                  T.C. Summary Opinion 2004-14



                      UNITED STATES TAX COURT



                  GERRY ASHURST, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                 KEAN H. ASHURST, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 161-03S, 162-03S.       Filed February 9, 2004.



     Gerry Ashurst and Kean H. Ashurst, pro sese.

     Paul J. Krazeise, Jr., for respondent.


     KROUPA, Judge:   These cases were heard pursuant to the

provisions of section 7463.1   The decisions to be entered are not

reviewable by any court, and this opinion should not be cited as




     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended.
                               - 2 -

authority.   These cases arise from petitions2 filed under section

6330(d) in response to Notices of Determination Concerning

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

(Determination Notices) by petitioners Gerry Ashurst (Mrs.

Ashurst) and Kean H. Ashurst (Mr. Ashurst), wife and husband.

The sole issue for decision is whether the Settlement officer

abused his discretion in rejecting petitioners’ Offer In

Compromise (OIC).   We hold he did not.

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioners resided in

LaGrange, Kentucky, at the time they filed the petitions.

     Petitioners filed their Federal income tax returns for 1991,

1992, 1993, 1994, 1995, and 1996, reflecting unpaid balances due.

The balances were assessed and, with penalties and accrued

interest, exceed $27,000.

     On July 22, 2000, respondent issued a Final Notice - Notice

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

Notice) with regard to petitioners’ unpaid Federal income tax

liabilities for 1991, 1992, 1993, 1994, 1995, and 1996, totaling

$27,140.




     2
       These cases have been consolidated for purposes of trial,
briefing, and opinion.
                               - 3 -

     In response to the Final Notice, petitioners requested a

hearing pursuant to section 6330(b) (hearing) on August 7, 2000.

On June 8, 2001, Appeals Officer William Smith of the Salt Lake

City, Utah Appeals Office (Appeals Officer Smith) sent a letter

to petitioners scheduling a hearing for July 12, 2001.   The

hearing was subsequently postponed because petitioners indicated

that they would file an OIC with respect to their outstanding tax

liabilities.

     On July 3, 2001, petitioners submitted an OIC for their

unpaid income tax liabilities for 1991, 1992, 1993, 1994, 1995,

1996, as well as 2000.   On a Form 656, Offer in Compromise,

petitioners indicated that Mr. Ashurst had been unemployed since

July of 2000, that he had coronary surgery in August of 1998,

that prevented him from engaging in physical activity, and that

they had exhausted all their resources in seeking employment and

maintaining the household.   Petitioners offered to compromise

their tax liabilities of approximately $27,000 for the years 1991

through 1996 and 2000 with a one-time payment of $3,500.

     On July 9, 2001, Appeals Officer Smith informed petitioners

that their offer was received and that an Offer examiner would

contact them to evaluate their request.   On January 16, 2002,

Bonnie Griggs, a Revenue officer from the Ogden, Utah, Office of

the Internal Revenue Service (Revenue Officer Griggs) sent

petitioners a letter stating that the OIC had been reviewed and
                              - 4 -

that additional information was needed.    After receiving and

reviewing petitioners’ financial information, Revenue Officer

Griggs, in a letter dated March 18, 2002, informed petitioners

that she was unable to recommend that their offer be accepted

because the information petitioners provided indicated that they

could pay their entire income tax liabilities.3   The letter also

stated that if petitioners did not agree with the statements,

they could call her to discuss the offer or discuss other

collection alternatives.

     Petitioners and Revenue Officer Griggs further corresponded

during March and May of 2002, in which petitioners submitted

additional financial information to her.    On May 29, 2002, the

Revenue officer sent petitioners a letter stating that on the

basis of the new information provided, she had recalculated

petitioners’ financial situation.   Because petitioners’ projected

income and net assets, as recalculated, still enabled them to pay

their tax liabilities in full, she would not recommend their




     3
       Revenue Officer Griggs determined that, after allowing for
necessary living expenses, petitioners’ monthly income and
realizable assets enabled them to make a maximum payment of
$1,168 per month. The Revenue officer stated that because she was
unable to reach petitioners she used their Dec. 31, 2000, income
to compute their monthly income. The officer determined that
petitioners had a total monthly income of $6,486 and expenses of
$5,318 leaving an ability to pay $1,168 per month over a period
of 4 years.
                                - 5 -

offer for acceptance.4   In the letter, she also suggested that

petitioners enter into a regular installment agreement for $836

per month.

     On June 3, 2002, petitioners faxed Revenue Officer Griggs a

letter stating:

          I am unwilling and unable to accept this
     evaluation by your office. I currently have no
     earnings other than my wife’s income and due to my
     heart condition current prospects for employment are
     very slim. * * * I have explained my circumstances to
     you in writing and verbally and consider you (sic) lack
     of understanding as nothing more than harassment in
     this case. Therefore I am requesting that this case be
     forwarded back to Appeals (Bill Smith).


     An Appeals hearing was held with Mr. Ashurst on behalf of

petitioners on July 22, 2002.   The hearing focused on

petitioners’ OIC as well as other collection alternatives.     It

was agreed that Mr. Ashurst would inform Appeals Officer Smith

about his future work prospects.   No such information was

provided, however.   Further, subsequent attempts to contact

petitioners failed because no working phone numbers were

available.

     On December 2, 2002, Appeals Officer Smith sent petitioners

the Determination Notices rejecting their OIC and concluding that

collection could proceed.   The Determination Notices stated that

     4
       After considering the additional information provided by
petitioners, Revenue Officer Griggs determined that petitioners
would be able to pay $836 per month based upon petitioners’
monthly income of $5,257 and monthly expenses of $4,421.
                                 - 6 -

the OIC was rejected because petitioners could pay their tax

liabilities in full.

     On January 3, 2003, petitioners filed petitions with this

Court in response to the Determination Notices.    A trial hearing

was held on September 8, 2003, in Louisville, Kentucky, at which

petitioners contested respondent’s rejection of their OIC, stated

that their circumstances have changed dramatically, and asked the

Court to remand their case to Appeals for a reconsideration of

their offer.

     By order dated November 13, 2003, this Court remanded

petitioners’ 1991, 1992, 1993, 1994, 1995, 1996, and 2000, income

tax years to the Commissioner for the purpose of considering

petitioners’ OIC, taking into consideration petitioners’ change

in circumstances.   The order also allowed petitioners, if they

wished to do so, to offer another collection alternative pursuant

to section 6330(c)(2)(A)(iii).    The parties were to inform the

Court of the outcome of these proceedings by January 15, 2004.

     Pursuant to the order, petitioners submitted additional

information to respondent, including an updated itemization of

income and expenses as well as other financial documents.

     On December 30, 2003, after a reconsideration of

petitioners’ financial information, Settlement Officer John N.

Brandon, Jr., of the Louisville, Kentucky, Appeals Office

(Settlement Officer Brandon) sent petitioners a letter rejecting
                                - 7 -

their OIC.    In the letter, Settlement Officer Brandon stated

that, based on the data petitioners submitted, it appeared that

petitioners could make monthly payments in the amount of $439 and

could therefore pay their liability in full within the limitation

period.    Settlement Officer Brandon also offered petitioners an

installment agreement as a collection alternative (Installment

Agreement).    The Installment Agreement provided for the payment

of $439 per month for 13 months and $604 per month thereafter,5

until the liability was paid in full.

     On January 3, 2004, petitioners sent, via facsimile, a

letter to respondent that we interpreted as petitioners’

rejection of the Installment Agreement proposed by Settlement

Officer Brandon.    The issue now before us, therefore, is whether

Settlement Officer Brandon abused his discretion in rejecting

petitioners’ OIC and allowing collection by levy action to

proceed.

                             Discussion

     Before a levy may be made on any property or right to

property, a taxpayer is entitled to a fair hearing before an

impartial officer of the Appeals Office.    Secs. 6330(a) and (b),

and 6331(d).    If the taxpayer requests a hearing, he may raise at

that hearing any relevant issue relating to the unpaid tax or the


     5
       Petitioners are expected to have satisfied certain medical
expenses after 13 months.
                                - 8 -

proposed levy.    Sec. 6330(c)(2).   Such issues include any

appropriate spousal defense, challenges to the appropriateness of

collection, and offers of collection alternatives such as an

installment agreement or an offer-in-compromise.     Sec.

6330(c)(2)(A).    After the hearing, a determination is made that

addresses those issues raised by the taxpayer, verifies that all

requirements of applicable law and administrative procedures have

been met, and balances the need for the efficient collection of

taxes with the legitimate concern of the person that any

collection action be no more intrusive than necessary.      Sec.

6330(c)(3)(C).

     The sole issue raised by petitioners both at the hearing and

at trial is respondent’s consideration of their OIC.     We must

decide, therefore, whether the Settlement officer’s rejection of

petitioner’s OIC was proper.

A.   Standard of review

     Because the validity of petitioners’ underlying tax

liabilities is not in issue, we review the administrative

determination for abuse of discretion.     See Sego v. Commissioner,

114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,

181-183 (2000).    In doing so, we do not conduct an independent

review of what would be an acceptable offer in compromise.

Rather, we review only whether the Settlement officer's refusal

to accept petitioners’ OIC was arbitrary, capricious, or without
                                - 9 -

sound basis in fact or law.    See Woodral v. Commissioner, 112

T.C. 19, 23 (1999).

B.   Petitioners’ Offer

     Section 7122(a) authorizes a compromise of a taxpayer’s

Federal tax liability.    An OIC may be accepted where there is

doubt as to liability or collectibility, or where it would

promote effective tax administration.    Sec. 301.7122-1T(b),

Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21,

1999).   One of the factors considered in determining whether to

accept or reject an OIC is whether the collection of the full

liability would result in economic hardship to the taxpayer.

Sec. 302.7122-1T(b)(4)(i), Temporary Proced. & Admin. Regs.,

supra.   Economic hardship is defined as the inability of the

taxpayer to pay his or her reasonable living expenses.    Sec.

301.6343-1(b)(4), Proced. & Admin. Regs.

     Throughout the consideration of their OIC, petitioners

maintained that they do not have sufficient income to pay their

liabilities in full.   After reviewing petitioners’ financial

situation, however, the Settlement officer determined that their

financial situation enabled them to pay the entire tax liability

within a reasonable time.    This determination was based on the

information petitioners provided to the Settlement officer as to

their income and expenses.    Petitioners’ financial information

indicated that both petitioners had gainful employment and that
                              - 10 -

their monthly income exceeded their necessary living expenses,

thereby allowing the full payment of their liabilities.

     In reviewing petitioners’ OIC, we note that the Settlement

officer used information that was favorable to petitioners.    For

example, the Settlement officer allowed petitioners monthly

living expenses that exceeded the amount they claimed on their

Form 433-A, Collection Information Statement For Individuals.

Moreover, in determining petitioners’ income, the Settlement

officer used income figures that were less than those actually

reported by petitioners.   Notwithstanding his use of these

favorable estimates, the Settlement officer still concluded that

petitioners could pay their entire tax liabilities in full.

     We have reviewed the entire record, including the financial

information presented to the Settlement officer, and cannot find

that the Settlement officer’s determination rejecting

petitioners’ OIC was an abuse of discretion.   See Van Vlaenderen

v. Commissioner, T.C. Memo. 2003-346; Crisan v. Commissioner,

T.C. Memo. 2003-318;   Willis v. Commissioner, T.C. Memo.

2003-302.   Accordingly, collection by levy of petitioners’ unpaid

tax liabilities reflected in the Determination Notices may

proceed.

     To reflect the foregoing,


                                               Decisions will be

                                         entered for respondent.
