitioner’s claim that the settlement

officer failed to comply with section 6330(c)(3)(C), which

requires the officer to consider whether the proposed collection

action balances the need for the efficient collection of taxes

with the legitimate concern of the taxpayer that any collection

action be no more intrusive than necessary.   Petitioner’s

principal defense against the lien was the offer of collection

alternatives.   We have found that the settlement officer adhered

to the Commissioner’s published guidelines in evaluating and

rejecting petitioner’s proposed collection alternatives.     Given

the deference inherent in an abuse of discretion standard and the

failure of petitioner’s collection alternatives to meet the




     6
       In addition, petitioner’s response seeks “costs, expenses
and attorney’s fees”. We shall disregard this material as a
premature claim for administrative or litigation costs under sec.
7430. See Rules 331(b), 231(a)(2), 143(a).
                                - 16 -

published standards for acceptance, we see no defect in the

settlement officer’s balancing.

     Petitioner contends that the settlement officer failed to

consider “the appropriateness of collection actions” as required

by section 6330(c)(2)(A)(ii).    We disagree.   The supplemental

notice of determination states:    “As you pointed out, seizure and

sale of your personal residence may not be feasible as it is

jointly owned with your wife.    However, levy on the cash value of

your insurance policies would be feasible and appropriate if some

other resolution cannot be reached.”     As discussed, in the

collection alternatives petitioner offered at the second hearing

he refused to disgorge all of the realizable equity in his life

insurance policies.   In these circumstances the settlement

officer’s decision not to withdraw the lien reflected detailed

consideration of the appropriateness of collection actions.

     Finally, petitioner’s claim that the settlement officer

failed to consider “spousal defenses” is frivolous.     Petitioner

did not file joint returns for any of the years to which the

collection action at issue is addressed.     Accordingly, a spousal

defense has no possible relevance.
                              - 17 -

Conclusion

     There is no dispute that petitioner had life insurance

policies with a net cash surrender value totaling $32,976.50,

plus $50 in cash.   The offers-in-compromise and installment

agreement petitioner offered in the second hearing failed to

reflect the reasonable collection potential evidenced by these

assets.   Consequently, we conclude that no genuine issues of

material fact remain and hold that respondent is entitled to

judgment as a matter of law that there was no abuse of discretion

in the determination to reject petitioner’s collection

alternatives and maintain the lien at issue.   Accordingly, we

shall grant respondent’s motion.   To reflect the foregoing,


                                    An appropriate order and

                               decision will be entered.
